Investing is a financial practice that involves putting money in financial schemes, ventures, or assets with an expectation to make a profit on the invested capital. It is arguably impossible to achieve financial security and freedom without investing.

There are thousands of investment opportunities to choose from in today’s world, depending on your level of financial literacy, risk averseness, and budget. These investment vehicles range from low-risk to high-risk investment vehicles. Land banking is among the relatively low-risk investment opportunities with a potential for high returns.

Land banking is one of the oldest real estate investment practices where investors buy small or large quantities of undeveloped land, intending to profit from the resale of the land. Simply put, investors seek out land in underdeveloped neighborhoods and bank it until there’s substantial infrastructural development or population growth in the area before selling it for a higher price or developing it to meet the growing housing demand.

Land banking can be a good bet when running on a low budget. However, as profitable as land banking is, there are some significant challenges and risks that you need to look out for and avoid to ensure the security of your investment.

In most developing countries, a change in government policies can prohibit certain forms of development on the land, which could, in turn, affect the resale value of the land. Likewise, environmental issues like erosion and flooding can significantly depreciate the value of the land if they persist for an extended period. The land may become too damaged to build on, and the cost of repairing the land may be higher than the invested capital and potential profit combined. The land may become completely inhabitable in these cases unless the government intervenes.

In some countries, land banks are constantly threatened by land grabbers who impersonate the original landowners and resell the same land to different people. Such lands may be under litigation for many years, and the cost for hiring lawyers over time might exceed the value of the land itself.

In order to avoid unpleasant situations when investing in a land banking scheme, it is essential to do your due diligence. Consider hiring a lawyer to research and confirm the legality of the land under consideration and ensure that there are legal documents and contracts to back the transaction.

Drylands have a lower risk of flooding. If you can, limit your investments to drylands unless you are sure that you can afford the cost of repairing and restoring swampy land.
Although land banking has its challenges, the potential value and benefit far outshines the risks and makes it a worthy investment vehicle to consider.
Investors can make huge returns on the value appreciation of the land. Some government projects or policies can lead to rezoning, municipal expansions, rapid infrastructural development, and industrialization, all catalysts for value appreciation and increased demand.

Contrary to popular opinion that real estate demands a high starting capital, land banking schemes generally require a relatively low starting capital. You can start on a low budget and still enjoy good profit on your invested capital.

One of the significant benefits of land banking is its contribution to a positive credit score and the leverage it offers an investor. You can gain access to loan schemes to invest in other investment vehicles or start a venture by using your land as collateral, and at the same time, you can lease out the land pending the time it will appreciate enough to sell off. This is one of the reasons why land banking is a recommendable starting point for young and new investors.

If you’re like most real estate investors, you’re probably pursuing this business with one or two primary goals in mind:

~To buy a property and flip it for a profit as soon as possible.
~To buy a property and create a dependable source of passive income.
Both strategies are completely legitimate, time-tested methods that have created a lot of wealth for a lot of people in real estate. However, of all the various ways that people pursue real estate investing, one of the most overlooked and underused strategies I know of is a buy-and-hold technique known as “Land Banking”.

Land Banking 101: An Introduction
The term “land banking” implies almost exactly what it is. Rather than putting cash into a savings account (where it will earn a maximum of 1% interest every year) or the stock market (which has become increasingly unpredictable in recent years), some entrepreneurs have taken an alternative approach by acquiring LAND and in doing so, parking their cash in a tangible, fixed asset, one that cannot be broken, stolen or destroyed.

Vacant land gets ignored by most new investors because it just doesn’t sound exciting. This causes a lot of would-be land investors to overlook a lot of the advantages that land has over traditional real estate investments (e.g. – houses, apartment buildings, commercial properties, etc.). Unlike most residential and commercial buildings, land costs very little to own… no utility payments, no tenant problems, no termite infestations, no leaky faucets, no broken toilets, and if you buy it the way I do, no mortgage payments.

Think about it… you can buy a piece of vacant land today, walk away from it for ten years and when you come back, nothing will have changed. Can you think of a safer investment?

And think about the economics of land… this is a resource with a supply that is always going down (after all, they aren’t making any more of it) and a demand that is constantly on the rise. Given the value proposition that comes with owning land, I often find myself scratching my head and wondering “Why aren’t more investors involved with this??”

The History of Land Banking
This strategy is nothing new. One of the most well-known examples of Land Banking over the past 500 years is John Jacob Astor, who used this strategy to become the first multimillionaire in the United States.

He realized the power of Land Banking when he purchased large tracts of land which are now known as “Manhattan”.


He acquired this land at a time when nobody else realized the opportunity. At the time of his death, Astor’s estimated net worth would have been equivalent to $110.1 billion in 2006 U.S. dollars, making him the fourth richest person in American history.

The Pros and Cons of Land Banking
Most investors don’t pay much attention to this opportunity because they don’t have patience. People want their money now, they don’t want to wait for decades to realize their gains.

It’s an understandable objection because the land banking strategy does take a long time to implement. It may take decades for the land banking strategy to produce results (if it produces results at all).

In the same way that any investing strategy comes with its fair share of risk and uncertainty, these issues are compounded by the amount of time required for the land banking strategy to work. Many investors would rather have their money today rather than many years in the future, and the “waiting game” is arguably the biggest drawback to land banking.

On the same coin, if a real estate investor understands how to identify a growing market and buy properties in the path of growth, the returns can be exponentially higher than many other long-term buy-and-hold investments. Especially in cases where the land is able to produce some amount of cash flow during the holding period (e.g. – by leasing land out to a farmer, hunter, or any other end-user that will pay a monthly lease payment to the owner).

Think about it… what if you had bought land in these areas BEFORE their explosions in growth?

Is Land Banking a Good Investment?
Land banking is something that major developers and retailers have been doing for decades because it happens in every major city in America.

Look at your nearest major metropolitan area and compare how it looks today to what it looked like ten years ago. If a city is growing, there will be a constant new development of residential neighborhoods and commercial subdivisions. New retail establishments are always being created or revitalized, no matter what the real estate market looks like.

All it takes is for an investor to go in and buy land on the outskirts of a city and then they wait for the population to grow to them. They’re buying a property at today’s low prices (before anybody else perceives the value) and waiting until the city grows to them. When this happens, the land prices spike in value and they’re able to cash in on their land investment. MANY multi-millionaires have been created from this one strategy, and you can do it too.

The philosophy of the rich and the poor is this: the rich invest their money and spend what is left. The poor spend their money and invest what is left.” Robert Kiyosaki

“You will come to know that what appears today to be a sacrifice will prove to be the greatest investment that you will ever make.” Gordon B. Hinkley

“Every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming independent, for real estate is the basis of wealth.”
-Theodore Roosevelt

“When you invest, you are buying a day that you don’t have to work.” Aya Laraya

“Every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming independent, for real estate is the basis of wealth.”
-Theodore Roosevelt

“The wise young man or wage earner of today invests his money in real estate.” Andrew Carnegie

“It’s tangible, it’s solid, it’s beautiful. It’s artistic, from my standpoint, and I just love real estate.” ~Donald Trump

Land monopoly is not only monopoly, but it is by far the greatest of monopolies; it is a perpetual monopoly, and it is the mother of all other forms of monopoly.”
-Winston Churchill

I have always liked real estate; farm land, pasture land, timber land and city property. I have had experience with all of them. I guess I just naturally like ‘the good Earth,’ the foundation of all our wealth.”
-Jesse H. Jones,

“Owning a home is a keystone of wealth… both financial affluence and emotional security”.
Suze Orman

“The wise young man or wage earner of today invests his money in real estate.” Andrew Carnegie

“The wise young man or wage earner of today invests his money in real estate.” Andrew Carnegie.

Nice article. Thanks for sharing.

“You will come to know that what appears today to be a sacrifice will prove to be the greatest investment that you will ever make.” Gordon B. Hinkley

“You will come to know that what appears today to be a sacrifice will prove to be the greatest investment that you will ever make.” Gordon B. Hinkley.

The philosophy of the rich and the poor is this: the rich invest their money and spend what is left. The poor spend their money and invest what is left.” Robert Kiyosaki

Great information.

“Buy on the fringe and wait. Buy land near a growing city! Buy real estate when other people want to sell. Hold what you buy!” - John Jacob Astor, real estate and business mogul

“You will come to know that what appears today to be a sacrifice will prove to be the greatest investment that you will ever make.” Gordon B. Hinkley

Land monopoly is not only monopoly, but it is by far the greatest of monopolies; it is a perpetual monopoly, and it is the mother of all other forms of monopoly.”
-Winston Churchill

Everyone wants a piece of land. It’s the only sure investment, it can never depreciate like a car or a washing machine.” Russel Sage

“Every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming independent, for real estate is the basis of wealth.”
-Theodore Roosevelt

Land monopoly is not only monopoly, but it is by far the greatest of monopolies; it is a perpetual monopoly, and it is the mother of all other forms of monopoly.”
-Winston Churchill

The philosophy of the rich and the poor is this: the rich invest their money and spend what is left. The poor spend their money and invest what is left.” Robert Kiyosaki