Time for Land Banking?

Question

Hello!  I'm a land investor and typically I buy and sell vacant land to retail buyers, sometimes work directly with home builders, but I'm wondering if we get into a recession type economy if those two buyers will dry up, and if I should pivot to looking to work with land bankers or people who are interested in land banking.

I have a pretty sizable inventory right now of about 11 properties and I'm wondering if I should consider letting those go a little cheaper than I'd planned and pivoting my acquisition criteria to start to hold properties that would be appealing to the types of people who come out in economic downturns and buy and hold vacant land, what I've heard referred to as Land Banking.

Do we have any land bankers in the BP forums?  I'd be interested in learning more about that business model and what land bankers are looking for in the future.  Is it residential infill lots that are cheap because new construction dries up?  Is it very large tracts of land, six figure size land deals? Etc At what point does it become a good time for them to buy land?  Do they wait until the very bottom of a recession then buy on the up slope?

So yea, anyone who focuses on this niche of investing I'd be curious what your plans are, should we take a down turn here.

Matthew Bailey · Answer

@Jay Hinrichs

That’s funny, I think I know the paper subdivision your father probably invested in.  I did a ton of business in Lake Co, CA when I started, but in Clearlake or Kelseyville.  Lots of good starter flips in that area.  Never mailed your lots though (I suspect!)

Anywho, I think when I wrote this I was more-so hoping someone who does long term buy and hold might chime in and I could network and learn from them.

That being said I think I just happen to find the serious land buyers through the course of my day to day business.  And then learn their buying criteria and adjust my acquisitions accordingly.

Jay Hinrichs · Answer

it depends on what type of land your buying..  are you buying land that builders would actually buy  IE lots in a viable city with all utls and ready to go.. Infill ?

or are you buying lower end tax sale type stuff where the exit is like the land geek guys type of stuff.. High desert or remote retirement developments that were done 50 years ago and lots get traded around constantly.

Its very market dependent.. I know here in Oregon builders dont land bank to much.. but in CA where lead times to get projects approved is years its quite common..  So it depends on what has to be done to make the property buildable..

if your buying more rural stuff then that inventory is always there ..  we still have 50 plus lots in our name in Lake co. Ca and we get mailers every day on those.. most are non buildable tax sale stuff .. left overs of deals my dad did in the 60s and 70s..

Matthew Bailey · Answer

@Kristina Sparrow I agree to a certain extent, in that I'm not going to get burned too badly by my inventory from a property tax perspective.  I do however have some overhead that gets chewed up each month paying for things like my CRM/Automation/Subscription to data providers, mailer, etc.  I do try to focus on cash flips and velocity of money.  So I'd rather sell (even if I had to drop prices) so I could get out there, buy more land, and keep it going.  I think that the penalty of short term capital gains is negated by the potential to turn that money multiple times within a year.

I'm hoping that this post will find some folks interested in Land Banking since I know that economic downturns are their season.  And it would be great to learn what matters to them.

Kristina Sparrow · Answer

Fellow land flipper here. It won't hurt to hold prices and keep your inventory longer than normal. As you know, the cost of holding land is minimal. Also if you end up holding longer than 1 year, you could avoid short term capital gains...

Jo-Ann Lapin · Answer

Land banking with hml is not a common product they look for. We do lend on land . We look for a solid exit and buildable and plausible source of income from it in the near future . We do offer loans past 1 year.

Matthew Bailey · Answer

@Austin Palacios

I don’t think hard money lenders (I presume this is what you mean by HML) do land banking.  HML comes with high interest so your land would need to appreciate at least at the rate HML charge (to break even at that).  HML is short term lending.

There is capital for short term (less than one year) cash land flips though.  Not too hard to find in the land investing community but it’s expensive too.

Austin Drew · Answer

Hi Matt,

Do you know any HML that invest in Land Banking?

Time for Land Banking?

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