You have probably heard it said before, but real estate makes a sound investment. When most people think of real estate, they automatically think of buying a home or apartment that they can either rent out or renovate and flip for a profit. Yet there is another way to invest, but first, you must understand ‘what are land bank loans?’.
This is a scheme that involves buying undeveloped land, holding onto it and potentially developing it, then selling it on. This is a fairly unregulated area that comes with a lot of risks, but there is also plenty of rewards if it is done right. Here is everything you need to know when wondering ‘what are land bank loans?’
A Detailed Look At Land Bank Loans
Land banking can involve an abandoned property or a new subdivision, and it can be a very profitable form of real estate investment. You have the opportunity to turn neglected areas into active communities, with a little time and patience. The trick is to know exactly what you are doing and go in with both eyes wide open. There are plenty of risks that come with this form of investing, but many of these can be mitigated against as long as you know what you are doing. Land bank loans are a great way to get the cash you need to invest.
If you are looking at trying to make money from land banking, the first thing you need is a fair bit of patience. This isn’t something that will happen overnight. Property can take time to appreciate, which means you need to hold onto it for a decent amount of time to see it rise. So what are land bank loans? And what’s involved in land banking:
- Searching for a vacant property or properties that show good potential. This will require a bit of research on your behalf, looking into the area you are potentially buying and how well the market is doing around it. You can look at the market history for trends to determine whether or not this is a good investment.
- Apply for a land bank loan: you need to make sure you have the money available to purchase the title for a property.
- Purchase the property.
- Hold onto the property to allow the value to increase. There is no set time for this to happen, it is simply a wait and see game.
- Once the price has appreciated to a value you are happy with, you can consider passing it on to a new owner. By this stage, you should have made a return on your investment and then some!
What are Land Bank Loans?
Land bank loans come ins a variety of different forms and it is about working out which one best suits your needs. There are lenders that offer land bank loans, while others may offer another option below:
Development and construction loans: if you are looking to develop on top of the loan you purchase, then these loans are a great idea. You have the ability to repay the loan after the building is complete and you sell the property on.
Commercial property loans: these types of loans are offered to help you finance a real estate investment, such as land banking.
Land sub-division finance: the land is often sub-divided into different units. This type of loan will cover the costs of the land, the property works and refinancing the project once completed.
Rural property loans: these are a good idea for investors purchasing a property in rural areas to on-sell as a hobby farm or home.
Many lenders don’t offer the option of land bank loans because of the risks that come with this type of investment. The goal of land banking is to develop and convert land or distressed properties into an asset that can be sold on. As you would expect, this doesn’t always go to plan which is why some lenders won’t offer this form of finance.
What To Look Out For
If you are interested in a land banking opportunity, here are some of the things to do before your purchase:
- Make sure there are no development restrictions on the land you are interested in, as this can prevent you from getting approval.
- Talk to the council about the land you are interested in, so you can find out if it will be released for development.
- Research the area you are looking at buying and see what the property history is like.
- Consider your different options for taking out a loan and do some research on different lenders.
Take Out A Loan Today
After learning the answer to ‘what are land bank loans?’, the Australian Lending Centre are here to provide financial support via a wide range of loan products. When you see an opportunity at hand, we can offer solutions such as land bank loans. With affordable rates, we are here to help you make the most of the opportunity, with a no-obligation consultation to get you started.
