Legend has it that the late Sam Walton, founder of Wal-Mart, used to fly over towns he was considering for new stores just so he could get an eagle’s eye view of which way the place was growing. Where he saw new houses, new businesses, new roads and highways is where he would build his new store.
Good lesson: If you are going to make money buying and selling land, make sure it’s where people are headed.
There are TWO basis ways to make money on raw land: You can “BANK” it or you can “DEVELOP” it.
In this article, I will share the first way to make money on raw land, which is called Land Banking.
Banking is the “buy-and-hold” of a parcel that you believe will become more valuable at some point in the future. On the mega-deal scale, land banking is quite the norm in Las Vegas, where hotel and gaming companies buy, hold and trade bare desert parcels like kids swapping baseball cards. At the center of the Giant $7.9 billion acquisition of Mandalay Resorts by MGM Mirage that closed in 2005, for example, were 100 acres of undeveloped land on the fabled Las Vegas Strip. The four parcels were valued for tax purposes at $24 million per acre, a third of the value of a deal that included four brand-name hotel-casinos. But here’s the kicker: Just 10 years earlier, Mandalay had acquired the biggest portion of that undeveloped land for just $1 million an acre.
“We all should have bought property back in 1977,” MGM chairman Terry Lanni told the Las Vegas Review-Journal at the time that the deal was announced. “We could have just taken a dart gun and [picked] anywhere and done well with it.”
On a more down-to-earth level, smaller investors can bank properties, too, either buying and holding larger parcels in the path of development or picking up “remnant” lots in developing or already developed areas. You can find these remnant lots in even the best newer neighbourhoods or subdivisions. By definition, every place has some properties that are less desirable than others-landlocked lots in a lake community, for example, or residential-zoned parcels that front on major streets.
[To be Continued – In the next article, I will be sharing the second way (Land Development) to make money on raw land]Source by ML Kee
