Financial Land Investment

Unlike other assets, such as stocks and bonds where you can lose the whole investment if the company goes bust, land is an asset that does not depreciate in your financial statement. Have you considered WHY this is so? Time to consult your accountant friends!

During 911, the Twin Towers collapsed and the value of that property went to zero. However, the LAND under the rubble is still valuable and can still be used once the rubble is cleared away. That is the value of land.

Land Banking is an investment of real estate traditionally reserved only for the super rich or very large corporations. People like Li Ka-shing and Ng Teng Fong use Land Banking to make loads of money. Now, normal individual investors can take part in this game too.

Land Banking in a nutshell is taking a piece of raw and undeveloped land, put a Concept Plan on it and submit the plan to the relevant authority to get the necessary approval. The law of real estate is, enhanced status of land equals price increase in the land. And with the enhanced status, we can then sell the land off to a Developer for a substantial return.

Land Development Process Chart

To give you a better illustration on Land Banking, the Land Development Process Chart below is used to measure the value of real estate over time.

As the law of real estate tells us, land by itself without any development on it will inevitably increase in value. We can put development on it in order to accelerate the land value.

The common form of real estate investment would be buying a house in hope that we can hold it, either by living in it or renting it out, which we can sell it for a profit a few years later. This group of investors is what we call House Buyers whom most of us belong. Who do the House Buyers buy their house from? The Developers! This is another group of investors where they buy a piece of land and build houses and sell them for a profit. Now developers in turn buy land from landowners who are invariably Land Bankers.

Coming back to the House Buyers, they are into this stage of real estate investment where it is Speculative in nature. They buy a house say $1 million. If real estate market falls by 50% and if they are forced to sell, they will lose $500 thousand immediately! For Developers, they are into this real estate investment where we call the Calculative stage. They know the land cost, construction cost and all other necessary cost and they mark it up by normally 30-40% for their profit when they sell them to House Buyers. Now that's good money isn't it? But if market goes down by 50%, they too would have made a loss.

What about Land Bankers? Land Bankers is in the Designer investment stage that take raw land and convert it to either residential, commercial or industrial uses. Say raw land is worth a dollar. With the conversion, its value goes up to three to four dollars. Now, even if the market has gone down by 50%, it would still be worth two dollars. They still make money! That's the beauty of Land Banking. There is a bigger buffer to play with even in the face of a market downturn.

Now you know why, when you own a house, you don't find people like Li Ka-shing knocking on your doors. But, if you own a piece of land and after its status has been enhanced, he just may give you a call!

This idea is similar to a coffee shop owner, he mixes coffee power, sugar, milk, hot water, and sells coffee to customers. The actual cost to produce a cup of coffee may be about $0.20, but he sells it to the customer at $0.70. This is similar to Exit 1 on the Chart. If he puts on a brand and does marketing, as in Star Bucks, he is able to sell each cup at $4.00! This is similar to Exit 2. In order to have a bigger buffer and to generate better returns, you need to move up the Supply Chain. The House Buyers are feeding the Developers and Land Bankers.

It is through the Land Development Process that gives us all forms of real estate investments. Since time immemorial, even before Gold, there was Land. Dreams and entire civilisations are built on Land!

Consult Derrick on why freehold Land Banking works in a place like Alberta, Canada and not in places like Singapore or China. Hint: Consider the geographical, demographical, financial, political, and legal aspects of these places.

When investing in Land Banking in Canada, the Canadian government issues land title deed in the investor's name. We are not interested to buy Canada land to stay there, just to use it as an asset to ensure our investment is safe for the investment period.

This alternative investment with good returns may prove attractive to balance or diversify one's investment portfolio. Contact Derrick to find out exactly how individual investors can now take part in this innovative investment idea!