How Land Banking Is Making Property Investors Real Money
The demand for undeveloped real estate continues to grow across the country. It is particularly hot in the Mountain West, in states like Utah, where real estate investors are enjoying a construction boom. To take advantage of what many believe the future holds, investors are turning to the practice of land banking. What’s more, they are partnering with hard money lenders to make the strategy work.
Utah hard money lenders are an integral part of the equation because traditional banks tend to shy away from undeveloped land. Traditional lenders see far too many risks as well as an uncertain financial future for such parcels. Hard money lenders look at undeveloped land differently. And because the land being acquired acts as collateral, hard money lenders are more willing to approve reasonable loans.
Private vs. Public Land Banking
Before getting into how hard money lenders and real estate investors work together to leverage the land banking strategy, it’s important to discuss the difference between private and public land banking.
Private land banking is the practice of buying undeveloped or underdeveloped land and holding it for future development. An investor might be waiting on zoning changes or entitlements. Or he simply might wait until the value of the property appreciates enough to make the sale worthwhile. The ultimate goal is to sell the property to a builder or individual home buyers (lot-by-lot) for a profit.
Public land banking is a different scenario altogether. It is the practice of local governments or nonprofits purchasing abandoned or distressed properties and turning them into community assets. The goal is to protect local property values by not allowing the banked properties to deteriorate. Land banking has been used extensively in Detroit to address high rates of vacancy.
Financing Private Land Banking
Turning to private land banking again, one of the main challenges investors face is financing. Traditional lenders hesitate to fund land banking investments for three primary reasons:
- Lack of Revenue – Undeveloped land doesn’t generate revenue. Without revenue, there is always the risk that a borrower will not be able to make monthly loan payments.
- Timeline Uncertainty – Because banked land is held while the buyer is waiting for something, the timeline for improving or selling the land remains uncertain. Banks consider that too risky.
- Valuation Difficulties – Assessing the value of undeveloped land is challenging on its best day. It can be nearly impossible when a traditional lender doesn’t share the buyer’s vision and perspective.
Reluctance among traditional lenders can make private land banking more challenging. For so many investors and developers, traditional lending is never even an option. They go straight to one of the best hard money lenders in Salt Lake City: Actium Lending.
Why Hard Money Works
Actium Lending is active throughout Utah. They say hard money is the perfect vehicle for funding a land banking strategy because of the very characteristics that make it so different from traditional lending. Hard money lending offers:
- Quick access to capital (usually within a few days)
- Flexible loan structures, rates, and terms.
- A focus on property value for loan approval.
The speed at which hard money lenders can work is arguably one of the most important factors. Prime parcels don’t stay in the market for long, especially in high-demand states like Utah. So investors have to be able to move quickly. Hard money makes it possible.
Land banking is a proven way to make money in real estate in Utah and across the Mountain West. Yet without access to private lending and hard money loans, how many investors could really make it work? Probably very few.