Land Banking as a Retirement Stratagy

LAND BANKING is a term used by Land investors. It means to buy a piece of land and put it away (bank it), patiently waiting to see what future growth patterns do to its market value. Land banking is also a strategy used by developers, buying large parcels, then putting them away until the time is right for future development. In this section, land banking as a strategy to supplement retirement will be discussed.

First and foremost, land banking should not be an exclusive method of preparing for retirement.The future is uncertain, and no one can predict which asset class will be in vogue next year, let alone 20 to 30 years from now. But land banking can be a way to diversify one’s retirement plan, avoiding over reliance on any one asset class, and thus, spreading out risk.

BACKGROUND. Before we get into details and strategies, a few words of wisdom. Land banking is a retirement strategy intended to supplement other retirement investing you hopefully have already begun. Second, for purposes of illustration, we are going to apply this "land banking" strategy over what most consider a working lifetime- 30 years. Some of you reading this may not work 30 more years. Others, those in their mid 20’s, will work even longer. But, for the most part, careers last about 30 years.

The more time you have until retirement, the better "land banking" will work. The reason is simple: the sooner you start implementing a retirement strategy, the more time the "miracle of compound interest" has to work it’s magic. Time is the most important component of any retirement strategy; This is because "time" is finite; it is limited and there is only so much of it. One cannot buy or trade for more time. So one must make the best use of time by using it wisely and not wasting it. That means after careful thought on what retirement strategy one will adopt, GET STARTED!

The ACCUMULATION PHASE of the land banking strategy is simple: buy several parcels of land over time and wait. How many parcels should be bought? How often should parcels be added to your current holdings? What areas should be purchased and what areas avoided? All good questions. Utilize time, leverage, your personal financial situation, and the Antelope Valley’s current growth pattern to guide you. Some may add a parcel to their holdings every year, others every 2-3 years, and still others whenever they find a "bargain". Again for illustrative purposes, let us be conservative. We will try and add one new purchase to our portfolio every 5 years. In doing so, after 30 years, we will have a portfolio of 6-7 properties. They will be of varying sizes and locations, but should all have been in the "path of growth" when purchased. They should also have been a "good value" at the time of purchase. Be patient, find good properties at good solid values. Do not overpay! Let "end users" overpay for whatever reason they see fit, but not you.


DISTRIBUTION PHASE. As we get close to those "golden years", it is now time to start selling. The goal at this phase is to develop a monthly income stream through the sale of one or more of our properties. Barring a severe recession, one should be able, on average, to sell about one property per year. This means that all of your property will be sold during the first 5 years or so of your retirement. If you don’t want to wait that long, then put all of your properties on the market at once. Another option would be to start selling your properties 1 or 2 years before you retire. The possible benefit of selling one property at a time, is that market values could go up dramatically during this 5 year period. But, as we know from history, market values can go down as well as up. When one gets closer to retirement, a selling strategy can be decided upon then, based upon the individual’s goals, need for future income, future plans, and the market environment at that time.

SOME ADVICE. On a few of your properties, you may get "all cash" offers, but for the most part, when you sell your property, be prepared to carry a note. A note gives the seller a monthly cash flow, the very thing many retirees need. Although retired, the monthly bills are still going to come due. Once all properties are sold, one will be getting monthly payments on 6 or 7 different notes- one from each property sold. This can add up to a tidy sum and provide a very lucrative supplement to one’s other retirement income The selling of these 6 or 7 properties on "terms" sets up a future monthly income stream, which was the original goal of this "land banking" strategy. If one is fortunate enough to get a few "all cash" deals when they sell, this "lump sum" of money can be invested somewhere else to provide income, i.e. bond mutual funds or a growth and income fund etc. One should also realize that when carrying 6 or 7 notes, there is a chance that one or more of the notes could go into default. This would require a foreclosure action by the note holder to reacquire the property, at which time the note holder could sell the property again. In California, a foreclosure action takes 3 to 4 months.  

OUR OPTIMAL GOAL would be to sell our property to a end user, such as a developer. If this were to happen, you will have experienced substantial appreciation in your property Other things which can happen to your property, over the years, to increase its value, could be, but are not limited to:

It gets rezoned to a more valuable zoning, i.e. from agricultural to industrial.

The zone density gets increased, i.e. your property goes from 1 house per acre to a zoning for 3 or 4 houses per acre.

Paved roads and or utilities get moved to, or much closer to your property.

New and major projects get announced near your property, i.e. the new AV Fair Grounds along the AV Fwy at Ave H.

Population growth, which increases demand for land and increases land values. The most important component though, that will determine future land values, lies in the answers to the following questions: Will the Antelope Valley continue to grow? At what rate will it grow? Is it possible, beyond the year 2000, that the Antelope Valley’s growth could go parabolic? Will residents of the Antelope Valley one day find that they are now bigger than the San Fernando Valley, as oft has been predicted?

IN CONCLUSION, no one has a crystal ball to look into the future with perfect clarity. And there is never any assurance of how long any trend can go. But California, by choice, is THE most desired place to live in the US. In California, Los Angeles County is THE most populous, and therefore the most highly desired, place to live and work. But Los Angeles County is running out of places to grow. The Antelope Valley has the current solution to a future problem: an abundance of relatively cheap and affordable land. The Antelope Valley has 49% of all the land in Los Angeles County!

Each investor should come to their own conclusions about the answers to the above questions before making a decision on whether or not Antelope Valley land should be in their investment portfolio. Will Rogers, an early 20th Century humorist, said of land investing, "Don't wait to buy land, buy land and wait!"