There are many ways to invest in real estate in Nigeria. You could choose to buy, hold, and flip land for profit, build property and sell it for more than it cost you to construct it or make money off the rent that its residents pay.
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But there’s another real estate investment strategy that has yielded impressive returns for the people who have used it. It’s called land banking. The great thing about it is that it often doesn’t cost as much as the other approaches to real estate investing.
This article takes you through land banking, its pros and cons, and how you can make money from it.
What Is Land Banking?
Land banking, as the name suggests, is about holding some of your wealth as land (instead of keeping it as cash in a bank account). But there’s more to it than this.
Land banking involves purchasing land in areas that are currently underdeveloped and selling it in the future for much more than its present worth.
The best land for this sort of investment tends to be those located on the outskirts of major cities. In other words, they lie in areas that are very likely to see development in the future.
Because the demand for such lands is low right now, you may be able to purchase them at a decent (relatively low) price. But when demand builds up (as cities expand in their direction), their prices will soar, and you’ll earn huge profits from selling them.
Pros Of Land Banking
Here are some reasons why you should consider land banking as an investment:
- It’s often relatively cheap; you can buy as much land as your budget allows
- It’s much better than just keeping your money in the bank, as it has several times the earning potential of a bank account
- The returns from land banking are among the most impressive of any investment type
- Unlike buildings, you don’t have to spend a lot of money on maintenance
- It could be a great hedge against inflation
Cons Of Land Banking
- Land banking typically involves buying land and leaving it for a long time (several years or longer); the amount of returns you reap is partly dependent on how long you hold the land for
Steps To Making Money From Land Banking
These are the steps you can take to make money from land banking in Nigeria.
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Find The Right Kind Of Land
If you’re going to strike it big with this type of investment, you’ll need to secure land that’s in the path of expanding development. Simply purchasing land in some random rural area won’t cut it.
Thankfully, it’s not always difficult to tell where the next frontiers of urbanization would be. You probably know where the outskirts of your city are. Such places—as well as the regions surrounding them –are often just right for land banking.
Make sure the place you go for is free from phenomena that would make it difficult to develop (avoid swampy land or locations with uneven topography).
Purchase The Land
If you’ve found land in an area with good promise of future development, your next step would be to purchase it.
There are a number of steps you should take before acquiring the land, One is to ascertain that the seller is really the owner (or represents the owner) of the land. You can do this by verifying the authenticity of the land titles in their possession.
You will also want to be clear that the land isn’t already marked for government use. You can confirm this at the Office of the Surveyor General in your state.
Wait It Out
This will be by far the longest part of the steps to earning from land banking. Some people buy land and hold it for several years; others keep it for decades. It’s up to you to decide how long the land you’ve acquired will be in your possession.
But ‘waiting’ doesn’t have to mean forgetting about the land for a while. You can lease it for agricultural use, or hire people to run a farm on it on your behalf. This way, you’ll earn from the land while its value appreciates.
If you’re inclined to leave it as it is, that’s fine too. This could save you the stress of preparing the land for use as a farm.
Sell The Land
As the years pass and the city stretches into your once pristine holding, you’ll find that the value of land in the surrounding area has climbed. It’ll probably be time for you to sell.
Again, it’s up to you to decide when to do this. Depending on the size of the land, you could either sell it all off in one go or divide it up and sell piece by piece.
Final Words
Land banking can be lucrative—if the land you invest in is in a good location. It could protect your wealth from the ravages of inflation, and expand its value over time.
Featured Image Source: Businessday NG
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