Do a need a surveyor? How about water rights? A few tips on purchasing land.

We’ve heard some incredible land stories, many of them positive. However, we’ve also heard of landowners who have made crippling mistakes, many of which could have been avoided quite easily. For example, we know of one landowner who purchased a parcel and then built a cabin on it, later to discover that the section on which the cabin was built was never his property. This anecdote illustrates one of the biggest and most common land purchasing mistakes: not hiring a surveyor.

A land surveyor’s primary responsibility is to determine and accurately notate the legal boundaries of a land parcel. Although surveyors do visit the land, they don’t only do fieldwork. They can choose one or more of many surveying specialties, and they work in offices, with people and government bodies, and, yes, out in the field. Surveyors use current and emerging technologies, especially the newest GSP systems and 3D laser scanners.

It is extremely common for people to purchase land without knowing its exact boundaries. Don’t make this mistake. A surveyor will give you a plat map (a three-dimensional drawing of the property) and mark its boundaries so that you know exactly what you’re purchasing.

Another part of knowing what you are purchasing: water rights. Wherever land is irrigated, water rights are especially important. A water right is what it sounds like: your right to use and/or irrigate water from a source, such as a well, stream, or lake. In California, water rights are determined based on prior appropriation, which means that water rights are bought and sold separately from land. Water rights can be mortgaged just like property. The first person who uses some quantity of water for industrial, household or agricultural purposes may continue to use that quantity in the future. The next people to use the water can use as much as they need for the same purposes as long as they don’t interfere with the pervious users’ rights. This order is based on appropriation dates: the first person has the earliest appropriation date; the second has the second earliest, and so on.

In times of drought, this prior appropriation system can leave some people with insufficient water supply. Different states have different provisions for this problem, and in highly populated areas, a government agency often allocates the water supply.

Land banking purchases happen in less populous areas. The water rights you may choose to purchase will be sold with their original appropriation dates; that is, you may purchase a water right with an appropriation date of 1910, and you will have priority of usage (for beneficial purposes) over someone with an appropriation date of 1925.

The water rights that are available in the proximity of your land parcel can determine its likelihood to be developed. When you research your land parcel, find out which water rights are available for purchase. Even if you yourself don’t purchase them, developers who work in the area may decide to use your parcel based on the water rights they can buy from someone else.

In closing, hire a surveyor, always. Water rights? That depends on your case. We’d love to hear your thoughts! Contact us for more information about knowing your property.

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Title Insurance: What is it, and is it a good idea?

Title insurance is a kind of indemnity insurance for property owners, often called an Owner’s Policy. It can usually be purchased at the close of the sale for a one-time fee and covers the amount of the real estate purchase. It remains valid as long as the owner or his/her heirs would like it to.

The first title insurance company was formed in Pennsylvania in 1853. Before that, the owner of the property was responsible for any problems with the validity of a land title. If the land title was shown to be invalid, he would lose his investment. A few more common hidden problems with title validity include:

• Forgery
• Undisclosed heirs
• Mistakes in examining records
• Errors or omissions in deeds

The cost of title insurance varies widely depending on state governments, which regulate the rates. Title insurance in California is usually slightly higher than average across all states.

So, is it a good idea to purchase title insurance? Unfortunately, there isn’t a perfect answer to this. For many buyers, it’s a good idea. Others feel that the risk of title invalidity is too low to merit the purchase of title insurance. But strange things can happen.

For example, this past May, a previously unrecognized Native American tribe in Utah laid claim to millions of acres of land along with gas, oil, water, and mineral rights on the property. Of the four counties affected by this claim, only one fought it.

In the 250-page claim, the tribe’s chairwoman claimed that the land had been allocated to the Shoshone tribe in 1861, and members of the tribe had been living on the property ever since. It would not be surprising if private property – perhaps a large amount of private property – was affected by this sudden development. How the government of Utah will handle the claim is still unclear. It is still possible that the tribe won’t gain ownership of the real estate, but there will definitely be a good deal of litigation.

Although Los Angeles County does not have many Native American tribes, title insurance protects you from other risks. When buying a home, many people find title insurance superfluous, especially if they know the previous owner lived there for 30 years. We disagree: homes have usually been bought and sold by many people, and it’s impossible to guarantee that the transaction was perfect each time. Title insurance has also saved many homeowners from unknown heirs and even foreclosure. Likewise, when buying land, especially as a long-term investment, the benefit and peace of mind of insurance is worth the cost. Title insurance is a way to protect your investment and yourself.

If you work with responsible sellers and brokers, you will be able to shop around for title insurance, refuse add-on fees, and save in other ways. If you work with us to purchase land, we will discuss the benefits of title insurance and provide you with personalized advice based on your purchase.

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5 Ways to Think (and Invest) Like the Rich

If you want to be rich (or financially independent), examine the investment strategies and thought patterns of the wealthy. You may be surprised by how similar they are. Below, we’ll list 5 investment strategies used by the wealthy and financially secure.

1. Diversify less.

Don’t leave yet – we believe in sensible diversification. Our investment advisors have preached to us hundreds of times about it. However, the wealthy know that the only way to make a lot of money is to take some risk. Although we don’t recommend the billionaire strategy of putting all your eggs in one basket, don’t be afraid to make one or two sizable investments that show promise while diversifying the rest of your portfolio.

2. Invest in illiquid assets.

No one ever got rich by holding cash. Wealthy people hold their assets underground (oil), in real estate, or in businesses. In fact, in interviews with wealthy businesspeople, many will comment that they don’t “feel” rich. That’s because the best way to protect and grow your wealth is to give it away, in a sense, investing it in illiquid assets and leaving yourself with relatively little cash. The only time very wealthy people or their families ever see large checking account balances is when they retire or pass away.

3. Sacrifice short-term gains for long-term ones.

The popular image of the wealthy investor who day trades and pushes papers around constantly was never based on reality. Rich people don’t see profit as a short-term thing; instead, they make long-term investments that will bring them huge windfalls all at once.

A favorite investment decision among the super-wealthy? You guessed it: land banking. Mary Fairfax, an Australian multimillionaire, is known for buying land on the outskirts of urban centers and waiting for it to reel it profit.

This strategy takes patience and discipline, but if you can change the way you see profit, seeing it as a long-term gain instead of a short-term incentive, you will multiply your wealth.

4. Serve growth industry leaders instead of competing with them.

You might not realize it, but within any growth boom, some of the wealthiest people are the suppliers, not the main players. Supplying resources to an energy company is easier and safer than trying to run one. Behind the scenes, the best way to build and protect a fortune is to supply something that all of the larger developers need.

5. Work is play.

This last point deviates a little from our investment theme, but it’s important. Wealthy people don’t work 40 hours a week – they allow their work and social lives to overlap. They enjoy themselves while they work and invest, and they also seek out moneymaking opportunities, even on their days off. Instead of leading two separate lives – one at work, and one outside of it – they build a lifestyle into which their work, investments, interests, and social gatherings all fit.

We hope you enjoy our blog. For personalized investment and land banking advice, give us a call or shoot us an email: we enjoy the conversation.

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Debunking the myths about land banking, Part 2: You have to develop land yourself to make money from it.

Wealthy land developers make the news, and not-so-wealthy house flippers make it onto reality television. Everywhere you look, it seems like people are profiting from real estate investments by building on or expanding the property they buy. But is that really the best or only way to make money in real estate?

In the last installment of “Debunking the myths about land banking,” we discussed the misconception that cheap land doesn’t yield profit. Today’s topic is similar: people think that they must develop the land themselves in order to benefit from it.

The reality is that the potential for profit is often higher when you develop land yourself, but the risks you take on are also more serious. As a land developer, you need an understanding of basic sources of loss (e.g. contractors, higher property taxes associated with buildings), and you also need to be able to anticipate the social and economic circumstances that will allow you to profit off of your work. You take more risks, and sometimes, the payoff will be higher.

Land bankers work with developers, not as developers. As a land banker, you research and purchase a land parcel based on developers’ plans for it, not your own. You sell the land when development increases its value.

“But what if the land doesn’t get developed?”
Some areas aren’t suited for development, but attractive land parcels located in ideal locations don’t just sit around. Urban centers are expanding constantly (especially in California), and through diligent research, you can discover the land parcels into which they will expand.

“You don’t want to develop the land – what makes you think other people do?”
Working people with full-time jobs outside of land development certainly don’t have the time to develop land. However, profit-seekers and professional developers (e.g. municipalities, energy companies) do this for a living. They seek out the land with the most potential and make money by developing it. As a land banker, you don’t partake in the profits they gain at the very end of their projects – you earn money in the middle of the process.

“What about residential buildings?”
Investing in residential buildings comes with a slew of hidden costs that often don’t hit you for months or years down the road. We’ve tried – and enjoyed – investing in real estate as landlords; it’s a good way to learn about yourself, the economy, and investing in general. However, it’s also a costly, time-consuming investment: if you’re just looking to diversify your portfolio by including illiquid investments that earn in the long run, low-maintenance land banking might be right for you.

In the end, your lifestyle and interests should determine the kind of real estate investments you make, if at all. However, don’t limit yourself by thinking that the only profitable investments are the ones that require constant upkeep and work. In the long term, land in the path of development appreciates, and you don’t have to be a developer to profit from it.

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A Brief History of American Land Ownership

History has tied land ownership to freedom. Titles of nobility and, later, voting rights have been directly related to land ownership. But how did land ownership become a central part of American investment culture?

Let’s start with the Greeks. They weren’t American, of course, but we get many of our values (including our love of democracy) from the way Greeks ran their city-states. Consider the hoplites. Hoplites were the citizens of these ancient city-states. Individually, they were small farmers and landowners. Together, the hoplites of any given city-state were a formidable military force (they invented the phalanx formation). When their territory was attacked, they came together as a group of nearly unrivaled citizen-soldiers. This model set the tone for the rest of Western civilization, especially America.

In later feudal societies, noble fighters were rewarded for their service with land. Royalty changed the rules, but land still entitled its owners to rights that renters didn’t have.

In America, land ownership came at a military cost. Before, during and after the initial colonization of the northeast, Americans fought to keep the lands they believed belonged to them. A little like the hoplite citizen-soldiers of the Greek city-states, Americans took up their arms when necessary and went back to their farms when it was over. Even today, we praise George Washington for his citizen-soldier-like conduct. After fighting in the Revolutionary War, he could have become king of America. Instead, he put down his weapons and went back to his farm.

George Washington is sometimes compared to the Roman general Cincinnatus. Cincinnatus was called into battle in a dire situation and given nearly dictatorial power. After winning the war, Cincinnatus also went back to his farm.

In the 1840s and 50s, the image of a virtuous land-owning farmer was popular in American political rhetoric. In 1848, a Free Soil Party emerged, demanding that the newly acquired lands in the west be made available to smaller farmers instead of wealthy plantation owners. These politics eventually led to the Homestead Act of 1862, which promised nonviolent people above 21 years of age a share of the land in the west. After the Act, people rushed into the available land, claiming titles rapidly and expanding into new areas. The Act was revised as more and more of the land was homesteaded, and finally, in 1988, the last homesteader received his deed to 80 acres of land in Alaska.

Meanwhile and even before the Homestead Act, land developers were busy buying land for investment purposes. Famously, Fred Trump and his son Donald Trump made careers out of buying, developing, and selling real estate for huge profits. Interestingly, a Scottish farmer names Michael Forbes taught Donald Trump a small lesson about the meaning of property ownership when he refused to sell his farm, where Trump wanted to build a golf course, to the billionaire.

Today, middle-class Americans are the most enthusiastic purchasers of real estate in the world; while real estate investment in Europe is stagnant or on the decline, Americans continue to purchase and profit from developed and undeveloped real estate, keeping land ownership as a cornerstone of American culture.

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California’s Housing Market: What it Means for America and for Land Bankers

In the past few months, the property values and purchase rates of houses in California have risen dramatically, particularly in certain metro areas. The rise in property values, though concentrated in San Francisco, Los Angeles, and San Diego, has been felt across the West Coast and might also have implications for the U.S. housing market as a whole. The price gain in these areas in California has been double that of the mean price gain in the top 100 cities in the country.

What it Means for Homeowners

Fear of a West-Coast housing bubble might instigate policymakers to change mortgage rates. Since it seems that the suppression of mortgage rates seen around the country is the main reason that purchases are rising, policymakers might feel pressured to raise rates and stabilize the growth of this market.

Around the country, things are not booming as they are on the West Coast. Climbing prices might discourage potential buyers from venturing into the housing market, so if national policy turns to raising mortgage rates, the West Coast boom might stabilize, but the rest of the country’s housing market might fall into stagnancy. Policymakers might have to choose between reigning in California’s market (allowing other parts of the country to become less active) and permitting the risks of an excitable market here in the West.

What it Means for Land Bankers

Sky-high selling prices and purchasing rates are good for land bankers. First of all, high costs of property ownership in urban centers will push more people into the suburban and surrounding areas, where the cost of living is bound to be lower. Suburban expansion is the “path of development” land bankers are always talking about – as people move out of cities, they need transportation, education, entertainment, and industry.

More subtly, the rising property values are a sign of the health of the West Coast Economy. This economic health is centered in San Francisco, Los Angeles and San Diego – three cities around which land bankers buy land. When the economy is healthy, an area becomes an appealing target for growth developers. That’s exactly what we’re seeing, especially here in southern California.  Developers have set their sights on these areas and are rushing in to take advantage of the fast-paced economic activity.

What it Means for Other Real Estate Investors

If you’re invested in California real estate property that’s already been developed, now might be the time to sell. People are willing to buy at high prices, and property is changing hands quickly. To us, this looks close to the peak of the cycle.

Land banking is a safe, long-term investment in a tangible asset. Anyone can invest, including working college students and people with IRAs (but no cash on hand). Are you interested in building a safe retirement and leaving a surplus to your family? Land in the path of development in Los Angeles county is inexpensive and easy to acquire. Contact us today.

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Common Misconceptions About Land Development

Everyone has some idea of what land development is and how it works. That’s exactly it – some idea. We’ve been astonished and amused by some of the misconceptions our friends have had about what we do over the years. But we won’t address the sillier ones in this post. Here, we’ll discuss the more common misconceptions about land development as a process and investment strategy.

1. People are moving into cities, not suburbs.

This is probably the biggest misunderstanding we encounter when we talk to people. Most cities report constant development and growth within their urban boundaries: people are crowding in together and making city life denser every day. But even more expansion happens outside of the borders. Where there is transportation into the urban centers, people are ready to move into small houses and start families. In fact, though we associate urban culture with dependence on public transportation, cities are seeing young people settling within accessible driving distance. Growth in cities will always happen, as cities are dynamic and full of new changes. But growth around cities is much more prominent (and, for investment purposes, more interesting).

2. The only way to make money off land development is to be a land developer.

Several real estate organizations sell land parcels to people and tell them, “Go develop it!” For this reason, some people think that the only way to profit off of land is to be a land developer. However, time and time again, smart investors have shown the world that buying the right land in the right place is enough. You don’t have to build the wind farm to benefit from the appreciation in the value of the land. Let other people develop while you invest.

3. Small developments don’t count for anything.

Even a new septic tank on an otherwise undeveloped property increases its value tremendously. Big developments are just the sum of many small developments, so land that is beginning to see some small changes becomes more valuable because of the potential it holds.

4. No one is developing around Los Angeles.

When you look at the data on the number of new structures build around various cities, smaller cities seem like they’re developing, and larger ones seem less promising. But it’s easy to lie with statistics: the number of structures being built is less important than the kind of structure being built. A railroad can be considered one structure, but it is a huge undertaking that brings value to land for many miles around.

5. Beautiful scenery is bad news for development.

We’re not sure where people get this one. They look at an area and think, “It’s too pretty for development! No one wants to build huge buildings here.” But in fact, natural beauty is good news. Suburban areas, unlike the urban centers they surround, have room to breathe. People like to live and work near parks and wildlife centers, and if there’s potential for these, they will build suburbs around them.

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Top 10 Reasons to Buy Land

New real estate investors usually have a few thoughts about the value of land: family members have retired thanks to real estate investing, or they have friends who have bought and sold land parcels. These are 10 rational, concrete reasons to buy land.

1. The U.S. isn’t getting any bigger (and neither is the world).

Let’s get the obvious point out of the way – the United States isn’t annexing any more territory anytime soon, and nobody is making any more land. There’s a finite amount of land available for purchase. But what’s more important is that land in desirable areas – places that will develop in the foreseeable future – is even more limited.

2. It’s easy to buy land.

As long as you have a little patience, it’s easy to find land-investing experts who will walk you through each step of speculating, surveying and purchasing land. If you work with us at Land Banking Investment, you don’t pay a real estate commission, because you’re buying from the owners of the land.

3. Land is tangible.

In today’s world, many seem to have forgotten about investing in things you can touch. Because you can lay your hands on it, land is one of the safest of all investments. If you’ve ever doubted the value of land as an investment, you shouldn’t now – just think about the stock market meltdown. Land is the only asset that never went to zero.

4. Land has value beyond the first glance.

There’s more to land than what you see: the plans that surround it and what’s underground can exponentially increase the value of a parcel.

5. Land investments can be extremely profitable.

Development often increases land value by 200, 300, and 500%. Land development in particular is one of the most profitable forms of investment (and that includes bonds, stocks, etc.).

6. You don’t have to be wealthy to get involved.

People often feel that they can’t make land investments because they’re not millionaires. In fact, middle-class people make great land investors, partially because they are more familiar with land as an asset than others are. It’s simple to invest in land with leverage; also, you can control the amount of land you purchase. You don’t have to start with a lot – begin with a few acres, and watch your wealth start to grow.

7. Land doesn’t depreciate.

Even if you make an unwise land investment choice, you’re likely to keep up with inflation, not see a depreciation in the value of your purchase.

8. Land is a way to manage your own investments (and your own money).

Buying land is a good way to invest without the middleman. You control exactly where your money goes, how much of it goes there, and when you decide to sell.

9. Development is aggressively branching out.

In the last 25 years, the rate of land development has been higher than in the 50 years before that. Despite the housing bubble, developers are determined to expand urban centers and build transportation routes and industry centers in new places, especially in California. What you’ll see in your lifetime will astonish you.

10. The population is booming.

Dovetailing with our first point, consider the population boom. We aren’t making more land, but we are making more people: the increase in the population inevitably leads to a higher demand for land.

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4 Ways to Know You’re Ready to Invest in Real Estate

You’ve come to realize that your retirement – and your children’s and grandchildren’s future – depends on what you do today. That’s good, but though it pushes you in the right direction, it doesn’t tell you what to do today. Whether you just got your first job or have been sitting on an underperforming 401(k) for years, it’s time to decide whether you’re ready to invest in real estate.

1. You’re ready to invest for your family’s future.

This one might seem obvious at best and repetitive at worst, but it’s important. First of all, let’s talk about the word invest. Investment is more than just saving: it’s growing your money. People often have skewed perceptions of investment. Some are overly cautious and risk averse; these people usually keep up with inflation but don’t make any waves with their money. Others fear no risks and invest almost recklessly in assets they know little about. These people sometimes get lucky, but they also often end up with only a little more than they started. In effect, they’ve only saved; they haven’t invested. Investing for your family’s future is thoughtfully using the money and assets you have now to leave something substantially more valuable for your children. If you’re ready to do that, you’re ready to invest in land.

2. You have practical investment resources.

Though you can use leverage to invest in real estate, you should start by having capital, good credit, partners, etc. Then you can think about leverage. People like to advertise something-for-nothing investment, but “no money upfront and no hassle!” isn’t the best way to go when investing in real estate. If you have some resources to begin with and you can manage debt wisely, you’re ready to invest.

3. You’ve already built an investment portfolio, and you want to diversify.

Your investments might be stagnant, but they might also be doing well. Maybe you’ve invested in stocks and bonds with your IRA, and you’re looking for a more tangible, long-term asset that will balance out some of your market risks. You are in an ideal position to invest in real estate, especially land. Land banking gives you a new kind of control over your investments. Firstly, you can research assess the purchase in person – you can’t do that with the company offices in which you hold stock. Also, you can reach out to real estate experts for third-party professional opinions on your purchase.

4. A team of real estate experts is available in your area.

This point can’t be emphasized enough. When you invest in real estate, the best thing you can have is a group of people (not just one advisor) who know about the land you’re thinking of purchasing and the area in which you’re looking. Seek out people within your extended community who know about real estate investment and have participated in it. Talk to them. Do they make you feel confident about your investment? Do they make you see real estate in a new way? If not, look elsewhere – the area you’re thinking about probably isn’t a good idea.

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How to Avoid Risk When Investing in Real Estate

When we tell people we’re land bankers, people sometimes balk. “Investing in real estate? Isn’t that risky and difficult?” Difficult, maybe, but we aren’t afraid of the risks we take. There are two reasons for that.

First, we love to research. Land banking has made us financially independent and freed us from jobs we didn’t really like. Instead, we’ve taken up the new job of researching land and learning about future development projects. When we think about investing in a piece of land, we track down all the available information about that land, including anything any civic or business leader has said within a hundred-mile radius of the place (we’re serious).

What results from this intensive, highly specialized research is confidence in our investments. When we finally decide to purchase a piece of land, we have become so familiar with it that it feels like home, and more importantly, it is the obvious right decision. We manage and familiarize ourselves with our investments. Barring the risk of unforeseen catastrophes, this rigorous planning makes us feel good about the probability of losses.

Secondly, land banking is, in a sense, the art of putting the risk on someone else’s shoulders. Once we determine that land is in the path of development and is well suited for what is to come, we wait for the developers to arrive. They take on most of the risks, investing time and capital into technological and infrastructural transformations that may take decades. You may have heard of the two types of leverage: other people’s money and other people’s time. Land banking is leveraging other people’s time.

What about unforeseen barriers to development? Natural disasters, hidden soil imperfections, and other unpredictable problems can stagnate or reverse the development of a land parcel. That’s why we don’t invest in just one. Just as investors in financial products diversify their portfolios to include investments from many industries, we diversify our land bank to include land from many areas. The pieces of land we purchase have also been “scoped out” by developers for many purposes; if one piece of land doesn’t appreciate, it’s not a crisis. We take that loss in stride.

For that reason, financial flexibility (but not necessarily financial independence) is important for land bankers. You don’t need to have a lot of cash on hand to invest in land. However, you should be able to tap into other resources – more liquid assets in other places as well as human advisors who can help you make the best purchasing and selling decisions. Some of our most successful partner investors have started with little capital but a lot of flexibility.

The idea that buying inexpensive pre-developed land is risky comes from a lack of information. When you see the growth potential of land parcels near urban centers, you’ll see that with the right research and diversification, land banking isn’t risky. It’s a safe, long-term, and tangible investment that can support you and your family into a comfortable future.

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