Land investment still a smart move, say banking industry experts

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With soaring rent prices and the unpredictability of the stock market, some are turning to land banking to make a profit. While this may sound like a typical real estate investment, local investors are moving their investment focus further into the desert and undeveloped areas in Southern California.

“People have been buying and selling land since the beginning of recorded history,” said Lawrence Harris, Professor of Finance and Business Economics at the USC Marshall School of Business.

Land banking and investment is a “patience game,” where the average hold time is seven to ten years after purchase, explained Dayn Conrad, Land Specialist at Velur Enterprises.

“Land is a non-depreciating asset, it’s a solid investment, not speculation on how a market will behave,” Conrad said.

Not only does terra firma have an inherent value but its value can be determined with access to the right data and city planning information. Using data from the University of California, Berkeley, Conrad estimated that there are two million acres of developable land in California.

“We control the data. We own the microfiche that shows how land in L.A, was originally divided in the 1900s, without all the data, you don’t really know what you’re buying,” Conrad said.

One common mistake would-be land bankers make is to buy land based on “how it looks.” Hidden factors, such as whether the parcel is home to endangered species or if there are water rights associated with that area, are what makes a land investment worthwhile.

“Future mega highways and future high-speed rail lines are running through land we already won, making these the next sites of the future suburbs…all of these areas are within commuting distance to DTLA, the O.C., or Riverside,” Conrad said.

California, specifically Southern California, is an ideal site for land banking. Not only does this region hold over half of California’s population but it’s cities are rapidly expanding and pushing into surrounding areas, Conrad said. Desert lands, such as the Coachella Valley, Antelope Valley, and Moreno Valley, have become popular choices for investment.

“Southern California is one of the largest economies in the world and very unique in terms of property taxes, thanks to Prop 13,” Conrad said.

Proposition 13 limited property taxes to no more than two percent per year as long as the property was not sold. So, taxes do not increase as the land increases in value. This is an incentive to buy land early, according to Conrad.

“There are some special risks associated with California, if Prop 13 gets repealed, the high tax rate and the environment that’s becoming less friendly for business,” Harris said.

Prop 13 has been in effect since 1978 and, even Harris, said it seems unlikely it will be repealed. Harris added that laws, zoning regulations, and building ordinances are huge factors that determine the value of land.

Conrad agreed, adding,“Strict zoning laws make a win-win situation for the people who control the dirt.”

He said that land come with 500 feet of vertical space as well, and with the recent push for mixed-use buildings, land prices have increased without any work on the investor’s part.

In addition to residential and commercial spaces, a high percentage of land is purchased for infrastructure or projects, like solar farms and wind turbines. Flynn added that solar has experienced the most growth in recent years and expects it to continue expanding.

“Solar farms have increased interest in land banking,” Conrad said. “In the last five years, 2,100 acres have disappeared into the Antelope Valley Solar Ranch.”

Recently, cannabis companies have been purchasing land to construct cannabis growing and processing plants in desert areas. Large-scale projects, such as the Los Angeles Metro’s 28 by 2028 construction plans and new sports arenas, also make land banking in California profitable right now.

“Antelope Valley is a good investment choice due to its affordability, distance to L.A., and proximity to unprecedented growth and development in housing, construction, industry, medical, and green technology,” said Jenny Flynn, Land Banker Consultant.

Flynn added that most of her clients are middle-income people looking to diversify their portfolios and retirement funds. She began specializing in land banking in 2010 after purchasing land in 2009.

“Land banking is an affordable way to invest in California real estate which is something that, over time, has proved to be profitable,” Flynn said.

“The best investment on Earth is still earth,” Conrad said.

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