Land banking is the process of purchasing fully entitled but undeveloped or underdeveloped land that a builder has identified for imminent development, preparing it for construction (i.e., horizontal development), and selling it to a builder for construction of the buildings (i.e., vertical development).
Land banking programs have become a popular alternative to traditional financing for home builders as bank lenders tightened lending practices on vacant land after the Global Financial Crisis. Additionally, land banking allows home builders to keep vacant land off their balance sheet for longer so they only take ownership when it is time to build.
While land banking can take multiple forms, here is an illustrative example of how it could work for a single-family residential community:
At any time during the term, if the homebuilder terminates the contract to acquire the land, they forfeit their initial deposit and any option premium paid to the land banker which provides credit enhancement to the land banker.
Consider investing in a land banking and development strategy that targets quarterly income with Yieldstreet’s Raleigh Single-Family Residential Land Financing.
Yieldstreet provides access to alternative investments previously reserved only for institutions and the ultra-wealthy. Our mission is to help millions of people generate $3 billion of income outside the traditional public markets by 2025. We are committed to making financial products more inclusive by creating a modern investment portfolio.