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What land bankers really do

Regular bankers research the organizations to which they lend and study the products they buy and sell. They research the bonds they purchase. Does land banking have a parallel?

Yes. Land bankers, like financial bankers, study risk and return. They are experts in certain products – bankers understand financial products; land bankers understand real estate. Before committing to land parcels (or selling them to clients), land bankers consider hundreds of subtle aspects of the land. They gather a broad scope of information and data to make a holistic decision about the current value and future price of a piece of land. Below, we’ll discuss just a few of the things land bankers consider when they analyze land in the path of development.

1. Demographic patterns.

The most important factor in the development and appreciation of land is the local population. It’s obvious that designated farmland handed down from generation to generation won’t be developed into an urban center anytime soon. But what other demographic clues to land bankers look at?

• Historic growth patterns in the surrounding areas. How have humans developed land in this region before? What kinds of industries thrive here?

• Ages of the population in general. High concentrations of young people or increased numbers of children signal demand for education as well as entertainment. Additionally, with larger groups of young people comes a desire for better access to urban centers and greater tolerance for technological and energy expansion.

• Occupations of the surrounding population. Some industries expand underground; some industries build sprawling complexes. Depending on the skills and jobs that prevail in the area, expansion might come in different forms, and land parcels may be suitable (or unsuitable) for that kind of development.

• Net worth of the individuals in the area. Do they seem like potential entrepreneurs?

2. Geographic and topographic limitations.

Along those lines, land bankers study geography (and often geology!) to learn what kinds of land are suitable for which kinds of development. Swampland is good for almost nothing, but flat, fertile land isn’t always the desired choice, either. Land in the path of development needs to geographically and topographically match the kind of development that may happen there.

3. Transportation funding.

Transportation is a major indicator of development. Land bankers analyze trends in private and public funding for transportation to find the areas into which developers are planning to expand.

4. Civic leadership.

Land bankers pay close attention to an area’s leaders, sometimes attending open conferences and town hall meetings to learn more about what the leaders want to do in the region. Often, information about future development is out in the open, but people don’t pay enough attention to local politics to see it as a way to inform their investments. Land bankers come in to close that information gap. If you’re working with a land banker (or becoming one yourself), a good test of competence is to find out what the land banker knows about civic leadership. Experienced land bankers will give you an earful!

This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.