If you study or work with the real estate market you have probably heard of land banking.
But, what exactly would that be?
Well, let’s explain step by step here in this article.
First of all, it is necessary to understand that in the USA there are many properties that are vacant and abandoned. There are many reasons for this.
In fact, these totally uninhabited properties create a bad atmosphere for the community that lives nearby.
Thus, there is clearly a devaluation of the neighborhood’s land, increased insecurity, fire risks and, notably, damage to that community.
With this in mind Land Banking has emerged that has a great power to give people back a safe, hopeful and especially better life.
If you want to know more about this subject, you are in the right article for it.
Come with me!
What are Land Banks
First of all we need to understand precisely what we mean by land banks. It is often a non-profit organization that acquires empty properties. Ok, that’s not all. Actually, that’s just the short answer.
So Land Banks are organizations that have a special focus on buying properties that for some reason are inappropriate.
It may be that these properties have had problems with the deed and many people claim ownership, but no one has actually proved that they own that land.
In addition, this property may be abandoned due to a foreclosure, i.e. the former owner was unable to honor his financing and lost the right of ownership of that property.
Of course, these “still” houses do not add value to anyone. On the contrary, since they can become foci of animal proliferation they can be invaded by people who have problems with drugs and many other problems can arise.
All of this causes more extreme being for the surrounding community. That is why land banks have such an impact on society as a whole.
In this sense, land banks buy and manage these properties in order to give them a social sense, promoting the quality of life of the population.
In the vast majority of times the profile of a house acquired by a land bank is a property in which only one family lived who for many reasons left that vacant property.
But in some cases, properties purchased by Land Banks are unoccupied residences where several families lived. Or properties for commercial, industrial or, on rare occasions, places that are occupied and there is the payment of rent.
Therefore, the purpose of Land Banking is to maximize the potential of that property to bring positive impacts to the community.
Factors for successful Land Banking
Well, Land Banking is not simply a profit seeking institution, as we have seen before. However, what would be the most basic factors for these organizations to succeed and in fact positively impact the community? Let’s see now.
First, Land Banks must have a close relationship with the county (or counties) in which they operate. Since there is an intrinsic connection between these two parties. After all, when a property is in default, the county does not receive the taxes, vital to invest in basic services such as asphalt, security, education.
In addition, such organizations need to be connected with foreclosure processes. Since I have full control and a clear catalog of houses that are abandoned because of foreclosure, Land Banks can quickly act and minimize the negative impacts of abandonment.
The second point for which the Land Banking service is dedicated is to enrich the portfolio of real estate both locally and regionally. In this way, much more business opportunities are created within the real estate market, generating more wealth and social stability.
After all, there are numerous stakeholders involved within the real estate market that may be directly or indirectly impacted by the improvements implemented by Land Banks.
Thirdly, it is indeed essential that an organization with such a role has a clear policy and leaves its values very well established.
So there is full understanding what are the purposes that guide the institution.
Last but not least, Land Banks must be able to listen and engage with people in the community. This is really essential since if not those people who recognize the problems that abandoned properties cause.
The powers of Land Banks in practice
Since Land Banks have a very high impact on society as a whole, many local or regional laws support the delivery of these organizations’ services, making them more effective and powerful.
But what would the powers of Land Banks actually be? Let me explain.
Despite the differences from place to place, what Land Banking services receive as a legal guarantee is:
1) Acquisition of properties with reduced tax execution rates (sometimes nothing is charged);
2) There is tax exemption for Land Bank to own that property;
3) When buying the property, most of the previous debts related to such property are forgiven and the deed is cleaned. (we saw in the article on Title Companies what is “clean” the deed);
4) Allowed the release of the use of that property for temporary purposes that benefit populations in need;
5) Selling not only thinking about the highest price, but above all about the purpose of the buyer with the business. That is, it is important that the negotiation is done to bring benefits to the community.
For example: workers, businesses, made a green space that not only gives more beauty to the place, but also favors sustainability.
Therefore, Land Banks have quite strong powers with respect to the potential to transform abandoned properties of no use.
Or rather, properties that provide a disservice to the population into highly productive locations.
That revert to numerous benefits not only for the local community, but also for the real estate market as a whole.
Obviously, the 4 points I mentioned earlier for all these powers to be used to their full potential. Since it is no use Land Banks having so many legal guarantees.
For example, not having transparent values and not being guided by the needs of the community.
How many houses does a Land Banking have in its inventory?
As we have seen, Land Banking is very much associated with local and regional policies. Therefore, there is no precise answer to this question, since the number of properties varies a lot from Land Bank to Land Bank.
Furthermore, the factor that also greatly influences the number of properties in the inventory are the strategies and objectives that one has to promote the quality of life of that specific community.
In this sense, a neighborhood may need a series of structural changes and reforms since there are dozens of abandoned houses in it that are bringing countless losses.
In this case, Land Banking will probably cover a larger number of properties, because in order to actually transform and revitalize the community, it is necessary to invest in the purchase of more properties.
On the other hand, in other communities, it may be that the problem is very punctual, that is, there is only one abandoned house in a large radius. However, quality often exceeds quantity, in other words, an empty house often has more negative impact than 10, since this depends a lot on the circumstances of that particular place.
Therefore, it is also possible for the Land Bank to receive real estate by donation and public land transfers. Thus, the inventory can vary from a few properties to thousands.
I hope this post has opened your mind to realize the immense transformative power that Land Banking has. After all, these organizations have the ability to modify a property that only brings obstacles to a certain community in an extremely productive and socially relevant property.
In addition, the impact of Land Banks is very broad, as it is not restricted to the property or even the neighborhood where it operates hardest.
In other words, these organizations not only increase the profitability power of real estate that was abandoned, but also potentialize the real estate market as a whole, since by revitalizing properties that had no function, the portfolio of options is increased and an environment is created that is conducive to more business and more opportunities.
So, if you are part of the real estate market directly or directly you have a lot to thank Land Banks, because such organizations bring countless benefits, since they not only deal with property, but also deal with issues that afflict the human being, that is, that have an impact on their quality of life.
Finally, we at Br Capital USA, a company that seeks to connect real estate market stakeholders in a fair, honest, noble, ethical and responsible way, appreciate very much the role of Land Banks and see that these organizations are much more than an interested party in the real estate market, but institutions whose ultimate goal is to preserve and promote the welfare of the nation.