Land Banking Investment shifts to Rental Pool Investment

<h1>Land Banking Investment shifts to Rental Pool Investment</h1>Author: <a title="Bob Ferguson" href="http://www.articlesbase.com/authors/bob-ferguson/139241.htm">Bob Ferguson</a>          Land Banking Investment shifts to Rental Pool Investment Prior to the recent recession, investors who participated in both US and Canadian Real Estate Land Banking opportunities had enjoyed years of good returns and profits.  As is the case with any form of investment, key investment Market Characteristics drives results.  In the decade that proceeded the current recession in States like Arizona and Texas and provinces like Alberta and Ontario, the Economic Indicators for Land Banking investment were absolutely ideal: 1998 – 2008 Land Banking Marketplace Characteristics <ul> <li>Positive Regional GDP indicators</li> <li>Sustained regional population growth</li> <li>Low  interest rates</li> <li>Low unemployment/strong employment opportunity</li> <li>Shortage of regional residential housing</li> <li>Residential housing building boom</li> <li>State/Provincial and Municipal governments were pro urban development</li> <li>Lending Institutions had very relaxed mortgage qualification rules</li> <li>High demand by Master Planned residential community builders for ideally located, rezoned, site plan approved undeveloped large acre plots of land</li> <li>Escalating residential home values</li> <li>Land Banking represents a shorter investment duration and higher yield   </li> </ul> Now however, the sheer magnitude current recession has all but completely overturned the exceptional marketplace characteristics that drove Land Banking Investment opportunity.    2008 – 2012 Land Banking Marketplace Characteristics <ul> <li>Federal governments worldwide have intervened with economic support   </li> <li>Negative to flat Regional GDP indicators</li> <li>Flat population growth</li> <li>US Bank failures (2008 –Sept 2009 over 100 US Banks failed)</li> <li>Low interest rates</li> <li>Sub Prime lending scheme is dissolved</li> <li>Excess supply of regional residential housing driven by foreclosures</li> <li>Sharp decline in residential housing prices</li> <li>Lending institutions have strict mortgage qualification standards</li> <li>Foreclosed homeowners are forced back into residential home rental market</li> <li>Rental Pool Corporations purchase foreclosed properties at bargain pricing</li> <li>Major Investment opportunity shift from Land Banking Investment to Rental Pool Investment</li> <li>Limited demand by Master Planned residential community builders</li> <li>Land Banking investment shift to longer duration with lower yield</li> </ul> 2008 – 2012 Rental Pool Marketplace Characteristics The current recession, which in many ways was driven by flaws at every stage of the sub-prime lending scheme with world wide ramifications in many ways has created a major shift in investment strategy and is often the case in Real Estate investing, disaster in one investment sector can create opportunity in another. <ul> <li>High demand for rental property</li> <li>Rapid drop in residential property pricing that is suitable for acquisition Rental Pool acquisition and Rental Pool renters</li> <li>Immediate income for the investor</li> </ul> From an investment perspective, land banking investments will now in all likelihood represent significantly longer duration investments with lower rates of return.  From a Strategic Planning and Product Development perspective, Land Banking corporations that have not recognized the market shift and continue to market their traditional product lines, have not done their homework.  The markets have changed and land banking cannot deliver what the investor wants. Times were good, but times have changed and unless Land Banking firms have made product adjustments, investors will seek alternatives.    The fall out from the recent sub-prime lending practices in the US provide excellent opportunities for investors to earn above average returns.  Bank failures caused by sub-prime lending practices, and the rapid increase in foreclosed residential real estate, have lead to opportunities for Rental Pools to buy single family homes for as little as 30% of their fair market value, offer them as rental properties to what now could be described as a ‘red hot’ rental market and offer Rental Pool investors secure, income producing investment opportunities with above market rates of return.    Why is this the case?  Unlike the Canadian practice of ‘power of sale’, where Canadian  banks do not have title to the property, foreclosure in the US means that the house is now owned by the bank, mortgage company or US Federal Deposit Insurance Corporation (FDIC).  The term Real Estate Owned (REO) is used to describe foreclosed real estate.  As you might expect, the bank or mortgage company is not in the business of managing real estate and move quickly to sell the asset, and at discounted prices. The irony of sub-prime lending lies in the fact that a government policy that was designed to make it easy for ‘everyone’ to own a home, is now, having the opposite effect, where subprime foreclosures have lead to the current huge growth in renters market segment. This trend is expected to continue for years to come.  Another factor driving the rapid growth in renters is the tightened lending practices in the US which have swung to the extremely conservative side.  It is increasingly harder for well qualified home buyers to be approved for a mortgage.  For the investor the demand for rental residential real estate is growing rapidly, foreclosed residential real estate is available in large quantities at extremely discounted prices. Rents are calculated as a percentage of fair market value, and then there is an opportunity to earn above average profits for the foreseeable future within the Rental Pool investment vehicle.  This sounds like the right opportunity at the right time. The Real Estate investment marketplace of course is very dynamic and in a state of constant change.  In a similar way to investing in Equities and Bonds, the Investor front end should always involve qualitative research. Market Research, Strategic Planning and Product Development at the corporate level also all translate into a simple set of investor rules: Market Research, Investment Planning and Portfolio Diversification.  About the Author: This BTG article was written in conjunction with Stephen Goodfellow, a longtime Land Banking Marketing Executive and currently a Senior Investment Consultant with Gentree Asset Management, Mississauga, Ontario, Canada

Bob Ferguson is President/CEO of BTG-Business Transitions Group Inc. A strategic planning company and supplier of business methodology templates. Website: <a href="http://www.businesstransitionsgroup.com" target="_blank">www.businesstransitionsgroup.com</a>Article Source: <a href="http://www.articlesbase.com/">ArticlesBase.com</a> - <a href="http://www.articlesbase.com/real-estate-articles/land-banking-investment-shifts-to-rental-pool-investment-1295382.html" title="Land Banking Investment shifts to Rental Pool Investment">Land Banking Investment shifts to Rental Pool Investment</a>

Land Banking Investment shifts to Rental Pool Investment

Prior to the recent recession, investors who participated in both US and Canadian Real Estate Land Banking opportunities had enjoyed years of good returns and profits. As is the case with any form of investment, key investment Market Characteristics drives results. In the decade that proceeded the current recession in States like Arizona and Texas and provinces like Alberta and Ontario, the Economic Indicators for Land Banking investment were absolutely ideal:

1998 – 2008 Land Banking Marketplace Characteristics

Positive Regional GDP indicators
Sustained regional population growth
Low interest rates
Low unemployment/strong employment opportunity
Shortage of regional residential housing
Residential housing building boom
State/Provincial and Municipal governments were pro urban development
Lending Institutions had very relaxed mortgage qualification rules
High demand by Master Planned residential community builders for ideally located, rezoned, site plan approved undeveloped large acre plots of land
Escalating residential home values
Land Banking represents a shorter investment duration and higher yield

Now however, the sheer magnitude current recession has all but completely overturned the exceptional marketplace characteristics that drove Land Banking Investment opportunity.

2008 – 2012 Land Banking Marketplace Characteristics

Federal governments worldwide have intervened with economic support
Negative to flat Regional GDP indicators
Flat population growth
US Bank failures (2008 –Sept 2009 over 100 US Banks failed)
Low interest rates
Sub Prime lending scheme is dissolved
Excess supply of regional residential housing driven by foreclosures
Sharp decline in residential housing prices
Lending institutions have strict mortgage qualification standards
Foreclosed homeowners are forced back into residential home rental market
Rental Pool Corporations purchase foreclosed properties at bargain pricing
Major Investment opportunity shift from Land Banking Investment to Rental Pool Investment
Limited demand by Master Planned residential community builders
Land Banking investment shift to longer duration with lower yield

2008 – 2012 Rental Pool Marketplace Characteristics

The current recession, which in many ways was driven by flaws at every stage of the sub-prime lending scheme with world wide ramifications in many ways has created a major shift in investment strategy and is often the case in Real Estate investing, disaster in one investment sector can create opportunity in another.

High demand for rental property
Rapid drop in residential property pricing that is suitable for acquisition Rental Pool acquisition and Rental Pool renters
Immediate income for the investor

From an investment perspective, land banking investments will now in all likelihood represent significantly longer duration investments with lower rates of return. From a Strategic Planning and Product Development perspective, Land Banking corporations that have not recognized the market shift and continue to market their traditional product lines, have not done their homework. The markets have changed and land banking cannot deliver what the investor wants. Times were good, but times have changed and unless Land Banking firms have made product adjustments, investors will seek alternatives.

The fall out from the recent sub-prime lending practices in the US provide excellent opportunities for investors to earn above average returns. Bank failures caused by sub-prime lending practices, and the rapid increase in foreclosed residential real estate, have lead to opportunities for Rental Pools to buy single family homes for as little as 30% of their fair market value, offer them as rental properties to what now could be described as a ‘red hot’ rental market and offer Rental Pool investors secure, income producing investment opportunities with above market rates of return.

Why is this the case? Unlike the Canadian practice of ‘power of sale’, where Canadian banks do not have title to the property, foreclosure in the US means that the house is now owned by the bank, mortgage company or US Federal Deposit Insurance Corporation (FDIC). The term Real Estate Owned (REO) is used to describe foreclosed real estate. As you might expect, the bank or mortgage company is not in the business of managing real estate and move quickly to sell the asset, and at discounted prices.

The irony of sub-prime lending lies in the fact that a government policy that was designed to make it easy for ‘everyone’ to own a home, is now, having the opposite effect, where subprime foreclosures have lead to the current huge growth in renters market segment. This trend is expected to continue for years to come. Another factor driving the rapid growth in renters is the tightened lending practices in the US which have swung to the extremely conservative side. It is increasingly harder for well qualified home buyers to be approved for a mortgage.

For the investor the demand for rental residential real estate is growing rapidly, foreclosed residential real estate is available in large quantities at extremely discounted prices. Rents are calculated as a percentage of fair market value, and then there is an opportunity to earn above average profits for the foreseeable future within the Rental Pool investment vehicle. This sounds like the right opportunity at the right time.

The Real Estate investment marketplace of course is very dynamic and in a state of constant change. In a similar way to investing in Equities and Bonds, the Investor front end should always involve qualitative research.

Market Research, Strategic Planning and Product Development at the corporate level also all translate into a simple set of investor rules: Market Research, Investment Planning and Portfolio Diversification.

This BTG article was written in conjunction with Stephen Goodfellow, a longtime Land Banking Marketing Executive and currently a Senior Investment Consultant with Gentree Asset Management, Mississauga, Ontario, Canada Bob Ferguson is President/CEO of BTG-Business Transitions Group Inc. A strategic planning company and supplier of business methodology templates. Website: www.businesstransitionsgroup.com

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Article Tags: Market Research, Real Estate Investment, Product Development, Land Banking, Stategic Planning, Rental Pool Marketplace, Land Banking Investments

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