What You Need To Know About Land Banking

October 27, 2011 by · 2 Comments 

Years ago I wrote about LAND and LAND BANKING. My observations then are just as valid today as if I just wrote them.
Land remains my main focus for investing in real estate and for securing  retirement for Baby Boomers.

Everybody knows what land is, right?

Or do they?  Sure, land is that portion of the earth’s surface that is not under water.  But that definition covers a lot of “land.”

To understand land we need to understand the uses of land.

Some land is forested.  Some land is desert.  Some land is prairie.  Some land is flat.  Some land is steep. We farm the land. We build our cities on the land.

Some land is desirable.  Some land is undesirable. So far, so good. But…
The desirable land has all been snatched up.  OK.  Sure.  Somebody or something owns the desirable land. However, most of that land is “for sale” at the right price.


What determines the “right price” for the Seller is completely different from what determines the right price for the Buyer.

It gets down to use.  What it is currently used for has a major influence on what the current owner thinks it is worth.  What the buyer will use it for influences what he is willing to pay for it.

Ultimately, there is a Highest and Best Use for each and every parcel of land.  However, this highest and best use can change over time and circumstances. Its like beauty, it is in the eye of the beholder. How you see it is how you use it. The better your vision, the higher the use.


50 years ago 20 acres east of Hwy 101 in Encinitas California might have been best used as a flower nursery.

That same 20 acres today is very desirable for a shopping center or housing development.

But you don’t have to wait 50 years for use changes.  It is constantly changing.

But maybe you do want to wait because the use in 10 or 20 years might be significantly greater than the use today.

If you bought this land and held it for a period of time in anticipation of a higher and better use you would be practicing what is known as LAND BANKING.

Land Banking is a very good method of providing for your retirement.  Buy a piece of land in the Path of Progress, hold it, and then sell it when you want to retire. You have “put this land in the bank.” Generally speaking, this is a passive investment. It requires very little management.

If you put the ownership of the land into a “single entity” LLC which is owned by another special LLC which in turn is owned by your self-directed IRA you could rent out the land to a farmer or other “user” to cover any costs you might suffer as a result of owning the land.

It may seem counter-intuitive, but land generally appreciates at a higher rate than adjacent improved property which makes it ideal for  long-term growth. The reason for this is because improved property is a combination of LAND and IMPROVEMENT. The LAND appreciates (generally) and the IMPROVEMENT depreciates (generally), so if value of the improved property is primarily the value of the improvement, you can easily see why unimproved property will appreciate at a higher rate.


Land banking is great if your time horizon is far enough out, but….

If, on the other hand you want more immediate satisfaction, you can find a parcel of land that is currently not at its highest and best use.  Then you can purchase that land. 

Once you are “on title” you can change the use.  Then you can sell the property for its increased value based on its better use. This is called entitling the property.

For example, a strawberry grower has those 20 acres in Encinitas that were mentioned earlier.  He is NOT using the land to its highest and best use.  He knows that.  He also knows that the land is worth more than the typical 20 acre agricultural parcel.  But what is it worth?  It is still just a 20 acre parcel of agricultural land.

To maximize its value the zoning might have to be changed.  Also, it needs to be sub-divided into more useful parcel sizes.  If the zoning is changed and the sub-division is platted and recorded, then the property has increased value based on its higher and better use.  Maybe this value is 2 or 3 times what the farmer expected and got for the land.  Maybe more!


So far we haven’t touched the land but we have “created” more value.  Maybe we want to actually do something to the land, like cut roadways, bring in utilities, put in sewers, put in curbs and gutters, and put up a sign announcing “building lots” available.  We have created significantly more value.  We have many options on what we can do with land.


Everywhere you look, you will find under-utilized property.  Vacant lots in the middle of an otherwise fully developed neighborhood.  A house along a busy commercially zoned street.  A duplex on a lot that could accommodate 10 units.

If we “believe” that certain areas of the country will continue to experience growth, then we should also believe that those areas will have many opportunities for use change.

If Southern California continues to grow, then San Diego County will undoubtedly be affected.  Land in places such as Bonsall, Ramona, and Valley Center are on the leading edge of use change.  But there are more opportunities than just that.

Older cities with Downtowns like San Diego, Chula Vista, Carlsbad, Oceanside, and Escondido are all experiencing growth and renewal at their very cores.

The real estate market is not dead!  The LAND BOOM is just getting into high gear.  There are opportunities everywhere.


If you would like to better understand your options in utilizing land to secure your retirement or as a good investment strategy, give me a call at 619-244-4610.

Bill Roberts

Risk vs Utility – What Baby Boomers Need To Know

October 27, 2011 by · 6 Comments 

Let us say you are an average American Baby Boomer. You are thinking about retirement.You probably have $75,000 in assets available for your retirement per Fidelity. This is your dilemma.

What exactly does this mean? Can you really use this $75,000 for your retirement? What are you going to do:

  •    Consume your assets to supplement your other retirement monies?
  •    Only consume the interest (growth) to supplement your other retirement monies?
  •    Consume the asset and the interest it generates over a certain time period to supplement your other retirement monies?

Let us look at these three strategies which represent most of the strategies Financial Planners will recommend to you.

The Analysis:

Step 1

  1. What will it cost you to live after retirement?
  2. How much do you have coming in to support retirement?
  3. How much will you have to take from your $75.000 retirement assets to make up the difference?

1 – 2 = 3

It doesn’t matter which option the Financial Planner recommended, Step 1 is the reality. For example, if your maintenance is $100,000 and your annual retirement income is $50,000, then the very first year of your retirement you are going to need to deplete your retirement assets by $50,000. This will only leave you a little over $25,000 in your asset account.

You will be BROKE in six months. There is no Step 2.

So what are your REAL OPTIONS?

  1. Work until you die.
  2. Cut back your lifestyle (drastically).
  3. Move to another country.
  4. Grow that $75,000 to more than a million dollars.

If you really want to be able to retire without cutting back your lifestyle or moving out of the country, what can you do?

First you have to come to grips with the idea that your $75,000 has very little utility.

If the first option, “work until you die” is your only real choice, that $75,000 either represents something to leave to your heirs or something to consume to make your life more enjoyable. Since you are not going retire it is NOT retirement money.

If those choices aren’t that desirable, you might want to consider the fourth option: “Grow your $75,000 to more than $1,000,000.”

Therefore your utility for that $75,000 is quite low (you don’t really need it) , but your utility for one million dollars is quite high (you would really benefit from having it). Any risk is OK if it leads to your goal because your utility for the money put at risk is quite low.

Most Financial Planners and Advisers will tell you that as you approach retirement age you need safety such as bonds, CDs, and dividend stocks because these are your retirement funds. Just how wrong can they be?

You can now see the stupidity of that advice. “Safety” means a low return on investment (ROI). This strategy will probably get you a net return somewhere between 1% and 8% per year.

An ROI of 1% doesn’t even keep up with inflation. Maybe an ROI of 8% will keep up with inflation, but who knows?

What we do know is that 8% compounded will double your investment approximately every eight years. And the gain will be taxable unless it is in a ROTH IRA or tax-free bonds. Matter-of-fact the entire asset is probably taxable.

You figure it out, the longer you persue this strategy,the worse off you will be.

This isn’t a vehicle to take you somewhere, it is a merry-go-round. You keep riding but go nowhere.

If you want off that merry-go-round you need to change your attitude toward RISK. 

 The utility of that $75,000 is almost zero, but the utility of $1,000,000 (which just might allow you to actually retire) is quite high.

If you insist on LOW RISK, you will NEVER RETIRE. Keep your eye on the prize. 

Retirement can be achieved if you have enough assets. Your number 1 strategy must be to grow those assets.

Remember, if you lose that $75,000 it won’t affect your retirement choices, but…

If you grow your retirement assets to at least $1,000,000, you have affected retirement choices. It is a matter of   UTILITY vs RISK.

 Bill Roberts

Fair Isaac, Is It Really Fair?

August 1, 2011 by · 1 Comment 

Fair Isaac: Fair Or Unfair? A Reprise By Bill Roberts 

I originally wrote this three years ago. Nothing much has changed. Nothing much for the better that is. A few bad things have happened. Lenders are now requiring a FICO score to get an FHA loan, and they are making these loans subject to a tier system which requires a larger down payment for the bottom tier. This is counter-productive.  The people in the greatest need for FHA financing are finding it to be more allusive than ever. So let’s look at this situation:

The Fair Isaac company rates everybody’s credit.

They do it for the banks and mortgage companies. Not for us!

It is called your FICO score. FICO stands for Fair Isaac COrporation.

Because of the turmoil in our economy many people are seeing their credit scores plummet.

Is that fair?

The banks can’t manage their own affairs. A lot of them are BANKRUPT. Many more are in big trouble. They aren’t credit worthy yet they have gotten over a TRILLION DOLLARS of credit from us. The U.S. Government (that’s us) has bailed them out. And they want more.

It is time for them (the banks) to ease up on credit requirements to get things going again.

Who are they to demand better credit from us in order to borrow money than they themselves have? Their credit stinks.

Such Arrogance

It is time that we demand Fair Isaac to shut down FICO.

If we are going to “forgive and forget” that the banks are not credit worthy, then they should do the same for us.

Our economy needs credit in order to function. We need to be able to buy cars, refrigerators, and houses. We need credit. We all need credit, not just those with 750 credit scores.

Those arrogant bastards will only lend to you if your credit is unblemished even though they themselves don’t have unblemished credit.

America needs fairness in credit. We don’t need (or want) Fair Isaac.

Our credit mess wasn’t caused by people buying houses without a good credit score.

Our credit mess is the result of our financial institutions behaving very badly and not taking into account what would happen if real estate prices fell.

Well, real estate prices did fall, and as they fell the housing speculators (the flippers) couldn’t maintain their investments. They needed prices to go up in order for them to get back their purchase price, their holding costs, their transactions costs, and everything else that they paid.

When prices went down they couldn’t get their money back. They bailed out of the market. Prices went down some more.

People who had bought on the upswing found themselves UPSIDE DOWN. They owed more than their house was worth.

As their adjustable rate mortgages (ARMs) reset or recast they found themselves unable (or unwilling) to make their payments. So they bailed out of their houses too.

Foreclosures were rampant. Prices were in FREE FALL.

Everybody has been affected by this situation.

Our economy requires a healthy housing market. It can generate many jobs across the entire spectrum of our economy from home builders (all the trades) to transportation, to all the manufacturers of all components of home building and furnishing, to the manufacturers of automobiles and other consumer goods. A healthy housing market puts many people back work.

Get rid of FICO. Recover the economy. Everybody wins.