How do you determine how much your piece of land is really worth?
Over expectation is one of the main reasons land doesn't get developed, and over expectation is often fuelled by a lack of knowledge of the land valuing process.
Essentially there is only one realistic way of determining how much a piece of land for development is worth, its called the residual valuation method. A residual valuation reverse engineers the numbers associated with developing a piece of land.
GDV - TDC - DP = SV
You start by working out the Gross Development Value (GDV), which is essentially the value of the properties once built. Next, you take away the Total Development Costs (TDC), these will include the build costs, developer contributions, finance, professional fees, planning fees, sales costs and reports & surveys. Finally, you take away the Developer's Profit (DP), which is commonly 20% of the GDV. What you are left with is the Site Value (SV).
Achievable Land Value vs Theoretical Land Value
In order to start things off on the right foot you must first look at a scheme that is likely to be acceptable by the Local Planning Authority, desirable for developers to build and services local need.
There's no good getting your hopes up just because, in theory, you could fit 10 x 5 bed executive homes on our land. Yes, this will likely deliver the highest GDV possible, however, the Local Planning Authority could refuse the application, a developer could be put off by the amount of risk associated with high value properties, or the local area has enough of those types of properties already, or in a lot of cases all of the above.
The key to actually achieving a significant uplift in your land value and releasing profit from your asset is selling it either with planning, or based on achieving planning, for a scheme that is acceptable, desirable and in need.
A great example of this in may areas of the UK, is a scheme for 2 & 3 bed affordable family homes. Affordability is an increasing issue for first time buyers and growing families, and are therefore in need. Local Planning Authorities are looking for more sites to be brought forward offering good quality, affordable properties, thus sustaining communities. These types of properties are desirable to developers as they is a higher demand for both sales and rentals and they are able to obtain funding easier, in comparison to high value homes.
If you have land and want to make money, make an impact and leave a legacy then get in touch to see how Your Land Partner can help you make it happen.