• Twitter
  • Facebook
  • LinkedIn
  • Mail
  • Call Me Back
  • About
  • Calculators
  • Contact
📞 Call us on 0330 223 42 52
Investment Property Partners
  • Home
  • Property Investment
    • Commercial Property
    • Buy to Let Property
    • Overseas Property
    • Student Property
    • UK Holiday Homes
    • Development Land
  • Services
    • Property Investment Advisory
    • Property Asset Management
    • Landlord & Tenant
    • Property Management
    • Property Training
  • Finance
    • Finance
      • Commercial Property Finance
      • Bridging Finance
      • Development Finance
      • Peer-to-Peer Lending
      • Buy to Let Mortgages
      • Investment Calculators
    • Insurance
      • Property Insurance
      • Commercial Property Insurance
      • Buy to Let Insurance
  • Training
    • Valuation & Performance
    • Law & Finance
    • Ownership & Diversification
  • Knowledge
    • Property Investment
    • Development & Construction
    • Finance, Valuation & Tax
    • Overseas Property
    • Landlord & Tenant
    • Property Law & Compliance
    • Investment Calculators
  • Search
  • Menu Menu
You are here: Home1 / Development & Construction2 / Residual Method of Valuation for Land, Property & Development Appr...
Residual method of valuation

Residual Method of Valuation for Land, Property & Development Appraisals

In property development circles the residual method of valuation is an essential valuation tool for any aspiring developer as it helps to quickly identify the value of a development site, land or existing buildings that have the potential to be developed or redeveloped.

The words “property development” and “development appraisal” should go hand in hand. This is because without a carefully constructed budget or detailed development appraisal in place, the risks associated with a development opportunity should be considered to be unmanaged and consequently the chances of achieving a successful project outcome are significantly reduced.

Beware – Leaving things to chance is not a good approach and should carry a serious financial health warning for any prospective developer!

Property Development Appraisals

A well thought out property development appraisal will help you identify your cash flow needs, a critical success factor for any developer.

It is worth noting that cash flow, or the lack of it often proves to be the biggest downfall for many property developers, with many also struggling to come to terms with overspending and underfunding.

Detailed Pre-Project Planning

With this in mind, if you are considering a property development project and want to introduce a good element of financial control, and so minimise your financial risks, you should look to build an accurate development appraisal and pre-plan your project thoroughly from start to finish.

Approach your development project as you would any other typical business project and prepare your development appraisal in the same way you would build a business plan.

If you ask most property developers how they begin to build their budget, identify projected expenditure etc. to get it as accurate as possible, they will often tell you that they start with the residual method of valuation to identify what they can afford to pay for a development site, land or buildings that is to be developed or redeveloped.

Residual Method of Valuation for Land & Property

The residual method of valuation involves a fairly simple calculation that helps property developers to determine a realistic value for the land or property purchase.

The numbers that go behind the equation may be more complex but once these have been determined the residual method of appraisal is a fairly simple calculation to perform… but can prove to be incredibly powerful.

Identifying a realistic idea of land or property values in this way helps a property developer to determine other expenditure and the maximum that they can afford to spend on say site preparation, land remediation, build-costs, professional fees etc. to achieve a profitable project outcome.

The equation for the residual method of valuation in its simplest form is as follows:

Land/Property = GDV – (Construction + Fees + Profit)

 

Where:

Land/Property = Purchase price of land/property/site acquisition

GDV = Gross development value

Construction = Building and construction costs

Fees = Fees and transaction costs

Profit = Developers profit required

Going into further detail, the amount available for land/site purchase is one of the biggest components of the residual valuation equation as it can identify exactly how much you should initially pay for the development site or building.

It is important to remember that your residual valuation figure, or what you can afford to pay for the site, is unlikely to be the same as the sellers asking price… but this is where good negotiation skills come in to play.

Components of the Residual Method of Valuation Calculation

The various components to the residual method of valuation calculation are described in detail here:

  • Gross Development Value

    Gross Development Value or GDV as it is commonly known is another important part of the residual method of valuation equation and is something that many experienced property developers are very keen on establishing from the outset.

    Gross Development Value highlights what the final capital value of the completed development is projected to be when it is eventually sold to an interested party.

    The GDV part of the residual equation is based on current values and not projected values.

  • Build Costs & Fees

    Build costs and fees are self-explanatory, with the build costs element including any costs related to the site preparation and construction of the property.

    The fees element covers things such as payments to professionals who are involved in the process – solicitors, planning consultants, architects, engineers, property agents for example.

    Other fees such as planning consents, building regulation consents, 106 agreements etc. should also be included here.

  • Property Developers’ Profit

    Finally, and most importantly the developers profit element also needs to be considered at this early stage, as everything really depends on this figure.

    The property developer will need to have in-mind their required return on their investment… the profit expect to make for all their hard work.

    The amount a developer pays for the development site in the first instance, for example, will all be intrinsically linked to the amount of profit at the end of the project.

Securing Property Development Finance

The residual method of valuation approach to property development appraisal is a great way of establishing accurate figures for many important aspects of a project and is highly recommended to any developer considering a new venture.

Such a prudent approach is an essential component of any property developers risk management strategy, it will also be an essential requirement should you look to secure any form of property development finance as it demonstrates to any lender a clear, financially sound and well thought-out approach.

Specialist Property Development & Property Finance Solutions

As a leading independent property investment specialists Investment Property Partners offer expert advice and support to clients across our specialist areas of expertise helping them to achieve their investment objectives.

If you are a property developer searching for development opportunities, building land or development finance solutions please contact us today to discuss how Investment Property Partners can help you.

Contact Us Today

Further reading…

More information about methods used for property valuation in the UK… here →

Investment Property Partners… Google+ →

Tags: Development appraisal, Development land, Property finance, Residual method of valuation
Share this entry
  • Share on Facebook
  • Share on Twitter
  • Share on WhatsApp
  • Share on Pinterest
  • Share on LinkedIn
  • Share on Tumblr
  • Share on Reddit
You might also like
Buy to let mortgage guide Buy to Let Mortgage Guide for Landlords & Property Investors
Capital gains tax property disposals Capital Gains Tax on Property Disposals – Guide for Property Investors
Property yield, calculating yields and return on investment Property Yield – Calculating Property Yields & Return on Investment (ROI)
Self build mortgages Self Build Mortgages – Financing Your Self Build Home
Gross development value Gross Development Value (GDV) – Property Developers Guide to Financial Appraisals
SIPP commercial property investment SIPP Commercial Property Investment & Pensions Guide
Commercial property valuation using the profits method Commercial Property Valuation Using the Profits Method
Selling property using an estate agent Selling Property using an Estate Agent

Search…

Property Knowledge

  • Property Knowledge
  • Property Investment
  • Development & Construction
  • Overseas Property
  • Finance, Valuation & Tax
  • Landlord & Tenant
  • Property Law & Compliance
  • Investment Calculators

REVIEWS

4.8
Rated 4.8 out of 5
4.8 out of 5 stars (based on 13 reviews)
Read our reviews

What’s New

  • Customer Reviews for Investment Property Partners

    Customer Reviews for Investment Property Partners
  • Commercial Property Investment – Guide to Investing in UK Commercial Properties

    Commercial Property Investment – Guide to Investing in UK Commercial Properties

    If you are a property investor considering commercial property …
  • Manchester Property Investment – Buying Investment Property in Manchester

    Manchester Property Investment – Buying Investment Property in Manchester

  • Gross Development Value (GDV) – Property Developers Guide to Financial Appraisals

    Gross Development Value (GDV) – Property Developers Guide to Financial Appraisals

    Gross development value, or GDV as it is commonly …
  • Property for Sale

    Property for Sale

    Search for investment property for sale in the UK, …
  • Buying Land for Development or Investment

    Buying Land for Development or Investment

    With a saturated UK housing market, it is hardly …

Popular posts…

  • Gross development value Gross Development Value (GDV) – Property Developers Guide to Financial Appraisals
    Gross development value, or GDV as it is commonly known...
  • Parry's valuation and investment tables Parry’s Valuation & Investment Tables for Property Investment Appraisals & Valuations
    Richard Parry’s Valuation and Investment Tables were fi...
  • Property yield, calculating yields and return on investment Property Yield – Calculating Property Yields & Return on Investment (ROI)
    For property investors the intelligent analysis of the...
  • Residual method of valuation Residual Method of Valuation for Land, Property & Development Appraisals
    In property development circles the residual method of...
  • Commercial property valuation using the profits method Commercial Property Valuation Using the Profits Method
    The profits method of property valuation is typically a...
  • Freehold property, leasehold property and commonhold property Freehold Property, Leasehold & Commonhold Property
    It is very important that property investors, landlords...

Investment Property

Investment Property Partners is a world leading independent real estate and property investment specialist focused on delivering exciting income and capital growth opportunities to private individuals, wealth management specialists, corporate and institutional property investors.

Our expert property investment advisory services are delivered to clients throughout the United Kingdom, Europe and internationally. Combining unparalleled experience, comprehensive capabilities, in-depth research and access to extensive market networks, the experts at Investment Property Partners have the experience and expertise to help you.

Expert In…

  • Property Investment
  • Investment Advisory
  • Property Services
  • Property Finance
  • Property Insurance
  • Property Training
  • Property for Sale

What’s New…

  • Customer Reviews for Investment Property Partners

    Customer Reviews for Investment Property Partners
  • Commercial Property Investment – Guide to Investing in UK Commercial Properties

    Commercial Property Investment – Guide to Investing in UK Commercial Properties

    If you are a property investor considering commercial property investment …
  • Manchester Property Investment – Buying Investment Property in Manchester

    Manchester Property Investment – Buying Investment Property in Manchester

  • Gross Development Value (GDV) – Property Developers Guide to Financial Appraisals

    Gross Development Value (GDV) – Property Developers Guide to Financial Appraisals

    Gross development value, or GDV as it is commonly known …

London

1 Berkeley Street
Mayfair
London W1J 8DJ
0330 223 42 52
[email protected]

Manchester

Pall Mall
61 – 67 King Street
Manchester M2 4PD
0330 223 42 52
[email protected]

GET SOCIAL

Connect with us...

Twitter   Facebook   Google+   LinkedIn

© Copyright 2021 - Investment Property Partners
  • Twitter
  • Facebook
  • LinkedIn
  • Mail
  • Home
  • About
  • Careers
  • Environment
  • Privacy
  • Terms
  • Reviews
  • Sitemap
Buying Retail Shops & Shop Premises – Guide for Property InvestorsBuying retail shops and retail premisesBuying property in SpainBuying Property in Spain – Spanish Property Buyers Guide
Scroll to top

This site uses cookies. By continuing to browse the site, you are agreeing to our use of cookies.

Learn moreOK

Cookie and Privacy Settings



How we use cookies

We may request cookies to be set on your device. We use cookies to let us know when you visit our websites, how you interact with us, to enrich your user experience, and to customize your relationship with our website.

Click on the different category headings to find out more. You can also change some of your preferences. Note that blocking some types of cookies may impact your experience on our websites and the services we are able to offer.

Essential Website Cookies

These cookies are strictly necessary to provide you with services available through our website and to use some of its features.

Because these cookies are strictly necessary to deliver the website, refusing them will have impact how our site functions. You always can block or delete cookies by changing your browser settings and force blocking all cookies on this website. But this will always prompt you to accept/refuse cookies when revisiting our site.

We fully respect if you want to refuse cookies but to avoid asking you again and again kindly allow us to store a cookie for that. You are free to opt out any time or opt in for other cookies to get a better experience. If you refuse cookies we will remove all set cookies in our domain.

We provide you with a list of stored cookies on your computer in our domain so you can check what we stored. Due to security reasons we are not able to show or modify cookies from other domains. You can check these in your browser security settings.

Google Analytics Cookies

These cookies collect information that is used either in aggregate form to help us understand how our website is being used or how effective our marketing campaigns are, or to help us customize our website and application for you in order to enhance your experience.

If you do not want that we track your visit to our site you can disable tracking in your browser here:

Other external services

We also use different external services like Google Webfonts, Google Maps, and external Video providers. Since these providers may collect personal data like your IP address we allow you to block them here. Please be aware that this might heavily reduce the functionality and appearance of our site. Changes will take effect once you reload the page.

Google Webfont Settings:

Google Map Settings:

Google reCaptcha Settings:

Vimeo and Youtube video embeds:

Other cookies

The following cookies are also needed - You can choose if you want to allow them:

Accept settingsHide notification only