6/1/2023 0 Comments Residual income formulaThese highest-and-best-use factors affect the feasibility of your development plans, as well as the sale and lease prices, and ultimately, the residual value. Wetlands, woods, protected areas, potential contamination, and soil quality are attributes to know about when determining what can be done and how costly it would be to remedy any issues before buying or redeveloping. This is fairly obvious to spot if there is a slope or steep grade, which, like an oddly shaped lot, can affect the ability to build without extra expenses and potential liability.Įnvironmental or geotechnical attributes. Oddly shaped parcels of land are harder to utilize to their full potential, therefore generally have a lower resale value. This will have an effect on what can be built while still leaving room for parking, loading/unloading, and easements. For example, if you’re redeveloping a gas station property into a retail store, zoning laws, easements, and environmental factors will play a role in whether it’s legally possible. Physical Land-Use Factorsīefore developing, it’s imperative to consider the physical land-use factors of the parcel. In addition to examining the types of properties already in the area, demographic patterns, geographical data, and general market trends, you’ll also want to look at interest rates, consumer attitudes, and the general state of the economy in that area. The information you find when digging into the market will have an effect on the value. To do this, determine the gross development value (GDV), or the highest and best use, by examining the site and studying market trends. The first step is to examine the viability of the development plan. Gross Development Value: Deciding the Highest & Best Use If you end up paying too much money for the land or exceed development expenses, you could end up losing money.Ĭalculating the residual land value helps determine the potential profitability of the property once all development costs are paid. This is especially important because you want to make a profit after all development costs are paid. If you haven’t purchased the property yet, the residual land and property valuation can show you what you can afford to pay for the land you plan on developing. Thoroughly and accurately pre-plan a commercial real estate (CRE) project.Unlike other methods of estimating value, it is used at the beginning stages of development or redevelopment in order to: If you wish to know the value of land with development potential, you would use the residual method of determining that value. What is Residual Land Valuation & Why is it Useful?
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