Learn more about property development, building and construction to improve your chances of success in this exciting but often complex area of property investment.

Many successful property investors become involved with property development and construction projects as they gain experience and their property investment activities become more sophisticated. Such activities can range from simple remodeling and the refurbishment of existing buildings, to highly complex multi-million pound new-build construction projects. Property development projects can be demanding at the best of times and bring with them their own unique challenges, risks and rewards. It is therefore essential that the prudent property developer is familiar with the processes involved, the rules and regulations, best practice procedures, opportunities and pitfalls so as to better manage their risk and improve their chances of achieving success.

Investment Property Partners has brought together a series of helpful guides, articles and other resources written specifically for property investors and developers exploring opportunities involving construction and property development. Learn more about issues affecting property development, remodeling and refurbishment, building, construction and more.

 

 

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

Gross development value, or GDV as it is commonly known in property circles, is an important valuation metric that all investors and property developers need to be familiar with when building their project and financial appraisals. The gross development value of a property investment project can be calculated to give a near accurate figure of what that property or real estate development project may be worth on the open market once all development works have been completed.

Gross development value is an essential tool for any real estate investor or property developer as it forms a key component in the development appraisal process.

Without an accurate gross development value any pre-acquisition or pre-development financial projections may be seriously flawed and the property developers risks increased significantly.

What is Gross Development Value (GDV)?

To many property developers, GDV is one of the most important performance metrics that they will monitor throughout the course of a project as it helps to highlight the capital and rental value of their property or development project when all redevelopment works have been completed.

In other words, it will show if a profit has been, or will be made from the development project, and at what level.

Gross development value should never be underestimated, it is the foundation to any property development appraisal and is the one performance metric that impacts on all other major aspects of the evaluation.

Put simply, gross development value is the estimated value that a property or new development would fetch on the open market if it were to be sold in the current economic climate.

How to Calculate Gross Development Value

So, how is GDV calculated?

Generally, if a near accurate valuation is to be created for a property development project or purchase, then current property sales prices and recent transactions in the area for similar properties would be carefully analysed – this would provide a comparable estimate of what properties in the same area are selling for and therefore what you could expect your property to fetch.

Developing to Let & Rental Values

For some property developers however, sales prices aren’t the biggest concern.

Instead, establishing rental values and recent local lettings of similar properties will be of primary interest.

This is because on completion of their project they may want to let the property to tenants either on a residential or commercial basis.

If a developer wants to let a property or development, they will have to look at recent lettings in the same area to find comparable rental values.

This information can usually be obtained from local lettings agents or specialist firms of valuation surveyors.

This will help to establish how much the developer can expect to take in rent on a per month, per annum etc. basis.

Gross Development Value… a Key Performance Metric

As a calculation, the gross development value should never be underestimated.

It is the foundation to any property development project appraisal and is the one performance metric that impacts on all other major aspects, such as the acquisition cost of development site, the cost of the construction and enabling works; developers profit; and, more importantly, the likelihood of a successful financial outcome.

Residual Method of Appraisal

The method of development appraisal that incorporates the GDV calculation is the residual method of valuation and you can approach this in a couple of different ways.

The most common and most basic formula to estimate the general value is as follows:

Land = GDV – (Construction + Fees + Profit)

 

Where:

Land = 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

Calculating Property Developers Profit

An alternative form of the residual assessment can be used by reconfiguring the above formula to calculate the property developers profit:

Profit = GDV – (Construction + Fees + Land)

 

The second form of this formula is a more traditional way of assessing the financial viability of a property development project as it helps to highlight the developers profit so an assessment can be made at the outset as to the projects viability.

Specialist Property Investment & Development 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 searching for land, development sites or property finance solutions please contact us today to discuss how Investment Property Partners can help you