For all those untrained investors, pricing a land for development is quite difficult task that takes lots of considerations. However, using comparables for land can be also dangerous for developers as it is unexplained that cause the failure of what was some fantastic development for niche separation of both residential and commercial real estate.
Moreover, there is one commonly used and accepted land valuation method for savvy investors that widely adopted by lots of development professionals, appraisers and corporations. With the help of this effective method, users are able to determine the current as well as future value of any land no matter whether it is for residential or commercial use.
You are also able to price any land like any development that you propose will have built-in profit. In just few simple moments, you can also employ the land residual method with some practice. When it comes to a land residual method, it has conjure sounding name; however to use it all you need is an understanding of some simple math.
Moreover, this is a calculation method that takes the highest and best use of a certain piece of property and subtracts the total cost of development to appear at the residual value. Once you have the numbers it’s that simple yet easy. Well, how do you get the numbers? As it requires some amount of research, but a beginner investor can also figure it out comparatively quickly.
This blog contains 6 easy yet straight-forward ways to price your real estate land for profit, so check-out these ways and easily price your land:
Use & Value
Have you heard the term Location that thrown around in different real estate circles? When developing a land, it is not true while developing land. However, it is not recommended to use comparables for compulsory for valuing the land.
Generally, it is accepted that land near the ocean or any other high priced passage has a higher inherent value that land based further away a hub or commercial center. Moreover, the value of any property is determined by its highest and best use.
A one piece of property that can be developed into a regional shopping mall costs more value as compare to any other property that developed into a single family home. It is because the end use of the earlier has higher finished value than the latter. Materials’ value is more and the expected income from renting or purchasing the first is considerably more valuable than the second. All it comes down to profit as well as return on investment.
Cost of Development
We all know that the development cost of any land is varying widely from state and city to city. It also depends on some major things like the amount of work in the area, the price to serve materials to your website.
It is advisable to investors to research the market by calling local developers when estimating development costs. It is also better to talk with the contractors and find out what the going rate for material and labor is. One can also talk to local builder’s associations.
Mainly, there are two ways to estimate costs – one is a $/sf method, or actually go line item by line item. However, the second method can only be done while having a list of all the line items that required to build your home. Among both these methods, the $/sf method is a lot easier to obtain, but not as correct as the line item method.
Maximum Offer Price
First of all, you need to take your residual land value and then have to minus your profit on cost and your estimated profit on the land cost – this way you can easily determine the maximum land offer price. For instance – the final land value and max offer price is $215,000 ($305,000 – 90,000 = $215,000). In the example, the property cited and I like to sell no more than $215,000 to purchase their piece of land. It makes sure that I can get development done and earn huge profit.
So, these are simple ways to price a real estate land for profit and to get lots of benefits. Moreover, if you are looking to get real estate development service, you can send us your inquiry and our developers will quick back to you with a solution.