The calculation of GDV is vital for two reasons:
GDV minus land acquisition and associated costs minus build costs minus fees and transaction costs = PROFIT
As it is a central component for your next property development, how do you calculate GDV?
Would you not prefer to be a successful property developer? Of course, you would! So make sure you download the Six Practical And Effective Tips To Make A Success Of Property Development today.
>> EXCLUSIVE <<
You cannot take a crystal ball and see into the future, so you need to base it on research on the price that the units will sell for in the current economic climate, and not when your development is completed.
In order to do your research and give the rationale behind your GDV figures, keeping your finger on the pulse of the local market can be done in a number of ways.
You need to be aware of:
Getting the opinion of two or three Estate Agents which will give you strong comparable open market prices and enable you to justify your GDV figure.
Here is an example of a proposed development of a block of 9 apartments in London. Having obtained 3 valuations from different Estate Agents, the developer can pitch the average GDV of £3,975,750 when speaking to lenders.
|Estate Agent 1
|Estate Agent 2
|Estate Agent 3
|GDV – 9 units
If you are proposing to rent the properties on your development project, then you will base your calculations on the achievable rental income from tenants.
Whether you aim for a capital or a rental return, this important valuation metric needs to be as close as possible to the development’s worth on the open market.
Sorry for the pun but GDV is the foundation on which you build your financial package. So don’t underestimate how important it is for both investor funding and profit calculation as, just like the real foundations of a building – everything else rises or collapses on this assumption.
Have a look at the profile of your prospective buyer. Do your properties have a USP that makes you stand out from other properties that might add value to the purchaser?
With all successful property transactions, you need to target your buyer profile and build to meet their expectations.
Getting your property development off the ground requires funding.
An investor will want to see:
You have the best chance of acquiring funding if you are accurate with your financial assumptions and don’t inflate the figures. Your lender will undertake due diligence and get their own valuers to check the details of your financial projections in your development appraisal. It is not easy if you are new to property development, but don’t exaggerate your experience as this will also be assessed by their expert team.
Developing an exit strategy is an effective way to reduce risk and to protect your profit. Your exit models can demonstrate the value of GDV at (a) the best result, (b) the most likely result and (c) a trimmed result. Each lender will have a different appetite for risk and showing evidence of achieving GDV on previous projects will support your application.
Who do you approach for funding? The investor who funded your last project may not be the best one for your next development project. Finance brokers will have a larger number of contacts and with their knowledge of current property deals they will be able to source the very best terms which may be better than you can achieve with your own contacts.
Finding a flexible and supportive funding partner will make a successful project development.