Methodology - Residual Land Value
I have a question to ask our fellow RE monkeys regarding residual land value.
Typically when we look at a development project, we consider today's value (as if the project is fully stabilized and operating) and the trended value (with inflation as the development will be 2-3 years out). In calculating the residual land value using the project value - development cost-profit we arrive at the land price we consider going in at. If we were to acquire the land at the residual land value, would the project value be based on today's value or the trended value (which includes all the inflation)?
Personally, given the way you set up this question... I'd only look at the residual value on "today's value", and trending land prices after development makes no sense from my viewpoint. That said..... if you mean "trended" value to be "stabilized" value (which is not how you explain it, but is what is usually meant by value 2-3 after co), then maybe some more backward intuition is worthwhile.
To be honest, backing into a residual value comes from your expected hold and required profit margin as much as anything, so it kinda shouldn't matter if the point is to figure out how much you can max pay for the dirt. If you are trying to value from an appraisal/valuation standpoint, then a bit different for sure.
Thanks for the response, typically from my firm UW perspective, both today and trended UW is “stabilized UW”. It’s just a matter of what lens are we looking at this from.
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