How much should you pay for a development site?

I’m not here to tell you what the acquisition number is for the site you might be looking at but I am here to help you get an understanding of what a reasonable price is that you might be able to pay.

There are things that we, as property developers, can do to make our lives easier and to filter through potential development sites quickly and efficiently. Undertaking a high level feasibility study, or a residual land value (RLV) calculation as I like to call it, can give you a great indication of what price you may be able to pay for a site, subject to further due diligence.

An RLV is quick and easy. It is not very accurate however it fulfils a very specific purpose, time and cost saving during site acquisition.

To undertake a fully fledged feasibility study take a lot of time, effort and requires expert advice from people such as architects and town planners. If due diligence cost $10,000 per site you look at and you look at 10 sites a week, you won’t have much money left for a project.

What you need to do is filter through your opportunities quickly.

In my YouTube video below (click on the image), I share with you how I prepare an RLV calculation. I use MS Excel in this example but you can use any spreadsheet software you like. I also use Google Sheets for these.

So that’s it. That’s what I do to filter through sites quickly and efficiently.

The critical thing, as I point out in the video, is NOT to make an offer to purchase a site based upon an RLV. You must do substantial additional due diligence before you are able to move forward.

Property Development Institute is here to help you with your property development education though any one of our courses but probably best of all, we offer a limited number of 12 month mentoring places each year where you get to spend 12 months with me.

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