If you've spent any time in the real estate industry, you've probably heard the phrase "GDV," or gross development value. But what does it really imply, and why is it so significant? Allow me to explain it simply.
When a property development project is finished and prepared for sale, lease, or occupancy, its overall value is estimated using a crucial real estate metric called gross development value, or GDV.
To assist stakeholders, investors, and developers in determining a project's prospective profitability and financial feasibility, it is crucial. Simply put, it calculates the potential market value of your property development project upon completion of all development work.
It is a prime metric in real estate development, here’s why:
Numerous factors, including development quality, market conditions, property type, location, and economic factors, influence GDV.
GDV isn't just a number; it's the cornerstone of your property development project. Here's why it's so crucial:
Projected Profit Levels: It calculates your project's expected profit. By accurately calculating it, you can assess whether the potential returns justify the investment.
Investor Funding: When seeking funding for your project, lenders and investors will closely scrutinise your GDV. It serves as a key indicator of the project's viability and potential returns, influencing their decision to provide financing.
How to Calculate Gross Development Value?
You can use the following formula to calculate GDV
To effectively calculate GDV, you need to base it on current market values and property transactions. Here's a step-by-step guide:
Research: Gather data on current property prices, recent sales of similar properties, and any unique features of your development that could add value.
Consult Estate Agents: Obtain valuations from multiple estate agents to get a comprehensive understanding of market trends and comparable prices.
Rental Income: Determine GDV based on potential tenant rental income if you intend to rent out the premises.
Justify Your Figures: In your financial appraisals, provide a rationale for your GDV figures, demonstrating how you arrived at them based on current market conditions.
Get RICS Valuation: A RICS valuer can certify your project’s GDV which will then be acceptable by lenders and investors.
Investors evaluate GDV to determine your project's financial feasibility and profitability. Here's what they look for:
Property Development Experience: Your track record of managing past developments is critical in gaining investor confidence.
Exit Strategy: Create a clear exit strategy outlining how you intend to realise the GDV and repay investors.
Accuracy and Transparency: Avoid inflating figures or exaggerating your experience, as investors conduct due diligence to verify the accuracy of your projections. A RICS Valuation is the best way to avoid GDV disputes.
Lenders evaluate GDV according to predetermined standards before funding development projects. Here's what you need to know:
Calculation Methods: Different lenders use varying methods to determine GDV and assess affordability. Lenders typically prefer to see a minimum profit margin of 20% built into the development plan.
Day One Valuation: Lenders may conduct a day one valuation, deducting expenses and development costs from the GDV to determine the initial loan value.
Expert Guidance: If you're unsure about calculating GDV or navigating the lending process, seek guidance from development finance experts to ensure accuracy and compliance. Lenders will mandatorily ask for a full RICS valuation to be undertaken at the borrower’s cost.
Simply put, the application of gross development value (GDV) unlocks the potential of any real estate project. Developers can attract investors and get financing by precisely calculating GDV based on current market data and clearly justifying their estimates. GDV is a measure of a project's viability and profitability that takes into account several aspects, such as property type, location, and economic conditions. It is more than just a number. With a clear understanding of GDV's significance and strategic calculation, real estate ventures can thrive in today's dynamic market landscape.
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