Working out what a site is worth is circular. What you can pay for the land depends on your finance cost and your profit, and both of those depend on what you pay for the land. This solves it properly, tells you the most you can pay and still hit your target return, and then stress tests it.
Residual land value calculator
A full development appraisal from gross development value down to what the land is worth. Nothing is sent anywhere and nothing is stored.
1. What it will sell for
2. What it will cost to build
3. Selling, finance and profit
Stress test
Each row changes one thing and leaves everything else alone, except the last, which applies all three at once. If the land value stays above the asking price in every row, the site is robust. If it collapses in one of them, that is where your risk sits.
Why this cannot be done on the back of an envelope
A development appraisal is circular. Your finance cost depends on how much you borrow, which depends on what the land costs. Your profit is measured against total cost, which includes the land. So you cannot work out the land value without knowing the finance and profit, and you cannot work out the finance and profit without knowing the land value.
Most simple calculators dodge this by asking you for the land price and ignoring the interest on it, which produces a land value that is too high, usually by more than the contingency. This one solves the circularity exactly, so the residual figure it gives you delivers precisely the return you asked for, including the interest on the money used to buy the land in the first place.
Be conservative with the gross development value
Gross development value is the total the finished scheme sells for. It is the largest number in the appraisal and it moves the answer more than anything else, because every pound of GDV lost comes straight off the land value and takes some of your profit with it.
Use achieved prices for comparable finished units in the same postcode, not asking prices, and not the prices you hope the market will reach by the time you finish. The stress test above drops GDV by ten percent for a reason: a surveyor coming in ten percent under your estimate is the single most common way a development deal turns from good to marginal.
The build cost is where sites are actually lost
A rate per square foot taken off the internet is not a build cost. It is a guess, and on a scheme of any size a guess ten percent out will wipe out the land value entirely, which you can see by running the stress test.
Get a quantity surveyor to price it, or at minimum use BCIS rates adjusted for your region and specification. Then look separately at the abnormals, which is where the surprises live: contaminated ground, services diversions, retaining structures, poor access, drainage, an unexpected sewer easement. Those go in the other construction costs box and they are not covered by a rate per square foot.
Contingency is not optional
Five percent on the build cost is the minimum a lender will expect on a new build, and ten percent is normal on a conversion or a refurbishment where you cannot see what you are buying until the walls come down. Setting it to zero to make a site work is the clearest sign that the site does not work.
Profit on cost, not profit on GDV
Lenders assess development schemes on profit on cost, and most will want to see at least twenty percent before they will lend, with less appetite below that and questions asked above thirty. Profit on GDV produces a flattering number, because GDV is a bigger denominator, so twenty percent on GDV is roughly twenty five percent on cost.
Use profit on cost if you want the figure your lender will look at. Switch the basis in the calculator and you can see how much the presentation changes the same underlying deal.
How the finance actually costs less than you think
The calculator assumes the land is funded from day one and drawn in full, while the build is drawn in stages, so interest on the construction element runs on an average of about half the facility across the term. That is how development finance works, and it is why a development facility is cheaper than a bridge of the same size and rate.
Our development finance drawdown calculator models the drawdowns month by month if you want the interest figure properly rather than the appraisal approximation used here. If you are buying the site before planning and refinancing onto a development facility afterwards, the bridging loan cost calculator prices that first stage.
Run the stress test before you offer
Three things go wrong on development sites, and they tend to go wrong together. Sale values come in under estimate. Build costs run over. The programme slips, so you pay interest for longer and sell into a different market.
The stress test applies each one on its own and then all three at once. A site that still supports the asking price when GDV is down ten percent, build is up ten percent and the programme has slipped three months is a genuinely good site. One that only works on the original numbers is a site where you are relying on nothing going wrong, and something usually does.
What this does not include
- Any planning risk. The appraisal assumes you get the consent you have assumed.
- VAT, which on new build residential is zero rated for sales but recoverable in a way that affects cash flow, and on conversions and commercial works follows different rules entirely.
- Corporation tax on the profit, or any tax planning.
- Affordable housing requirements beyond whatever you put in the section 106 box.
- Phasing and part sales, where early receipts reduce the peak debt and improve the return.
- Whether a lender will fund it. Development finance depends heavily on your track record and the strength of the professional team, not just the numbers.
Get the site funded before you commit
Development lenders look at the appraisal, the professional team and your track record, and they will run their own numbers on all three. Sending them a site that fails their profit on cost test wastes everyone’s time. Send us the appraisal first and we will tell you whether it is fundable, what the terms would look like, and what a lender will question before they question it.
Or try our other calculators.
This calculator is provided for illustration and general information only. It is not a valuation, a development appraisal for lending purposes, financial advice or an offer of finance, and it is not a substitute for a formal appraisal by a chartered surveyor or a cost plan by a quantity surveyor. Finance costs are approximated using the standard appraisal convention of full drawdown on land and average drawdown on construction. VAT, tax and planning risk are not modelled. Every figure depends entirely on the inputs you provide. Bolton Business Finance Ltd is a commercial finance broker and not a lender, and is not authorised or regulated by the Financial Conduct Authority. We arrange non-regulated, business purpose commercial finance only.