Residual land value (RLV)
Residual land value is the maximum amount you can pay for the site and still hit your target profit on cost. It's the answer to 'what is this site worth to me as a developer?'
Formula
Target profit = (TDC excluding land + RLV) × target profit on cost. Solve iteratively or use a residual model.
Why it matters
RLV is the most useful number on a site screen. It tells you the maximum you can offer the vendor before the project stops making sense at your hurdle. Most acquisitions teams calculate RLV first and only progress sites where the asking price sits comfortably below RLV.
Worked example
For the Waterloo scheme with net realisation $26.2M, non-land TDC $16.9M, and a target profit on cost of 20%:
- Solve: RLV such that ($26.2M − $16.9M − RLV) / ($16.9M + RLV) = 20%.
- This gives RLV ≈ $5.45M.
If the vendor is asking $7.2M, the deal doesn't work at a 20% profit on cost — even before allowing for stamp duty and legals on the land.
Questions
Frequently asked
Should RLV include stamp duty?
Most developers calculate RLV inclusive of stamp duty and acquisition costs — it's the all-in number you can pay. Always confirm which convention is being used in any RLV figure shared with you.
How sensitive is RLV to the target return?
Very. A 2-percentage-point change in target profit on cost can move RLV by 10–20%. Always run RLV at multiple hurdles and look at the range, not a single number.
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