Sourcing land is a complex process with many factors to consider. To get the numbers right, it is important to be organised, efficient, and accurate. By following the best practices discussed in this blog, you can increase your chances of making a well-informed decision.
Using cloud-based appraisal software to organise your appraisals would be your best bet. It's a more secure, efficient, and collaborative way to manage your data. Spreadsheets, on the other hand, are more prone to errors and can be difficult to share and collaborate on. We strongly recommend Aprao which allows you to store and manage all of your existing and archived projects, with unlimited versions of appraisals within each project. The best part is that it allows multiple users to access and edit appraisals on any device, at any time, and it automatically backs up data.
Aprao’s built-in template feature provides example and customizable templates that can help users quickly assess the feasibility of a site. If you have a land team, you can set up standardised appraisal templates that each team member can use on any scenario and give consistent and comparable outputs. These appraisal templates can help you calculate the numbers you need in bulk, and allow you to make offers ahead of the competition.
When you're sourcing sites, it's important to create various versions of appraisals for each of the sites that you are looking at. This means modelling different scenarios for the site, such as different uses, different development mixes, and even different funding structures. By creating versions of appraisals, you can get a better understanding of the potential of each site and have all of them managed under one project card. In addition, an appraisal is not just a set-and-forget exercise. Continuously update your numbers to ensure you are aware of your current position. On Aprao, you can simply duplicate an existing version of appraisal, then update and save a new version for it. When it is done, set it as the primary appraisal so everyone on the team knows!
When you're calculating the costs of a site, it's important to include your finance costs. This includes the interest you'll pay on the loan, as well as any other financing fees. You’ll also need to be mindful of the finance stack structure: How much percentage of the project will be funded by debt and equity respectively? What is the order of each loan to be drawn and repaid during the project period? What would be the optimal way to utilise the full loan facility and equity available on hand to maximise profitability while minimising interest costs? The one-page finance tab of Aprao automates all these for you. By inputting initial assumptions and parameters, Aprao generates a finance summary on the same page that adjusts dynamically when the inputs change. By calculating your finance costs, you can get a more accurate picture of the overall costs of the site, compare various funding structures on the same project and avoid manual errors when running all these numbers.
Sensitivity analysis is a technique that can help you understand how your numbers change when you make different assumptions. We do our best to make sound assumptions and estimations but things do not always go as expected. A comprehensive development appraisal should always include a sensitivity analysis which helps any stakeholders to assess the risk profile of the property development. Key assumptions that drive your numbers are often the gross development value (GDV) and the build cost that you estimate. You would like to see their impacts on key performance metrics e.g. return on cost and total profit. If you are calculating a residual value for the site based on your margin or target return, make sure that they are realistic and use the sensitivity analysis to demonstrate the reasoning behind the offer made.
When you're presenting your numbers to stakeholders, it's important to produce professional reports. These reports should be clear, concise, and easy to understand. They should also include all of the relevant information, such as the assumptions, the calculations, and the results. Aprao's one-click report generation feature produces a well-presented report that can be sent out to lenders, investors and any stakeholders.
By following the best practices discussed in this blog, you can increase your chances of making a well-informed decision when sourcing land. Aprao's cloud-based appraisal software can help you organise your projects and appraisals, create templates and versions, calculate finance costs, conduct sensitivity analysis, and generate professional reports. Go to Aprao’s Blog to learn more about their other advanced features.
Want to give it a go and create your first appraisal on Aprao? Click here to sign up for a free 14 day trial of Aprao and Existing customers can log in here.
One of our experts can walk you through the platform in a live session, one-to-one.