How to read this result
In the default example, required developer profit is $1,000,000.00. Results describe this input scenario; they are not a recommendation.
Change one assumption at a time to see how it affects the scenario. Compare periods and cost definitions consistently. Negative results show a modeled shortfall; an unavailable ratio needs a valid denominator.
Formula and methodology
Required developer profit is the entered development value times the target profit percentage. Deduct that profit and entered development, professional and financing/holding costs from completed development value.
Enter percentages as whole numbers: 5 means 5%. When used as a factor, the calculation divides a percentage by 100. Percentage outputs multiply the final ratio by 100. Calculations retain precision internally; displayed amounts and rates are rounded to two decimals.
Variables and input definitions
- Expected development value (USD)
- Expected value of completed project. Minimum: 0.
- Development costs (USD)
- User-entered construction/development cost total. Minimum: 0.
- Professional/permit fees (USD)
- Design, permit and professional fees. Minimum: 0.
- Financing/holding costs (USD)
- Financing and carrying costs. Minimum: 0.
- Target developer profit (% of GDV)
- Required profit assumption. Minimum: 0. Maximum: 100.
Worked example
This example uses the exact prefilled inputs above. Reset defaults to restore this scenario after making changes.
| Item | Default scenario |
|---|---|
| Expected development value | $5,000,000.00 |
| Development costs | $3,000,000.00 |
| Professional/permit fees | $250,000.00 |
| Financing/holding costs | $200,000.00 |
| Target developer profit | 20.00% |
| Item | Default scenario |
|---|---|
| Required developer profit | $1,000,000.00 |
| Residual land value | $550,000.00 |
Assumptions and limitations
Development costs are user inputs. This calculator does not estimate construction quantities or replace a development feasibility/appraisal study.
Results describe this input scenario; they are not a recommendation.
The tool uses values you supply. It does not retrieve market prices, verify leases or inspect a property. Results exclude items outside the listed inputs. Review local requirements and the relevant contract when a payment, fee or allocation depends on them.
Common mistakes
Development value is a completed-project assumption. Development costs are user estimates; this tool does not estimate construction quantities or validate project feasibility.
Sources and method references
These references provide context for the method and terminology. They do not endorse this tool or validate your property assumptions.
- Office of the Comptroller of the Currency — Comptroller's Handbook — Commercial Real Estate LendingNOI, direct capitalization, cap-rate valuation and DCF concepts for commercial real estate.
- Appraisal Institute — Basic Formulas — Income CapitalizationIncome/cap-rate/value relationships, gross income multiplier and debt-coverage formula references.
Frequently asked questions
Is required profit a return on development cost?
No. This model uses a profit percentage of completed development value. A profit-on-cost convention would produce a different result.
Can residual land value be negative?
Yes. Costs and required profit can exceed completed value, leaving no positive residual for land under those assumptions.