Most experienced Excel users have heard this at some point.

Let me be clear — Excel is capable of calculating residual land value [RLV], but it requires some user input to get around circular references.

To calculate your RLV you need to set a required profit margin. To calculate your profit margin you need your revenue and total costs. To calculate total cost you need to know stamp duty, fees and finance costs, and to know those, you need your RLV!

So you have 2 options:
Use Goal Seek whenever values change.
Enable iterative calculations in Excel’s options - though this isn’t generally recommended.

Of the two I’d always recommend Goal Seek. It’s essentially a controlled iterative calculation - trial and error with a defined target.

Now the numbers may be right, but the Excel model isn’t automated. Its behaviour depends on how it’s used.

Purpose-built development appraisal software is created to handle these issues by default. It recognises when inputs change and recalculates residual land value automatically.

Residual land value is manageable on it’s own. The real challenge comes when you introduce accurate financial cashflow modelling for senior, mezzanine and investor finance at the same time as residual land value!

I’ll cover that in my next post.