Joint ventures in land are dependent on surveys to document investment quality. Land investments are subjected to an apple-to- oranges dilemma in establishing pricing. But various survey methods are formulated by industries which are followed by investors while making crucial decisions. These surveys are of tremendous help to the investors who are about to invest a huge amount of money on the landed property.
Some value is carried by every property, and that value may be high or low. But the conundrum is that land and building are akin to snowflakes: no two are alike.
For instance, building A consisting of 20 acres of land carries a beautiful view of beach and enjoy right amount of distance from the highway. Building B, also of 20 acres is situated across the road, which is little steep and is filled with industrial waste from decades ago. Further, both of these buildings haven’t been sold for generations which may lead to absence of comparative numbers of then versus now. Participants of joint ventures are well advised to either invest in building A or B, for patent and obvious reasons.
This is the main reason why all the real property undergoes surveys related to land or property, as it helps present and potential investors to determine the market value of the asset. The outcome of the valuation process is significant for those investors who are dependent on land investment specialists to identify and manage the land and including those who may not prefer to physically inspect the properties on their own.
A survey of property includes both its tangible characteristics as well as anything that can affect its value in the near future. A ‘cost-’ or ‘summation approach’ to the valuation of the property includes takes into account the land minus cost of depreciation or replacement of buildings on the property.
The ‘investment method’ is particularly used for all those individuals and institutions participating in the land investment and commercial property which will be rented(including those purchased in the joint venture). Potential income stream is taken into consideration by this method, as demonstrated by rental rates of similar property in the immediate vicinity.
Residual method is a variation on the investment method which are used for the properties that are raw, unused and likely to be developed. This method requires a well structured plan on how it will be developed. The following needs to be taken into account:
· Land value
· Development cost
· Costs for site preparation including demolition of existing buildings, decontamination remediation and construction of roads and service diversions.
· Fees( including legal, professional, selling agents, stamp duties, etc)
· Minimum profit requirements
· Gross development value
Consultants of land investments must necessarily provide a full fledged accounting in a prospectus document to their potential joint venture participants. Services of independent financial adviser should also be engaged by the potential investors to determine if and when a land investment is an appropriate component of their investment portfolio.