Glossary
A glossary for property development.
The terms Certo works with, explained briefly and precisely.
- Residual method
- The method for finding what land can cost: start from the finished value, subtract all costs and your profit, and what is left is the maximum land price. The land price is not an input but the result.
- Land-price headroom
- The gap between the maximum land price the deal can bear and your bid. Positive headroom means the deal holds at your bid; negative headroom means you are bidding more than the project can bear.
- IRR
- The annual return on the invested equity over the project's life, accounting for the timing of cash in and out. A higher IRR means a better return on the money.
- MOIC
- Multiple on Invested Capital: how many times the equity comes back. A MOIC of 1.6x means DKK 1 invested becomes DKK 1.60.
- Buildable area
- How much you may build on the site, typically expressed as floor-area ratio, number of storeys and use, set in the municipal plan framework (Plandata.dk).
- Required profit
- The profit, as a percentage, a project must return to be attractive. Used in the residual calculation: the higher the required profit, the lower you can bid for the land.
- Exit yield
- The return a buyer applies to the rental income when buying a letting project. A lower exit yield gives a higher sale price and therefore a higher bearable land price.
- Sellable area
- The square metres that can actually be sold or let, after deducting common areas, stairs and so on. Often a share, e.g. 88%, of total floor area.
- Forward sale
- Selling a project to an investor before or during construction, typically at an agreed price based on a yield. Reduces risk in exchange for a lower price.
- Equity
- The part of the project you fund yourself beyond the bank loan. Certo computes the equity requirement from leverage, build budget and timeline.
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