ROI Depends on Land Use, Development Costs, and Market Conditions
The expected return on investment (ROI) is influenced by the intended use of the land, projected development costs, and the income potential or resale value in the local market. ROI is typically calculated as a percentage of net profit over total investment.

• Raw land ROI is realized through appreciation or rezoning gains (typically 10%–25% annually in high-growth areas)
  
• Developed property ROI is based on rental income or resale profits, often ranging from 8% to 20%
  
• ROI can vary significantly based on holding time, development timeline, and financing structure
  

Analyzed Through Pro Forma Financial Modeling
Investors use detailed pro forma models to estimate ROI based on construction costs, operating expenses, projected lease rates, and exit value. These models help assess cash flow, cap rate, and IRR (Internal Rate of Return).

• Build-to-suit or pre-leased developments typically offer more predictable ROI
  
• Speculative development may yield higher returns but involves greater risk
  
• ROI is higher when land is acquired below market value or through entitlement enhancement
  

Market Risks and Exit Strategies Influence Returns
Economic trends, interest rates, and absorption rates can affect the ROI. Exit strategy—whether through sale, lease-up, or refinance—also plays a critical role in actual returns.

• Inflation, construction delays, and zoning changes may reduce ROI
  
• Strong tenant demand or location near infrastructure can enhance returns
  
• Holding vs. flipping the asset affects both ROI and timing of returns