Highest and best use is the most profitable use in which a property can be legally developed.
Property investors can achieve high profits by identifying properties that are not currently used at the most profitable use that they can be potentially developed. If that is the case it means that such properties are under-utilized and are not achieving the maximum income they could be achieving given their location and the alternative uses they can be developed.
The highest and best use can be identified by analyzing, through the discounted cash flow model the return that can be achieved by each of the alternative uses in which the property can be developed and identifying the use that is expeced to provide the highest return.
One important point that needs to be kept in mind is that such an analysis does not take into account the risk of developing or operating the property under each one of the different uses. Thus, an investor may not necessarily choose eventually to develop a piece of land at its highest and best use if the expected return from such development is not enough to compensate the investor for the risk associated with such an investment
