Re-Zoning Real Estate
(An excerpt from 69
Ways To Make Money In Real Estate)
By Steve Gillman - 2005
Rezoning a property can instantly make it more valuable. Of
course, zoning is not your decision, and there is no guarantee
that you can get a property rezoned. There are some was to make
it more likely, however.
Rezoning can instantly increase or decrease the value of a
property. The value of real estate is not determined just by
where it is located and what is on it, after all. It is also
a matter of what the owner can legally do with the property.
For example, I have even seen small lots in mobile home subdivisions
sell for more than bigger pieces of land nearby, just because
there were so few places where the zoning allowed mobile homes.
A house on a small lot might be worth $90,000 if it can only
be used as a rental or as an owner-residence. But that same piece
of land might be worth $150,000 after the house is torn down
- if it is zoned to allow a store in its place.
The idea, then, is to buy a property, and request a new zoning
designation which makes it more valuable. If you can get the
zoning changed, you can then resell the property for a profit.
And if that sounds too easy, you are right. It takes some work.
Start by finding properties that are on the edge of better
zoning, or even mixed in with properties that have a more valuable
zoning. Often an area's zoning is changed by the authorities
over time, but they don't change the designation for all the
properties. Since a property zoned residential in the middle
of a business zone doesn't make sense, getting it rezoned may
involve simply asking.
The primary problem with this strategy is that there really
is no guarantee that you can convince the zoning officials to
zone your property the way that you want. And if you get the
property zoned before you have an accepted offer, the seller
will realize that the value has increased and ask more for the
property. So how do you avoid the risk of buying a property that
is worth exactly what you paid for it?
Do your homework, for starters. Look at the city's master
plan, to see what they expect the city to look like in the future.
If the zoning you want is in line with their plan, they usually
won't refuse your request once you point that out.
Don't expect to get a home in the middle of a single-family
home subdivision rezoned for a duplex or a business. You are
looking for properties which you can reasonably argue should
be zoned the way you want. Other properties adjoining it should
already have the zoning you want, and you are more likely to
succeed if properties on two sides or more are zoned the way
Another thing to watch for is what has happened with other
property owner's requests. If the local authorities have been
systematically approving zoning-change requests on a given street,
buy a cheap property there and get in line.
Of course, you also have to look at how much of an increase
in value you'll get with the zoning change, and how much it will
cost for the whole project. A property with a ragged old house
might be worth $50,000 more once it is zoned commercial, but
what if it will cost $45,000 to buy it, get it rezoned, pay the
holding costs, tear the house down, and sell it? I wouldn't even
consider doing a project on that narrow of a profit margin.
There are other possibilities that don't involve selling right
away, of course. If an area is changing, becoming more commercial,
you might buy a little rental home that at least covers your
costs every month, just to be ready when the zoning changes in
a few years and the property values soar. You might also get
zoning that allows you to convert a home into offices for attorneys
or other professionals, and so get higher rent than from a residence.
To just buy with the expectation of getting a property rezoned
is speculative to some extent. To reduce the risk, at least buy
at a good price based on the current use and zoning designation.
That way, if your plan falls through and you have to sell for
close to what you paid, you'll only lose your transaction costs.