At a networking event last week, I was chatting with an investor from Houston who had purchased a 2-acre parcel of land in Southern California. Her real estate agent had sold her on the prospects of subdividing the plot and developing the site - her dream on a blank canvas. She considered the value of homes in the neighborhood and decided the price of the land was a steal. It wasn’t until after the transaction closed and she had dug into the zoning ordinances that she realized the required setbacks, easements, and environment restrictions would render her original plans completely infeasible. And even if the zoning itself were to be ignored, the proper plan approvals and permits would take her more than three years, in the best case scenario.
Most cities have zoning regulations and permitting processes that govern land uses and regulate the form, design, compatibility of development on certain tracts of land (Houston is a rare exception and does not have zoning laws that regulate land use). Whether you are buying vacant land or an existing property, not thoroughly educating yourself on these regulations before a purchase can cripple the viability of your investment and lead to severe “investor’s remorse.”
Getting Started:
Different areas in the city are designated to have different development uses, commonly referred to as “as of right uses” – allowing for schools, manufacturing, offices, apartment buildings, etc. Physical development standards are applied that establish the building’s relationship to property lines, called “setbacks” and “yards,” building height can be limited, as well as the size and total amount of buildable area. Some cities even require developers to reserve special open spaces.
Zoning is typically enforced by City Planning or the city’s Building Department, and you can usually find your site’s zoning designation online on these city websites. Search for the city’s zoning maps, and locate your specific site on the map. Match the pattern/color coded overlay to the map legend, which will give you a zoning code. Then, check this code against the city’s zoning regulations chart for permitted uses and building restrictions.
Do’s & Don’ts
Do make sure that you work with a real estate agent familiar with local zoning laws, who can help double check your work. Don’t assume that different cities have the same types of zoning restrictions.
Don’t rely solely on the zoning designation on the MLS listing. Mistakes happen, so always verify the zoning yourself.
Do understand that you may have to pay for additional environmental tests, depending on your project, and factor this into your timeline.
Do take utility access into account. (Don’t wait until after the fact to find out that the lot you purchased has no access to city sewer and won’t pass septic inspection.)
Don’t assume you can have your property easily rezoned. While citizen design review processes can allow for public input regarding zoning, these are typically triggered by larger developments.
Zoning can present key advantages and disadvantages as they relate to the investor's objectives. While you may not have control over all these items, you should always factor zoning and permitting into your analysis and timeline, and develop strategies to address any potential issues. Do your homework and invest wisely.