You’re a real estate investor.
Whether you flip, rent, or hold, you’re always looking for ways to add a little extra value to a property.
Among the many options to achieve that is rezoning.
But does rezoning a property really create value, or is it just a lot of paperwork for nothing?
How does rezoning happen, when does it increase the value of property, and what should buyers consider before buying a property with rezoning potential? First, let’s break it down.
What Is Rezoning, and When Does It Occur?
Rezoning is exactly what it sounds like: it’s changing the zoning designation of a parcel of land. Zoning codes are rules about how land can be used in a particular neighborhood. Some areas can be used for homes, some for businesses or factories, and some have rules about how tall buildings can be or how many units on a parcel are allowable. Rezoning changes the rules, potentially opening up new possibilities for how a parcel of land can be used.
Rezoning is the process in which owners (or sometimes the city) petition to change the zoning of a property. A city might rezone an area to accommodate growing populations, evolving commercial needs, or city development goals, but a private developer might pursue rezoning in order to upzone a piece of property to increase its allowable use or value.
Advantages of Rezoning for Investors
Now for the potential positives of rezoning that could add appreciable equity to your real property. When done right, rezoning can increase the value of your real estate. Here’s how:
New Development Opportunities
The opportunity for development that rezoning enables will often be the biggest benefit of rezoning. Suppose your land is zoned for single-family homes, but you get it rezoned to multi-family. Now you can build apartments on your land, where you couldn’t before.
Increased Market Demand
Uses that can accommodate multiple types of uses (say, a mix of residential and commercial) are in greater demand, which means investors, developers, and even businesses can often have a greater interest in your rezoned parcel which, in turn, can increase its market value.
Higher Rents or Sales Prices
Rezoning to allow more profitable uses, such as adding a commercial component or an additional story of apartments, can often allow you to charge higher rents or fetch a higher sales price. The more units, the more rent—it’s no rocket science.
Property Appreciation
Even if you are not in a hurry to build, rezoning can increase the value of the property simply by expanding the number of future uses for development. Options are very valuable to buyers, allowing you to price things accordingly.
Rezoning can unlock all sorts of potential, but it’s not a guaranteed home run. Here are some things to watch out for.
Disadvantages of Rezoning for Investors
But before you get too excited about rezoning, let’s take a look at some of the costs and risks associated with it. Like any investment strategy, this one comes with some dangers.
The Zoning Process Is Time-Consuming
While you could just file a form to alter the zoning on your property, it can still take months—or even years if you’re working within the boundaries of a large city, where you’ll most likely have to go through public hearings and potentially weather some neighborly objections. Time is money, and the zoning process can hold up your investment strategy.
Out-of-Pocket Costs
You may have to pay lawyers, application fees, and potentially consultants to get through the rezoning process. That’s serious money that takes away from your future profits.
No Sure Thing
Just because you make a request for rezoning doesn’t mean that it’s a sure thing. Cities can have their own development plans, and if your plans don’t align, your request will automatically be denied. Even worse, your neighbors could mount a campaign of opposition to your plans—they might not be thrilled about the idea of the quiet residential street turning into a bustling commercial thoroughfare.
Market Volatility
Suppose you succeed in getting your rezoning, but the market doesn’t play along. What if demand for the new use turns out to be less than you had expected? Now you’ve got a rezoned property, but no one who wants to pay the premium that the rezoning was supposed to bring.
If you do decide to go ahead with rezoning, consider the risks involved. You might like the benefits, but you don’t want to spend time, energy, and money only to find that your efforts have gone nowhere.
What to Do If You’re Looking at Property That May Experience Rezoning
If you’re looking at a property that could be rezoned, or you’re thinking of initiating the process yourself. What are your options?
Research the Zoning Plans of the Area
Many cities have zoning plans and long-term growth goals. Take a look at what’s in store for the region you’re eyeing. If there’s talk about rezoning, you can possibly get in on the ground floor before prices rise.
Contact a Zoning Attorney or Zoning Consultant
Rezoning can be complicated. It’s best to consult a pro who can help you navigate the local process, identify potential barriers, and determine the likelihood that your rezoning request will be successful.
Evaluate the Potential Increase in Value
Does rezoning add enough value to the property to be worth the trouble? How much will the rezoning cost, and what will the potential returns be?
Watch What Else Is Going On
Keep an eye on other properties in your area that have been rezoned. Are they selling or renting for much more than yours? Market trends will give you an idea of whether rezoning will make your property more valuable or just increase your risk.
Talk to the Neighbors
If you’re rezoning, don’t wait for the public hearings to ask for feedback from community members. Talk to the neighborhood, local organizations, and influential local individuals who are affected as early as possible in the process.
You’d be surprised how much this can help in terms of speeding up rezoning approval.
The Bottom Line: Rezoning for Real Estate Investing
Rezoning can be a complicated and time-consuming proposition but does it increase the value of a property? It can—if done right.
For real estate speculators, rezoning provides an opportunity to realize the maximum potential of a property, whether by construction, rent, or resale.
But rezoning is an investment, too, with its own risks, expenses, and uncertainties, so do your due diligence: know what you’re getting into, and get help from professionals.
In the end, the secret of rezoning is due diligence.
If you’re in the right place with the right plan, rezoning can take an average investment and turn it into a high-performance winner.
