Rezoning Property for Investment

Understanding zoning restrictions and how to change them can be useful and profitable for investors. Changing a property’s zoning—rezoning—allows investors to pursue a greater variety of land uses …

Understanding zoning restrictions and how to change them can be useful and profitable for investors. Changing a property’s zoning—rezoning—allows investors to pursue a greater variety of land uses and may result in increased profits, depending on the land’s location and the types of properties around it. Investors considering rezoning opportunities should learn about zoning requirements and the legalities and processes required for such a change.

Property zoning restrictions place limits on land uses: A hardware store cannot be built on land zoned for residential property. Zoning often includes restrictions on the physical aspects of the buildings themselves, such as height limits and required distances from property lines. Zoning also designates how many lots can be created within a certain area of land, which can affect subdivision plans. Property taxes may vary with different zoning designations, depending on county rules.

The most common type of zoning in the United States is Euclidian zoning, named after the town of Euclid, Ohio, where it originated. The goal of this type of zoning is to promote orderly community growth and keep different property types relegated to specific areas. Euclidian zoning is considered to be “traditional” zoning and focuses on land use classifications—e.g. single-family residential, commercial or industrial—and dimensional requirements such as the height and area of structures. There are three other main types of zoning in the U.S. Form-based codes aim to protect the makeup of existing neighborhoods and promote pedestrian safety by regulating structures’ forms and placement within public spaces. Incentive zoning rewards developers with higher density for projects in exchange for doing something in the neighborhood’s interest. And performance zoning allows developers to build almost any structure that meets the county’s performance standards—such as regulations on density, noise and traffic flow.

Investors may decide to rezone properties to increase market value, or they may have specific plans in mind that could not be accomplished with the property’s current zoning.

“If you’re considering undertaking a rezoning it means you have some kind of vision or idea to do something different with a property. Hopefully it’s a good idea and you’ll be able to capitalize on it,” Dennis Clarke, president and CEO of Cummings Properties in Woburn, Mass., said.

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Ideally, investors interested in rezoning should seek out properties in areas that are in transition. “As communities change, the appropriate use of an individual property may also change. Rezones are useful in instances where the land uses around a property have changed,” according to the City of Boise Planning & Development Services Department. For example, if a residential lot is located in or near an area that is primarily commercial, investors will likely have an easier time convincing city officials to rezone the land than if they were to try and rezone a similar lot in the middle of a suburban neighborhood.

The rezoning process varies from county to county. The first stop for investors interested in pursuing a rezone opportunity should be the county’s planning and development department. Officials there should be able to provide information about the process and elements to include in the application.

As a general rule, a rezoning petition must be in line with the county’s future land use plans.

“If it’s not consistent with our land use plans—like if the density’s too high—and if the neighborhood is truly against it that is a factor. [We consider] if the roads can handle what you’re developing. Those things help us decide to help or deny a petition,” Solomon Fortune, associate planner for the Charlotte-Mecklenburg Planning Department, said. Checking with officials about the city’s land use plans beforehand can provide valuable insight into whether or not a rezoning petition is in harmony with a county’s goals.

“[The petition process] usually involves filling out forms and attaching comprehensive plans and specifications and doing a thorough job of presenting to the board,” Clarke said. “You want to make sure you’ve covered all the technical requirements so you don’t get disqualified.” Clarke said he recommended that investors new to the process hire a local attorney who is familiar with the regulations in that particular county in order to ensure that all application requirements are met and local laws satisfied.

When putting together a land use petition, it is also wise to consider the input of the neighborhood, according to Fortune. If the neighbors are opposed to a proposed land use and suggest alternatives, it may be worthwhile to consider taking their suggestions in order to avoid lasting conflicts, he said.

Although the length of the application process varies between counties, Fortune estimated that the process takes between four and six months in Charlotte-Mecklenburg depending on the experience level of the petitioner.

Rezoning is an excellent way for investors to increase profits and land use options, but excessive use can affect their tax status as a real estate investor or real estate dealer. There is a fine line between the two, and it is often hard to distinguish. For more information about this distinction, read our article Real Estate Dealer or Investor?

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