Impact of Property Rezoning on Rental Property Investors
When you hear the word rezoning, it might sound like something that only city planners and government officials should worry about. However, for rental property investors, property rezoning can quietly shift the ground beneath their feet, literally and financially. A single zoning decision can change what a property can be used for, affect its value, or even push it out of compliance overnight.
If you’re a pro investor or just starting, understanding how rezoning works and how it can impact your rental properties isn’t just useful. In light of this, read along as this post will break down what property rezoning really means, and help you prepare for or even benefit from zoning changes in your area. Because at the end of the day, in real estate, what you don’t know might cost your investment if research is not done properly.
What is Property Rezoning?
A property rezoning refers to the action the local government may take to change the uses of the land. Think of it like changing lanes on the road; while you may still be in a vehicle, the rules of the road, including the speed and course, may change.
For example, a piece of land that was previously allowed as single-family homes may now allow the construction of stores, apartments, or even commercial spaces. Or, a previously zoned area for business may now only allow for residential use.
Changes for the permit can be initiated for a number of reasons, including a change in city growth, economic or community factors, or even simply the city’s future infrastructure plan from the planning and development department. Additionally, while they may only reflect what appears to be small changes in paperwork, these can have a huge impact on a property owner (especially for rental investors). Rezoning may create unexpected restrictions or new opportunities. Therefore, as an investor, it is worth your time to do some research and understand the local zoning processes. Bay Property Management Group Chester County advises investors to determine the existing zoning classification in their area.
Positive Impact of Property Rezoning
Increased Property Value
Rezoning your land for business reasons, mixed-use, or farming purposes can raise its value and reduce some of the risk associated with the uncertain present market. Developers will find your house more valuable, and buyers will find it more appealing. Changing your property’s authorised use from one category, from residential, to another, as specified by municipal legislation, is known as rezoning.
You can rezone the property for apartments on a previously developed site for single-family homes. You can make better use of the land block for a duplex or even allow commercial use where only residential was allowed.
Neighborhood Revitalization
Property rezoning opportunities are essential to neighborhood rejuvenation because they change the land-use regulations to provide developers with new development opportunities that transform neighborhoods in economic, social, and physical ways.
Legally subdividing properties into higher densities or mixed uses increases the amount of units or uses permitted on a single property. A density increase enhances the value of the land, which increases the likelihood of usable land for a healthy tax revenue base. Simply rezoning for consistent higher density increases wealth creation opportunities for property owners through increased land valuation and development possibilities.
Negative Impact of Property Rezoning
Increased Compliance Costs
Increased compliance costs are a considerable negative consequence of property rezoning. Compliance costs can affect property owners and developers adversely, considering various professional fees such as attorneys, planners, consultants, and continuing carrying costs.
When applying for rezoning approval, a property owner will usually be required to make a payment or pay fees to local municipalities. These fees can vary widely based on location and the complexity of the process. Particular jurisdictions may charge a fee based on the total acreage being rezoned, or by the type of review or request you are making, with some municipalities exceeding $1000.
Most property owners looking for zoned land use permits, variances, or success zoning appeals will require the services of attorneys, environmental consultants, land use planners, or other professionals. Fees for these services can range from $2,000 to $10,000 or more, depending on whether you choose to take your case through public hearings and what regulatory compliance you are aiming for.
Property Usage Restrictions
Zoning laws frequently prohibit activity or use of a property. In other words, residential zoning may take away the ability of an owner to operate a home-based business, rent parcels of their land, or restrict certain commercial uses by property owners. It limits the owner from maximizing the economic value of their land.
When zoning restricts the possible use of land, it may lessen the demand for land and market value in specific zones. A residential property in an industrial zoning area may lose value. Also, zoning violations, or non-conformity, tend to affect some buyers’ pool of potential purchasers and resale value.
Final Thoughts
While property rezoning can be a cumbersome process and is not right for everyone, some investors see value in property rezoning. At the end of the day, you don’t want to miss an opportunity to expand and grow your rental business. Still, you must consider how you will manage any rental properties or real estate you own.
Real estate owners should also be conscious of zoning regulations. After all, zoning regulations can have a variety of consequences for you, so it’s good to know the uses and limitations of your property. Some real estate owners also see opportunities for property rezoning, where they change the designation of the parcel of land into a new zone with its own land-use rights and limitations.