Understand Zoning before You Invest in Real Estate

Local governments or municipalities establish parameters that dictate how property can and cannot be used within defined areas. Called zoning laws—or zoning ordinances and land use regulations— they help to preserve property values, promote commercial success and ensure that communities are safe.Real estate investors are obliged to know and understand the zoning laws that apply to any property they’re considering before closing the deal. Why? Because zoning can have a direct impact on your bottom line.

What Are the Different Types of Zoning?

Zones are usually categorized within a municipality, city or county. These categories include:

Residential—often distinguishing between single-family and multifamily

Commercial—areas for retail stores, restaurants and offices

Industrial—where manufacturing businesses (factories) are allowed

Agricultural or Rural—locations for farms, ranches and other open land

Recreational—parks and other spaces used for recreational activities

Historical—areas that protect buildings with historical significance

Aesthetic—a zone that dictates how structures must look within a designated area

In some instances, more than one zone can apply to a single property, like when a commercial zone is also in an aesthetic zone.

What Regulations are Included in Zoning?

Within a particular zone, there can be regulations that control certain activities. For example, noise level, waste management and the appearance of buildings including height and proximity to one another may be regulated. In a commercial zone, there may be an ordinance requiring a certain number of parking spaces, the size of signs and the number of similar businesses that can operate in the same zone. Also, certain businesses such as bars and adult entertainment venues may be restricted to geographical areas that are at least a specified distance away from schools and places of worship.

Similarly, ordinances for industrial zoning can depend on the type of business. There may be environmental factors as well as noise concerns to consider when determining where a business falls within the industrial category. In addition, industrial zoning can be affected by the amount of land covered by all the buildings on a lot, often referred to as lot coverage.

How Can Zoning Affect Real Estate Investors?

If an investor plans to develop, build, add to an existing property or operate a business, then understanding the zoning ordinances is essential. Your plans must conform to the law.

Also, don’t assume that because the previous occupant used the property for a specific use means subsequent occupants can do the same. A variance may have been in place allowing the occupant to use the property in a way not included in the zoning.

Variances only apply to the business that applied for and was granted the exemption. You will need to obtain a variance, waiver or possibly a zoning change to allow a prohibited use. Unfortunately, applying for one of these is not a guarantee of success.

Where Can You Turn for Information on Zoning?

The local government or municipality that has jurisdiction over the specific property can provide a zoning map as well as the zoning ordinances that apply to the property. Also, consider the zoning for nearby properties to make sure their uses won’t pose a potential problem for you.

Finally, an experienced commercial real estate broker can help you understand zoning and the language of ordinances. With this information, you’ll avoid the pitfall of purchasing land or property that seemed ideal until zoning laws got in the way of your intended use.

 

The information contained in this article is general in nature and should not be construed as financial, tax or legal advice.  As with any financial or legal matter, consult your tax advisor and legal counsel.