Instant Appreciation - The Higher Use Option
Many properties that you purchase have only one use. A single family house is a single family house is a single family house. At least most of the time.
For the most part, real estate is bought and sold in the class it is presented. Thus someone sells a single family house to a person looking for a single family house. A warehouse is sold to someone looking for a warehouse, etc. This same to same modality covers more than 99.9% of all real estate transactions. And in most cases, it is the only option.
But sometimes, you can buy a property in an area where either current zoning or potential rezoning of the property offers some attractive options.
For instance, perhaps that single family house is right next door to an attorney’s office and is sitting in a section of town that allows for professional offices Since the zoning is already approved, it is usually simply a matter of filling out some paperwork to turn that single family house into a professional office. (There are quite a few homes turned offices in our town and in towns all across the world.) Now the house you purchased is considered an office and its value is now dependent on the monthly rent you can charge for that office rather than the appraised value it had as a house. If the rent is high enough, you just added instant equity to your property.
Another example is when you purchase a house on a large lot in a neighborhood where the zoned lot size is much smaller. If the house is situated correctly, you can break up the extra land into one or more lots to either sell outright to build new houses and sell them. To make this determination, you would need to get a survey done and submit it to the zoning board for approval. But consider that the cost of the property probably was not much more than the cost of the other properties in the area so the cost of the additional lot(s) is going to be very small compared to its value.
A third example is buying a large house in an area zoned multi-family. A quick trip to the zoning office with a plan to break up the large house into apartments is usually all it takes to convert that big single family house into a two family, three family or four family house. This is yet another opportunity to add value to your property by looking it as a series of possibilities rather than a fixed, static entity.
So next time you are looking at a property it might be worth doing a little extra footwork and seeing what potential zoning changes could be made to give you even more value if you decide to close on the deal. Heck, if you are unsure of the ability to get the zoning changed, you could negotiate a subject-to clause in your contract and make it subject-to the zoning change being approved before purchase.
The above is just one of the many ways professional real estate investors evaluate properties to determine if they are first a good deal and second a good deal that can be made into a great deal.
