Nicholas Tsontakis | DwellBoldly
The Arizona real estate market has grown by leaps and bounds over the last 13 years. With the rise in prices over the booming years, those holding multiple single-family homes who bought early on during this time will find it hard to replicate the deals they got. Buying low and seeing prices almost double in a few years is a wonderful treat! However, the market has cooled off slightly due to many would-be buyers staying on the sidelines waiting for more certainty. This may be the right time to maximize the value of your existing properties. Your gold mine is ready to go platinum! With a good plan, developing your existing properties can help you get top dollar whether your goal is to sell or continue renting.
The first thing to understand is that planning for development, i.e. the efforts before building, can take from 6 months to a year if you need design, engineering, and city permits. The benefit of the current market situation is that rents have remained more or less stable, so you can continue to cash flow while you plan. At the same time, prices and interest rates may signal to you that acquiring new property right now may not be your goal. Focusing on the properties you do own means you can remain productive while you and your potential buyers watch the market and wait for the dust to settle.
The next planning concept essential to maximizing your property value is understanding your zoning district. Almost every city and county have a Zoning Ordinance, this ordinance defines zoning categories and every property you own falls into one of these categories. Single-family homes are typically zoned in single-family areas. The Zoning Ordinance defines what can and cannot be done on a given property. Typically, it restricts things like density, lot coverage, limits of the development area, building height, and the number of stories among other things. Understanding these limits is the key to developing your property to its full potential. The more you know about your property, the more options you have to unlock giant profits without the need to acquire new property. Do your research or consult with your real estate agent to see how much more you might be able to rent a 4-bedroom house vs. the current 3-bedroom configuration in your area, or see if an addition to the property makes sense financially. Once you determine the potential for additional profit, hire an experienced architect to dive deeper into the zoning ordinance to see how the home can be expanded and altered and to what extent. Some architects offer this as a stand-alone and cost-effective service. This knowledge can take your property from good to great.
There are generally two ways to make your existing property profit more through development assuming the house is already in good, livable condition: the remodel and the addition. The goal of a remodel for your rental property, not including cosmetic updates which can also increase rent, is to find ways to add a bedroom or bathroom without affecting the home’s structure or other major systems. Who knew that rotating the laundry room and removing a hall closet in favor of a new bedroom could add $200/month with minimal interior work? This type of spatial analysis should be done by an architect, one who deals with the creative layout of space daily. The other way to improve your current investment, if zoning allows, is a home addition. Especially in older homes with small rooms, an addition can have your old property feeling like a modern house commanding maximum rent or selling for top dollar. So many homes in Scottsdale or Phoenix’s older neighborhoods have master bedrooms that fall well below today’s size standards but work perfectly for a secondary bedroom, in those cases, it often makes sense to add a master suite on the opposite side of the house. That one addition creates tremendous value which can increase both rent and sale prices. Again, architects are skilled at laying out these spaces so that interior and exterior along with the old and new blend together to form a more beautiful whole.
While you continue your journey to acquire as many single-family homes as your financial plan demands, sometimes the path of less resistance involves remodeling or adding to the properties you already own and already purchased at the perfect time. So, use your time wisely as you and your fellow market watchers wait for your confidence boost.
Here are a few links to Zoning Ordinances/zoning information for different cities in the Phoenix Metropolitan area*:
Fountain Hills: https://fountainhills.town.codes/ZO
Paradise Valley: https://www.paradisevalleyaz.gov/DocumentCenter/Home/Index/31
*To find out the zoning for your property, it helps to call the city and ask a planner. Most cities will use something like an R1 prefix for single-family residential (e.g. R1-8 in Phoenix is a single-family residential district where the lots are at least 8,000 square feet). Most likely, you want to start your search in the ordinance for “development standards” and this will show you the zoning restrictions for a property. Your search should not end here, calling someone in Planning and Development is a must as some properties have more complex guidelines like a particular property might have a zoning adjustment that applies or there might be a zoning overlay, like those in historic districts, which has additional development implications.