By Nicholas Tsontakis | Dwellboldly
Purchasing enough income-producing properties to support your lifestyle while sipping margaritas on the beach is what many consider the dream. Getting there takes a long time, and short-sightedness goes unrewarded. There are many intricacies to owning property and doors, and one area that can be detrimental to your cash flow is zoning laws and building codes. Every property with a building on it has some underlying zoning regulations that affect what you can build, along with building codes that restrict what you can and cannot do within the building. Understanding these details can help you build lasting wealth. Investigating a building or property’s zoning and building permit history should be completed prior to purchase. A quick investigation can be done during the due diligence period if you purchase the property using conventional methods. Alternatively, you can do this on your own before making an offer that you would pay using cash.
Zoning and building codes apply equally to a buy-and-hold investor or a fix-and-flipper. Buying a property zoned incorrectly or not getting the proper permits can have costly results. For instance, purchasing a duplex that already has cash flow in Phoenix may sound great, but if the property is zoned as a single-family, you might run into issues if you need permits for a remodel or addition. In Phoenix, in a single-family zoned property, you cannot have more than one major cooking appliance (usually a range/cooktop) in the connected portion of the home. Since the duplex usually has two entrances and two kitchens, once you try to make significant updates or if you want to add square footage to the building, you will likely run into issues at the planning level. A city planner, known as the person in the City/County who looks for compliance with the Zoning Ordinance, will view the building as a multi-family dwelling that cannot be built in a single-family area. In this case, the property owner might need to ask for a Variance, use permit, or ask to rezone the property – these processes are lengthy and not guaranteed to be approved.
Further, at the fix and flip and building code level, your profits can be quickly eradicated if you complete work without a permit that poses safety issues for the inhabitants. In an extreme real-life example, a home flipper completely renovated the interior of a home, including moving plumbing fixtures, and re-stuccoed the exterior. The work was complete, the flipper sold the property, and then two months later, the buyers noticed a few water-related issues. It turns out plumbing fixtures were not installed correctly, and water-proofing was not done properly for the stucco – the entire house had to be gutted to the point where only studs and concrete floor remained. Once framing opened up, other electrical and framing problems became evident. The end effect is about $400,000 in repairs on this modestly sized single-family home. Without knowing the profit amount at the time of sale, it seems safe to say that this was a net-negative deal, not ideal. Understanding building codes and zoning regulations can help you make intelligent decisions when purchasing and rehabbing a property.
In your quest for financial freedom, it pays to know a little more about zoning and building codes. With that in mind, contact the jurisdiction for the property you want to purchase to learn more about the particulars of your property.