One of the major differences between investing in single-family homes and multifamily development involves zoning. With the former, you simply buy a home, fix it up (if required), and rent or sell it. With multifamily properties, municipal zoning dictates what you can – and can’t – do as a real estate developer. Due to the central role it plays, we’ll use this article to explain why zoning matters in a multifamily development.
Specifically, we’ll cover the following topics:
- What is Real Estate Zoning?
- Why Zoning Matters in a Multifamily Development
- Final Thoughts
What is Real Estate Zoning?
Conceptually, zoning dictates what you are allowed to do with a certain parcel of land. For example, local zoning may allow you to build a single-family home on some land you own. Alternatively, land in a business district may be zoned for multi-use developments (e.g. a building with commercial spaces on the first floor and apartments on the top floors).
Technically speaking, zoning refers to the local laws and regulations governing real property use in a certain area. That is, the local municipality will define in local code how every parcel of land within its boundaries can be used. Additionally, these local governments enforce these zoning codes. If a land improvement violates zoning, local code enforcers can usually assess fees and, in some extreme cases, criminal charges.
Of note, zoning does not involve public spaces like city streets and sidewalks – just the use of private land.
Who Controls Zoning?
At a high level, a local government controls its own zoning. However, each municipality will have a specific department that manages this zoning process. For instance, Richmond, Virginia has a Zoning Administration Division. According to its website, this division:
[…] Provides a variety of functions related to permitting and planning services. Every parcel within the City has a zoning designation that governs its use. These uses are defined in the official Zoning Ordinance supported by the official zoning map. Zoning staff review permits to promote the orderly development of every parcel within the City as it relates to the individual use of the property.
Every municipality will have its own zoning department and associated laws and regulations. A simple Google search (e.g. “Smithfield zoning department”) should provide you a link to the relevant office, zoning code, and application processes unique to your area.
In the next section, we’ll outline four primary reasons why understanding your local zoning matters for multifamily developers.
Why Zoning Matters in a Multifamily Development
Reason 1: What Type of Property You Can Build
First and foremost, zoning tells you what types of property you can and can’t build. If a parcel of land is zoned for agricultural use, you cannot build a self-storage facility there. Or, an area zoned for single-family homes will not allow for any multifamily developments.
Accordingly, prior to developing an apartment building, you must confirm one of two paths. Option 1: Current zoning allows for multifamily development. Option 2: The local zoning board will approve a special use permit or rezoning of a parcel that allows for multifamily development.
Reason 2: What Construction Restrictions You Must Follow
After you’ve confirmed that a parcel’s zoning allows for multifamily development, you still need to abide by specific construction restrictions included in that zoning category (e.g. set-back distances, minimum lot sizes, minimum and/or maximum heights, frontage requirements, etc.).
Continuing the Richmond example, the city’s zoning ordinance includes the following category: R-63, Multifamily Urban Residential District. The ordinance makes the following requirement for multifamily properties developed on R-63 land: Multifamily dwellings shall be located on lots of not less than 4,000 square feet in total area and not less than 1,000 square feet in area for each dwelling unit.
When underwriting a deal, you’ll need to confirm that the numbers still work with architectural designs conforming to this lot size requirement.
Reason 3: What Parking Requirements You Must Meet
One of the largest concerns locals have with new multifamily developments involves parking. That is, people don’t want the tenants in an apartment building to take up all of a neighborhood’s available street parking. As a result, many zoning codes include specific elements about parking requirements for multifamily developments.
For example, Richmond’s zoning ordinance states that:
Except as otherwise provided in this article, the minimum number of off-street parking spaces required for uses located in any district shall be as follows. […] In TOD-1 district, none for 1 to 16 dwelling units; 1 per 2 dwelling units over 16 units.
This is only one example of a parking restriction. The important takeaway here is that, if you plan on developing a multifamily property, you’ll need to account for parking restrictions imposed by the local zoning code.
Reason 4: What Greenspace You Must Include
Due to environmental, aesthetic, and drainage issues, most zoning codes mandate minimum amounts of greenspace in a multifamily development. For instance, Richmond imposes the following requirement: In the R-63 district, usable open space of not less than 30 percent of the area of the lot shall be provided for multifamily dwellings.
As a multifamily developer, you must account for these areas, as they will limit your ability to build additional units.
As the above illustrates, successful multifamily developments depend heavily on appropriate zoning. That is, zoning will make or break a deal. But, it’s also important to remember that a parcel’s zoning is not set in stone. Every municipality has processes to apply for rezoning and special use permits, providing you flexibility as a real estate developer.
If you’d like to discuss different real estate investing options for your unique situation, we’d love to chat! Drop us a note, and we’ll set up a meeting to talk about available multifamily real estate investment opportunities.