By Steve Waters
In many facets of life, it’s easy to be attracted to the façade and forget about the substance – and with property, in fact, it’s an amateur error.
Almost anyone of reasonable intelligence can turn up to an investment prospect and start ticking off the list of appealing attributes.
- Good size block with the right aspect and outlook? Check!
- Wide frontage with easy access? Check!
- Reasonable quality home with potential for some renovation work? Check!
But while weekend inspections with a pen and paper will tell you plenty about a potential holding, it won’t reveal one important fundamental effecting an investment’s potential – and that’s zoning.
When it comes to real estate commandments, ‘knowing thy zoning’ is number one.
Zoning is the town planning designation attached to a property by a local council that determines the legality and potential of its current and future uses.
So, it essentially sets the rules for what you can and can’t do on a property.
Because different zones tend to blanket sections of suburbs, zones also help determine the composition and appeal of entire neighbourhoods within a suburb.
Why does it count?
When it comes to making a buy-or-go decision, the pros and cons of the various options under particular zonings must be carefully weighted.
If you have the right zoning on the right property in the right location, the result can be a stellar buy with huge upside potential.
But choose poorly and you can be stuck with a seemingly unsaleable holding with its building and planning options gutted by restrictions.
The good news
Experienced operators know how to extract the most from zoning rules as they pertain to particular properties.
Rules around setback, frontage and even location of nearby facilities all come into play under zoning guidelines, so some properties can have better redevelopment potential than others.
Some investors even try to base their strategy around the possibility of zoning changes or town planning flexibilities.
Metro areas in particular offer great potential for properties with rezoning potential because population growth and urban sprawl will prompt local councils to look at ways for extracting maximum housing yield out of limited options.
One council approach is to increase density rules under certain residential zonings, which can be a way for investors to profit because a zoning change can propel your property into a ‘higher use’ – but beware.
There are plenty of speculative buyers who’ve paid premiums to secure property with ‘rezoning potential’ only to find holding costs drain away their upside and eat away the return.
In worst-case scenarios, the touted zoning changes don’t happen and the speculative/gambling buyer is left holding a lemon.
Just because someone in council says something might happen, doesn’t mean it will.
Paying for rezoning potential should never be your sole reason for securing a property.
What to do
In all things town planning related, the council should be your first port of call for the DIY investor.
Despite their poor, and unfounded, reputation for service, most local councils and their town planning departments are both eager and well-resourced so as to help you navigate the vagaries of zoning strengths and limitations.
Make time to contact your local authority and discuss any queries around your property’s zone.
Council town planners will also reveal what is possible on your piece of dirt, and are well positioned to discuss how to maximise your property under the guidelines.
If you’re time poor, draw on the skills of private town planning advisor who will not only interpret council’s documents, but can advise on the potential ability to ‘flex’ the guidelines if you want to wander beyond the rules.
If you’re looking to invest with future potential in mind, employing a professional property investment advisor is worth every penny. There are delicate intricacies around zoning that are best understood by a keen eye and experienced hand. It’s a great way for you, the owner, to profit while not being bamboozled by planning-speak.
Remember zoning can be your friend, but you must be careful. It’s not the be-all and end-all of smart investing, but it is a pretty good place to start.