Outside of getting married, one of the most important decisions people make—mentally, emotionally, and financially—is buying a home. But like searching for the perfect mate, searching for the perfect home comes with unexpected hitches that, sooner or later, might wear you down. That’s because homes, like people, have baggage. They, too, have secrets. And one of their most carefully guarded secrets might be how their neighborhoods are zoned.
But that secret doesn’t need to be a blind spot—especially if you’re investing in properties. “Generally, an investment property purchase is less emotional and more about the numbers,” says Benjamin Rice, a branch manager with Windemere Real Estate in Portland, Oregon.
Benjamin explains that an investment buyer may be willing to purchase a location on a busy street, for example, because they’re speculating the property may be torn down to build a commercial building.
If you’re thinking of investing in a property, walk around the neighborhood you’re eying. What do you see? Do you see bike lanes? How about bus or trolley stops? If the answers to these questions are yes, that property resides in a mixed-use residential district.
That means city planners decided long ago that when your town’s population swells, they’re going to let developers provide your town’s newbies with new living accommodations in your neighborhood.
City planners pave the way
According to Tom Armstrong, the supervising city planner with the Bureau of Planning and Sustainability in Portland, big cities generally break down zoning laws into five categories. In his city, those categories are single-family homes, multi-family homes, commercial, industrial, and parks and open spaces.
From there, things get more tricky. Those five categories are further broken down into more neighborhood-specific categories that determine, say, how high buildings can be built and how densely they may be populated. These sub-categories, like buffer zones—which puts space between residential and industrial or commercial area—vary from state to state. But knowing how it all works is your key to making a smart investment.
“That original purpose of zoning at the start of the 20th century was to provide certainty and predictability to protect homeowners and investors by showing what would be built on and around their properties,” Tom says.
That, of course, makes perfect sense. The only thing is, the way your prospective property is zoned might not seem visible to you yet. In fact, it might not make itself apparent for another 10 or even 20 years. If you look at public transit routes, you can begin to determine how valuable that property will become in the years to come.
Transportation hubs and routes
Think of it like this: let’s say that the neighborhood you’ve thinking about investing in is near public transit hubs and zoned under the subcategory as mixed-use residential. If that’s the case, you should expect that neighborhood to change a lot. And those accommodations aren’t going to be single-family homes. Expect developers to go big by building up.
Transportation hubs are the surest indicator that development is on the way. For instance, in the 1990s, Portland city planners implemented a plan to designate certain arteries as transit stems. The idea being, the city is going to grow, and that when it does, people are going to need places to live in. Often, cities will expect developers to build four- to six-story apartment buildings anchored by ground-floor retail built along those public transit stems they’re hoping the newbies will use to get to and from work.
And while that can take years to happen, developers and investors can rest easy knowing that city planners have laid the groundwork for them.
Mixed-used means more profit
Now, new development comes with its own set of pros and cons. More mixed-use development means hip restaurants and boutiques, which means the neighborhood will become a walkable and desirable one. Designing a neighborhood that people will want to live in will also increase the value of any given property. But it will also mean higher taxes, not to mention traffic and parking wars between the neighborhood’s legacy residents and the new residents moving in.
Still, if your new property is located a few blocks from that commercial drag, the value of your property will likely increase incrementally because your renters will want to live in relatively quiet neighborhood pockets located just a few blocks from new cafes and restaurants built along that nearby public transit stem.
That’s why Benjamin says you want to buy lots along those designated transit stems.
Look before you leap
So before you make an important financial decision, envision the future growth of your potential property’s neighborhood.
To find specifics about zoning by property, do an internet search for your city and it’s zoning laws. For example, in Portland, the city government provides online resources to learn more about residential zoning.
It’s true, some renters—especially drivers—might not be willing to live in a neighborhood that’s congested with traffic and parking wars. But there’s an increasing number of people who dream of living in walkable neighborhoods with nearby amenities like corner coffee shops, hip restaurants, and boutique retail outlets, as well as multiple transportation options for drivers, bikers, and riders of buses, trolleys, and trains.
So when you’re thinking about investing, think of what those people want. Chances are strong that your city planners have. All you need to do is follow the public transit routes and speculate where to invest next.