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7 Ways Zoning Regulations Can Destroy a Rental Business Plan

Jan 31, 2020 by Lena Katz
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The original headline of this post was "Can Local Zoning Regulations Affect My Rental Property?" But the truth is, zoning regulations can do more than affect you as a landlord -- they can absolutely destroy you.

For three years I lived in the scrappy North Shore neighborhood of Miami Beach, where zoning changes eventually destroyed people's livelihoods and the neighborhood itself -- specifically one zoning change, which was ahead of its time 10 years ago in banning short-term rentals (STRs); i.e., vacation rentals.

People are fighting it to this day, and some have lost their properties to the battle. Only a few weeks ago, it was announced that the neighborhood was given a "blighted" designation, which will enable the city to invest $100 million in community redevelopments and presumably exercise eminent domain over the holdouts.

The local property owners are still fighting, claiming they weren't given fair notice that this change was coming. In reality, they were given 10 years.

Other neighborhoods aren't seeing as many casualties in their struggles to figure out how short-term rentals play into the local economy. But many a wannabe Airbnb entrepreneur has seen their dreams crushed.

Zoning regulations affect usage in many ways

  1. 1.Airbnb has pushed STR zoning to the forefront, but as an investor there are other zoning pitfalls you need to be aware of before creating a business plan and buying a property. Because fighting against the city while your property sits vacant is not a viable long-term plan.
  2. Short-term rentals aside, the most relevant and problematic zoning issue that residential landlords face has to do with rental restrictions. In a neighborhood or town that's going through rapid growth, these are liable to be the subject of many negotiations among developers, homeowners, and city planners. This is due to differing goals: Developers want to maximize profits on multifamily or mixed-use properties (properties that may have residential in the same building with office and/or retail space), and towns or communities want to control traffic, limit growth, or preserve the character of the neighborhood. Single-family and duplex owners often find themselves caught in the middle.
  3. If cities or towns are worried about student housing or co-living situations causing overcrowding, they have been known to set bedroom-to-bathroom ratios as well as maximum occupancy standards. Any roommate situations that you didn't know about or looked the other way on might come back to haunt you once the city starts enforcing this.
  4. Another variant of the previous item is to impose zoning regulation to limit the number of cars that can be parked in front of a property. Communities have been known to put this into an ordinance to combat an upswing in student or other seasonal rental populations. And it's much easier than the bedroom-to-bathroom ratio to spot: Officials or nosy neighbors can simply keep an eye on the street and call in any property that regularly has more cars than officially allowed.
  5. If you're thinking of building a guest house or above-the-garage studio as a rental property, be aware that one of the easiest ways for a town to limit growth is to put a cap on building permits issued -- thereby effectively halting any legally permitted extensions you want to make on your property.
  6. A zoning regulation that is often ignored until the city decides to enforce it is the ordinance against operating a home-based business. For the most part, residential zoning regulations allow for small businesses that aren't manufacturing anything, don't have signage out front, and don't get a steady flow of clients to the property. However, when neighbors clash about what's allowed, changes may soon follow.

    If it turns out your reliable, quality renter has been teaching piano lessons out of their home, neighbor questions about "people going in and out of the house every afternoon" might put you in the position of needing to make a case to the planning department that this type of business is permitted in the zoning ordinance in order to avoid being fined.

    On the flip side, if your community is working to amend the zoning ordinances to allow many more kinds of home-based business, you may find out one day that your formerly peaceful, easy-to-park-in neighborhood now has an attorney's office two doors down and a home-based barre studio on the corner.
  7. Sometimes, people have been working around zoning regulations for so long that when the city moves to update them, it causes more problems than it solves. Such was the case recently in Manhattan's Soho neighborhood, where for decades, certain ground-floor retail businesses could operate with a permit in an area officially zoned for manufacturing. When the city decided to rezone the neighborhood to allow for street-level retail, a coalition formed to keep the zoning as it was -- in spite of the fact that it was completely outdated -- because the locals preferred the retail permitting process to a blanket rezoning.

Get to know the local zoning ordinances

These are just a handful of examples of the way zoning changes, or new discoveries about existing zoning, can cause upheaval in a property owner's business. It is extremely important that you stay up to speed on zoning ordinances in every city and town -- and covenanted community, and county -- where you own property or are thinking to buy. Obtain them on the official city website, or in person at the city or county clerk's office.

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