Real estate investing risk cannot be eliminated; there is risk associated with any type of real estate investment that every real estate investor must deal with.
Risk, however, can be reduced with knowledge. A key to success in real estate investing, for example, is to know as much as possible about the growth trends of an area, the local problems, upcoming new investments, and changes in zoning or other regulations or rules that affect real estate both directly and indirectly.
This means real estate investors should develop a keen sense of awareness about their community by gathering as much information as possible from sources like the local newspaper, local meetings, or visits to the planner’s office or zoning board.
It seems appropriate, therefore, to acquaint you with several key terms you undoubtedly will hear that could affect your real estate investment.
Feasibility Study
A feasibility study examines the anticipated results from any specific development or proposal. They are usually conducted to show the success potential of a project with the goal to enhance the developer’s chances to obtain financing, but can also be made for presentations before various public forums.
Highest and Best Use
The highest and best use of real estate signifies the best economic use of a property with respect to what is legally and physically possible at any given time. A change in zoning or other regulations may dramatically change the highest and best use. When an investor can find and acquire a property that can easily and economically be converted to the highest and best use, the property value can be increased dramatically.
Land Use Regulation
Land use regulation deals with how the land is used. Because most areas of the country have detailed land use rules that are frequently changed and have the effect of reducing land values, real estate investors would be wise to watch for public notification of these regulatory changes in the newspaper and attend the public forum.
Unincorporated Area
Real estate in an unincorporated area means that it outside legal city boundaries. These areas are governed solely by county government. Though property in the unincorporated area often have greater flexibility of use because county building and zoning rules are often more lax, they may not have all the public services available to other parts of the county.
Variance
A variance is an approval granted by the city or county commission to enable a property to be used contrary to one of the building codes or sometimes contrary to a zoning regulation. A variance may be easier to obtain than a complete change of zoning, but each circumstance will vary.
Zoning Board
A zoning board is usually compiled of appointed (non-elected) community leaders whose duties are to hear and vote on zoning issues within the community. They can give an investor advance information about the acquisition of an investment property that could go up in value due to a proposed project and offer a good real estate investing opportunity.
