Am I the only one surprised that zoning and architecture barely get discussed here?

Question

Genuine question — because we talk about cap rates and cash flow all day, but I almost never see anyone bring up zoning or basic architectural analysis. And honestly? I think it's one of the biggest edges most investors are just leaving on the table.

A few things that changed how I look at deals:

GIS tools — most counties have free public portals. You can see where permits are clustering, where infrastructure is being extended, which corridors are being flagged for upzoning. It's not perfect, but it's a way better signal than waiting for the market to figure it out.

Floor plans and design — a bad layout kills rent and resale. A good one adds real money. ADU-ready lot? Convertible garage? That's not cosmetic, that's value.

State law — this one moves fast and most investors aren't keeping up. ADU reform, missing middle legislation, setback changes. Some of you may already own properties that qualify for more units than you think.

Found a deal not long ago that looked totally unremarkable on the MLS — basic 3/1. Pulled the GIS data and it was sitting in a transit overlay that allowed 3 units by right. Bought at single-family pricing. The upside was never going to show up on Zillow.

Anyway — curious what you all think. Do you factor any of this into your process, or is it still too "developer world" for most buy-and-hold strategies?

Matt Devincenzo · Answer

Having watched dozens of entitlement projects fail due to expense, funding issues or challenges getting approved I would not say that it is "definitely worth" pursuing these projects. It's a real estate business like any other, there are opportunities and there are risks. The risk on entitlement and zoning is you're unsuccessful, or undercapitalized for how long it can take to be successful, and you can't extract the value.

Addressing your original question of why it's not more talked about, because these are fairly sophisticated plays and are often capital intensive. Buying a project with $200K in 'hidden' value typically means you need to fund that hidden value with cash until it can be revealed allowing for more favorable financing. That keeps these projects out of reach for most people especially starting out.

Dan H. · Answer

>Found a deal not long ago that looked totally unremarkable on the MLS — basic 3/1. Pulled the GIS data and it was sitting in a transit overlay that allowed 3 units by right. Bought at single-family pricing. The upside was never going to show up on Zillow.

I would refer to that as a potential value add in that by going through the development effort of adding two units, you may add value in excess of costs (adding small unit counts is expensive development).

Purchasing a unit that had 2 safe unpermitted units added ideally out of space that is already permitted is a sophisticated value add.   I fairly recently made a similar sophisticated value add purchase (but it was 3 unpermitted units added to permitted space) in my market.   The market appreciation likely was ~$400k, but I have ~$900k of appreciation.   No development required.

My first protege sold a property to a developer for ~$500k more than its comp based value leveraging a law that has since been rescinded.   He did no development.  He simply understood that a property was a near perfect property to take advantage of the short lived law.

Sophisticated value adds typically require understanding potential impact of changing/new laws and regulations.

In much of my market (all the city of San Diego and all unincorporated areas), condonizing ADUs have recently been granted by right.   What will be the cost of condonizing the ADUs?   How much effort will it involve?    Is it worth gambling before these questions are answered realizing that the value will not take long to be reflected in the comps?   Does the reward out weigh the risk?   I am still trying to decide but suspect the proc3ss to be less cumbersome in the unincorporated areas than in the city of San Diego but the potential reward to be higher in the city of San Diego.

good luck

Iliya Muzychuk · Answer

I recently came across a developer from LA that is taking apartments into condos, using tenant in common rules. In high regulatory markets definitely worth working on entitlements as they pay off if you have the right strategy.

Garrett Crosby · Answer

This is underrated and you're right that it's mostly ignored. The GIS/zoning angle is genuinely one of the sharpest edges available in real estate right now, especially in California where state law has been changing so fast that plenty of owners don't know what they actually own.

In LA/Ventura specifically, HB 1110 equivalent state legislation plus AB 2011/SB 6 and the ADU reforms have opened up density options on parcels that were SFR-only a few years ago. I've seen deals where the seller had no idea the property could support an ADU + JADU by right, and we were able to acquire at SFR pricing with the density optionality already baked in. That's pure arbitrage on zoning knowledge.

The floor plan point is equally underappreciated. A functionally bad layout is a structural vacancy risk that doesn't show up in any underwriting metric. "Bad layout" properties consistently run higher vacancy and attract worse tenant pools — the market already knows, even if the spreadsheet doesn't show it yet.

Kamil Lysik · Answer

You're definitely not alone — and I think you nailed why it gets ignored: most investors are trained to look at current income, not embedded optionality.

The GIS + zoning angle is exactly where I focus too. In my experience working with developers in Europe, the biggest value unlocks almost always came from understanding what a site could become — not just what it is today. Transit overlays, upzoning corridors, ADU legislation — these are essentially free options that most buyers walk right past.

The floor plan point is underrated as well. A bad layout is a hidden cost that never shows up in the pro forma but shows up every single month in vacancy and tenant turnover.

Curious — when you're screening deals early stage, how much time do you spend on GIS before you even look at the financials? I've been building a decision framework around exactly this sequence and trying to understand where other experienced investors draw that line

Pepyn Thomas · Answer

You're right and it's underrated. The GIS overlay point especially. Transit corridors flagged for upzoning are public information that almost nobody is pulling systematically before they buy.

The state law piece moves faster than most people track. Texas has had quiet setback changes in some municipalities, Colorado's ADU reform has been patchy by jurisdiction, and Florida's Live Local Act created by-right density bonuses that most investors in those markets haven't fully mapped yet. The gap between what a parcel is zoned today and what it's likely to be permitted for in 18 months is where a lot of the edge is sitting right now.

Iliya Muzychuk · Answer

What most surprises me is how accessible GIS has become and every investor I talk to doesn't know that it exists. If you're in urban area, all the information is out there.

Dan H. · Answer

I have looked into TICs and considered them.   In San Diego they sell at a big discount due to the finance challenges.   I understand this is not the case in San Francisco.   I am unsure of the why?   Maybe there are more cash buyers in San Francisco.

I even considered acting as the bank (seller financing) on the TICs, but even at a little above market rate (say 10%) it was not worth it to me seeing sp500 historical is ~10% and in recent years significantly higher than this historical average.   So providing the financing would be on going effort that is not what I strive for in sophisticated value adds.

Now that much of my market allows the condoizing of ADUs and the city of San Diego allows converting apartment units to ADUs, there is little incentive to further investigate the tic option in my market(assuming condoizing is not crazy expensive).

I do like the thinking of the developer of investigating tic option in LA.   Maybe LA will have less a TIC discount than San Diego.   Also I believe San Jose and San Diego are the only 2 incorporated areas that have opted in on the CA law to condoize ADUs by right.   therefore I do not believe that to be an option in LA, so TIC is the option (which was the case in San Diego until fairly recently).

As indicated knowing the options and likely ramifications of new/changed laws and regulations can present low effort value adds (sophisticated value adds).   I have pointed out the rewards that I have achieved on one effort and the quick reward that my initial protege achieved on a different effort (quick $0.5m).   However, it is not without risk.   I am a partner on an effort to add 8 studio ADUs out of existing garage space.  There is a local law that allows as many ADUs as desired out of legal permitted space (including garage space).  The effort also included rehabbing the existing units.   Commercial residential (5+ units) has lost value.   We had issues with multiple tenants.   I suspect I will be lucky to recover my initial investment.   Making any profit is likely a fantasy.   Maybe recovering my full investment may be a fantasy.  There are risks.

I just thought I would provide some balance.  There are risks in trying to predict the consequences of laws and regulations.  Then there are the risks of simply holding RE.  I believe that if commercial residential values have not fallen, even with the difficulties with some of the tenants, that I would have made a solid profit on the effort so the difficultly was not the sophisticated value add, the difficulty wasthe property market value as acquire fell.

Good luck

Ken M. · Answer

Zoning and architecture play into investing for a very small group of investors.

Am I the only one surprised that zoning and architecture barely get discussed here?

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