ᐅ Building a rental property despite a zoning plan allowing only one-and-a-half stories
Created on: 12 Jun 2016 16:47
B
Bendey
Hello everyone,
I’m interested in whether it can be economically viable to build a rental property if the zoning plan only allows for a one-and-a-half-story building.
Here is the background to my question:
Some time ago, I inherited a plot of land of about 800 m² (8,600 sq ft) with a south-facing side, close to the city center and recreational areas. It’s really a beautiful location!
However, since the distance to the workplaces of my wife and me is a bit too far and we are very comfortable at our current home, we do not intend to build there for ourselves.
Because certain costs arise for property tax and land maintenance, and given the current low-interest environment, we would like to invest. We are therefore considering building a house there to rent it out afterward.
The problem is that the zoning plan only permits a one-and-a-half-story building, and the neighbors would likely not agree to any changes to the zoning plan.
As far as I know as a layperson, building a rental property usually only makes economic sense if a multi-family building with at least two stories can be constructed due to the fixed costs involved.
Is this correct, or can you share from your experience whether a one-and-a-half-story building can still offer a worthwhile return? Our expected return is around 5 to 6 percent.
Do you have any ideas or approaches on how to use the plot profitably despite the restrictions of the zoning plan?
Selling is, of course, also an option, but since there is some "emotional attachment" to the plot, it would only be the last resort.
I’m interested in whether it can be economically viable to build a rental property if the zoning plan only allows for a one-and-a-half-story building.
Here is the background to my question:
Some time ago, I inherited a plot of land of about 800 m² (8,600 sq ft) with a south-facing side, close to the city center and recreational areas. It’s really a beautiful location!
However, since the distance to the workplaces of my wife and me is a bit too far and we are very comfortable at our current home, we do not intend to build there for ourselves.
Because certain costs arise for property tax and land maintenance, and given the current low-interest environment, we would like to invest. We are therefore considering building a house there to rent it out afterward.
The problem is that the zoning plan only permits a one-and-a-half-story building, and the neighbors would likely not agree to any changes to the zoning plan.
As far as I know as a layperson, building a rental property usually only makes economic sense if a multi-family building with at least two stories can be constructed due to the fixed costs involved.
Is this correct, or can you share from your experience whether a one-and-a-half-story building can still offer a worthwhile return? Our expected return is around 5 to 6 percent.
Do you have any ideas or approaches on how to use the plot profitably despite the restrictions of the zoning plan?
Selling is, of course, also an option, but since there is some "emotional attachment" to the plot, it would only be the last resort.
Bendey schrieb:
Expected returns are around 5 to 6 percent. [...]
Selling is of course generally an option, but since there is a certain "emotional attachment" to the plot, it would only be the last resort...Emotional attachment costs money.
The development has to suit a rental property, meaning the building envelope must be sufficiently large, and commercial use should possibly be allowed. Otherwise, you monitor the local land market and sell when the right buyer is found.
I also don’t think renting out is really an option for you, perhaps only with a property management company (which will reduce your returns), since you own only this one property (assumption?) and don’t live locally. Think about how often you will visit the construction site during the building phase and what it will cost you to find tenants, handle billing, and occasionally manage the property.
Best regards,
Dirk Grafe
garfunkel schrieb:
If the goal is purely rental income, I would definitely focus on multiple apartments. If one unit experiences vacancy or non-payment, you don’t lose 50% of your income immediately.But please consider the full thought. Having many tenants increases the risk of:
- Stress, conflicts, and disputes among tenants or with the landlord/management
- Move-ins and move-outs (do you know how a stairwell looks in a rental property after multiple move-ins and move-outs?)
- More administration and potentially higher costs
- More parking spaces = higher expenses
- More storage rooms and trash bins
G
garfunkel13 Jun 2016 17:42That is certainly true as well.
By the way, I also believe there are better investment opportunities than real estate.
Properties tend to be attractive only when certain foundations are in place, like in the case of Bendey.
He now has to start calculating and ultimately weigh whether it’s worthwhile or not.
I would say it can be worthwhile.
Among other things, I would pass all costs on to the tenants, and how the stairwell looks after a tenant moves in or out doesn’t necessarily matter, since only "tenants" live there anyway 🙂
In other words, if you plan such a project as an investment, you need to act accordingly; otherwise, the cost-benefit ratio will be too poor.
By the way, I also believe there are better investment opportunities than real estate.
Properties tend to be attractive only when certain foundations are in place, like in the case of Bendey.
He now has to start calculating and ultimately weigh whether it’s worthwhile or not.
I would say it can be worthwhile.
Among other things, I would pass all costs on to the tenants, and how the stairwell looks after a tenant moves in or out doesn’t necessarily matter, since only "tenants" live there anyway 🙂
In other words, if you plan such a project as an investment, you need to act accordingly; otherwise, the cost-benefit ratio will be too poor.
garfunkel schrieb:
Among other things, I would pass all costs on to the tenants, and how the stairwell looks after a move-in or move-out doesn’t necessarily matter, since it’s “just tenants” living there anyway 🙂
What I mean is, if you plan a project like this as an investment, you have to act accordingly; otherwise, the cost-benefit ratio will be too poor. Not all costs can be passed on; some expenses remain the owner’s responsibility.
Of course, if nothing is done, after 5 move-outs potential tenants will stay away because the first impression when entering the building is rated 4-5 (out of 10).
G
garfunkel13 Jun 2016 18:24However, 5 extracts surely cover more than 15 years, or with how many years of tenancy is this usually calculated? Whether or not the costs are recoverable, I would always include the expenses I incur in the rent.
garfunkel schrieb:
But isn’t 5 withdrawals definitely more than 15 years, or what lease term is normally considered?That is not what is being discussed in this thread.
The original topic was the approach:
Few large apartments <> Many small apartments
garfunkel schrieb:
Recoverable or not, I would always include the costs I incur in the rent.You can certainly try. 😎
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