building plans
 

In this episode, we’re talking with my friend Mike Marshall about the opportunities and the complexities in rezoning properties for BIG profits.

This is something most real estate investors are vaguely aware of, but it’s not something we deal with every day. Most of us (myself included) have a tendency to dismiss the idea because it seems too complicated, intimidating or we just don’t understand how to do it.

If you really have a solid understanding of what’s involved, how it works, what kinds of properties do (and don’t) make sense to alter the zoning and how much upside profit potential there can be on the right type of property, you can greatly expand your outlook and pursue deals with some BIG hidden value that most other investors will simply overlook.

Mike actually has a course called Rezoning for Profits where he goes into great detail about all the stuff we’re going to talk about today, and this course is available FOR FREE, exclusively to members of the Land Investing Masterclass… so if you’re already a member, be sure to check it out! And if you’re not a member, what are you waiting for?? This is the most comprehensive land investing course out there right now, and it just got a lot better with the addition of Mike’s course.

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Episode 82 Transcription

Seth: Hey everybody, what’s up? This is Seth Williams and Jaren Barnes, and you’re listening to episode 82 of the RETipster podcast. Today we’re talking with my friend, Mike Marshall, about the opportunities and complexities in rezoning real estate. This is something I think most real estate investors are vaguely aware of, but it’s not something we deal with every day.

And most of us, myself included, have a tendency to kind of dismiss the idea because it just sort of seems complicated and intimidating, and we just don’t really know what we’re doing or we don’t understand how to do it.

I think if you do have a really solid understanding of what’s involved, how it works and what kinds of properties do and don’t make sense to alter zoning and really just how much upside profit potential there can be on the right type of property, you can greatly expand your outlook and pursue deals with some big hidden value that a lot of other investors will just overlook because they don’t get it.

And by the way, Mike also has a course called “Rezoning for Profits,” where he goes into a lot of detail about all this stuff that we’re going to talk about today and then some. And this course is actually available for free, exclusively to members of the Land Investing Masterclass.

So, if you’re already a member, be sure to check that out. And if you’re not a member, why not? What are you waiting for? This is a pretty much the most comprehensive land investing course out there right now. And it just got a lot better with the addition of Mike’s course.

All right, I’m done plugging the land course, which is hands down the greatest single course of all time.

Jaren: It really is though.

Seth: And it’s amazing. Anyway, Mike, welcome to the show. How are you doing?

Mike Marshall: I’m doing great. Thanks for having me guys. I really appreciate it.

Seth: Yeah, absolutely. Just to get this started, maybe you can tell us, what is your background, Mike? What makes you an expert on zoning and rezoning properties?

Mike Marshall: Sure. Yeah. For the last 15 years I’ve worked in the land development industry, specifically working with municipalities, both in Texas and in California. And during that time, I’ve worked on a variety of development projects, everything from small retail buildings up to large medical office buildings, regional malls, kind of a full gamut. And in that process or during that time, you have to be really aware of zoning, zoning, laws, zoning regulations, things of that nature. And then as a part of that, especially for large-scale development, rezoning certainly plays a part of that as well.

Jaren: I have an “edge of my seat” kind of question. I went through that rezoning course and this stuff always fascinates me, but I have my realtor’s license. I’m a managing broker, technically, even though I’m not using it for any capacity, but coming up, getting my license, we didn’t learn a lot of the stuff that you taught in your course. And even the things that you’re just sharing now, I love the process in your course of how at a high-level overview, it’s just like you broke it down into simple steps. But there’s so much, and there’s so much nuance to a market specific, right? Like how a particular county works. If somebody wants to master rezoning without going to get a bachelor’s degree in real estate development or something, what’s the clear path to learning this next level type of real estate?

Mike Marshall: Sure. I think there are two options. One is you become the student and you really study and you really learn about what’s going on in that jurisdiction, learn their zoning code, their zoning regulations, learn who the players are. So, you spend the time going through that education process. That’s one path. The other path is you find out who the experts are in that market that are doing those kinds of things all the time and you just partner up with them. A lot of times they are consultants, but really you just bring them on your team.

And then that’s probably what I would advocate, especially if you’re working multiple counties, multiple states, or what have you, really get a team on board that can actually take this through the finish line. Especially if you’re doing it remotely, you want to have those people on the ground where you could be in the middle of the country and they’re in Florida or California, and they’re able to work that for you.

So, you really want to be able to put the team together. That’s probably my best advice because it’s really impossible to know the nuances of multiple jurisdictions over and over again, as you kind of work through them.

Jaren: That sounds like the go-to answer for a lot of things in real estate. When you become a surgeon, you go to medical school and then you have your residency. There’s no real clear path. It’s kind of more, “Hey, find people who are doing it and go and do it with them and be the guy that will be willing to do all the stuff that nobody else wants to do starting off.”

Mike Marshall: Yeah, no, absolutely. I mean, you can certainly go that route and kind of be like the runner and kind of doing that grunt work or the other side of it is that there are professionals that you’re hiring and you’re paying their consulting fee. So, at that point, you’re relying on their expertise and them to run the whole process. It’s going so far as going to the public hearing meetings, doing the application process, everything that’s in the course, they basically are your agent in essence and running that process for you on your behalf. And during that time, as you do more and more of them, you’ll become more accustomed to the general process, but you’re basically hiring them and using their expertise.

Jaren: So, one final question before I steal the show from Seth here.

Seth: Pretty much, but it’s okay. Good questions.

Jaren: I’m not fired yet, right Seth? One final question on what we were saying before I hand the mic back to his direction. When you talk about building a team, can we break that down and really talk about the key players on a good team for rezoning, but then also talk about compensation? Like, what do the splits look like for different roles in different functions on the backend?

Mike Marshall: Sure. So just in terms of if they’re just being consultants, you’d have kind of two options. One is you hire a land use attorney and you have attorney fees that are typical with that. Whether that be $300, $400 an hour or something along that line, they’re going to charge you hourly. You can pay for an attorney and they’ll do that for you. And they specialize in land use. You don’t want to just get a general attorney obviously.

You need to get somebody that’s sort of real estate, specifically more a land use attorney is who you’re really looking for. That’s what you would typically do. They’re going to basically be the ones that are the face of the project. You don’t really even have to be the face of it. You can really very much be behind the scenes. They’re the face of it. They’re the land use attorney.

Or what you do is you hire a land use consultant. So, they’re not an attorney, but they have the same practical experience. And they’re going to be far cheaper. They’re probably going to be like $200 to $250 an hour or something like that, that has been my experience. And you’re paying them hourly like I said.

Sometimes I’ve seen circumstances and I’ve done this myself where I’ll do a little bit more creative situation where maybe I won’t charge as much upfront or not even at all, take a little bit of the back-end piece of the actual project itself. And so, sometimes it can get creative that way too. More often you get an hourly arrangement. And it’s going to be a consultant. I would just suggest trying to go with a land use consultant rather than an attorney.

But another suggestion I have is that whether they’re an attorney or a consultant, really try to get somebody that has done that process in that jurisdiction. And even better if they have relationships with the decision-makers, whether it be the planning commission city council, county board of supervisors, what have you, you’re going to kind of want to rely on those relationships quite a bit too.

Seth: I wonder if we can take a step back here. From a very fundamental level, why rezone a property? What does the person stand to gain from this? Are they going to make money by the value going way higher as a result of rezoning it? Or why do this?

Mike Marshall: Yeah. I mean, at the end of it all from an investor standpoint, it certainly is about making more money at the end of the process. But from a higher level, what ends up happening is that governments and local jurisdictions, they’re a little bit slow to react to what’s going on in the market. They generally don’t proactively go out and rezone property themselves. And so, what they’re really waiting for is they’re waiting for an investor or developer to come in and propose some sort of project that actually does require a rezoning.

And yeah, ultimately from an investor standpoint, the only reason you’re going to rezone is because you’re going to ultimately make more money. And you’re going to make more money in general because you’re either going to change the land use from like, let’s say agricultural to residential or residential to commercial. You’re going to have a land use shift. That’s one way that you’re going to increase the value.

The other way is you’re going to increase the intensity or the density of the land use that’s already approved for that zone. So you may be approved for a residential single family on this property, but for a variety of reasons, you can actually go in and rezone it to increase the density to where you can have instead of like 5 units, an acre, maybe it’s 11 units, an acre, what have you. So, you’re increasing that residential density, and as a result, you’re increasing the value of the property. So that’s another one where you do.

And then the other way on the commercial side is a very similar situation where on any commercial piece of property, the zoning will allow for a certain amount of square footage, as it relates to the size of the parcel. That’s something that’s called the floor area ratio. And ultimately you can change the zoning to increase that floor area ratio. So then again, you’re getting more buildable or more leasable area and, therefore, increasing the value of the property.

Seth: What kinds of properties are most ideal to rezone? What attributes should a person be looking forward to find these opportunities?

Mike Marshall: The best suggestion I’d have is that you want to look in situations where there’s a transition or you have two separate zoning designations that are butted up against each other. So, you may have on one side of the street, is a residential zoning designation, and then, on the other side of the street is commercial, or maybe they’re just residential right next to commercial.

So, wherever you see, like the division lines between zoning designations, that’s really a good place to start looking. Because that’s kind of like a transitional area. I know a lot of places out here in California where you’ll have a main street that has had houses on it at one time, then over time as the community grows, there’s pressure to turn those into more commercial districts. And so, then they’ll change the zoning to allow for, they’ll keep those houses because they want that character, that look and feel, but they’ll maybe allow for real estate or insurance offices and stuff like that. So, they start changing that zoning over to commercial. And so, we have situations where you have them butted up against each other or transitioning to one another. That’s really the best clue in terms of like, where do you want to look.

Seth: I don’t know why I thought of this, but originally, I was thinking zoning only changes if the property owner wants it to change. But does it ever happen where the city is just like, “Nope, this whole block is now commercial, even though there’s all houses there.”

Mike Marshall: Yeah. Certainly, that’s happened. There’s a whole process. There’s a public process that goes through that and there’s supposed to be public noticing and everything like that, but it can get contentious because sometimes people aren’t made aware of it or you have an absentee owner and they never get the notification. In some cases, it can have a significant impact on the value of their property. I’ve seen property that was zoned for commercial uses that got rezoned to open space by the city. And in that situation, you have severe realty damage.

But at the same time, there are laws on the books regarding what they call regulatory takings. And it’s basically the concept that if the government puts in a regulation in place that ultimately extracts or takes value from your property, they’re supposed to compensate you for it. This is kind of in line with the eminent domain concept too. And so, the idea is that they’re not supposed to be changing the zoning to a point where it detrimentally affects your property value.

Seth: Is there a time, I’m sure the answer’s yes, but when is it not a good idea to rezone a property? When should you look at a situation and be like, “Nope, it’s not even worth thinking about this?”

Mike Marshall: I’d say that the biggest thing is when you don’t have a justified demand for what you’re trying to move toward. So, if you’re in an agricultural property and you’re moving toward residential and there’s not the demonstrated demand in that community for that residential use, anytime within the near future, then rezoning the property may not really be of much value to you, especially if you’re trying to get in and out of the property in a relatively short period of time. That’s one of the things I talked about in that course too, is that you really got to make sure that your proposal is justified by a demand that’s evident in the community.

Seth: Yeah. And I think you mentioned something about spot zoning too. What is spot zoning?

Mike Marshall: Spot zoning basically is if I’m having my residential house and I’m surrounded by other residential homes that are the same zoning designation, we’re all, let’s say, like an R-1 zoning. And I just say, you know what? I want to change mine to a commercial use. But you’re never going to get support for changing the zoning for just your property in the middle of an island of other property that’s zoned R-1.

And the concept is that they’re trying to promote like, the continuity of development, logical planning, things of that nature. So that’s why when you’re looking at the transitions that I was talking about are on the borders of zoning designations, there’s much more of a lag period that you’re going to have to get approved because they’re going to look at it and say, well, these are residential. He wants to go commercial, but there’s commercial across the street. So, this actually makes sense because it continues a logical flow of development.

Whereas if you go and you have this commercial in the middle of the sea of residential, it’s just in congruent and it promotes opportunities for what they call incompatible land uses, where you’ll have impact from that commercial use impacting the surrounding neighbors. And it just causes problems.

Jaren: Yeah. I mean, I don’t want my neighbor to be in a strip club. I think in the course you use the example of a hog farm. Could you imagine like you go outside and you’re like, “Oh, that smells great.” That’d be terrible.

Seth: Are you saying if my daughter’s lemonade stand does really, really well in our front yard, I shouldn’t just assume I can change my house to like commercial zoning?

Mike Marshall: You might be able to actually. As long as the city gets a piece of it.

Jaren: That’s hilarious. So, I wanted to ask you about a particular property that I have right now and just kind of get your 2 cents on it. So, I have a property in Jacksonville, Florida that is landlocked right now, but it’s on the side of the interstate. It is in a kind of an ocean of residential, like you said. Well, it’s kind of weird. There’s a church building to the south and then there’s a graveyard. And then to the north, it’s all residential. It’s a subdivision.

I think that when you look at this thing, logically, I’m going to be able to get easement access. But if I want to develop a road or develop anything with this particular property, I’m going to have to build that driveway or that path through a graveyard and create a lot of noise pollution. Even if I put up a house there, to develop it, it’s going to be a real inconvenience to everybody there.

I feel like the most non-issue use for this property is to put up a billboard. And I called around and I was asking because I’m still going through the process to get easement access. I called the city, he’s an elected official. I didn’t call them. I emailed them. I’m asking him, what do you think about this? And he said, I’m going to be against it. People can overrule me. There’s a way where you can go through the process. It doesn’t happen very often, but I’m not going to support this at all. And I was asking my Florida-based attorney about that. Because I’m like, well, if you just look at it logically, it’s the best thing that I can use the property for that doesn’t become a nuisance to the neighbors.

And obviously you’re not an attorney and all of that, but this is a situation right where it is kind of in an ocean of residential properties, but I’m trying to rezone it to commercial or get some kind of variant that allows the billboard.

Do you think that I would stand a chance or do you think it would be worth pursuing or if there’s like some head honcho, that’s like, “I’m telling you, I’m not going to be a supporter of this, you should just stay away?” The high overview of the question is when you’re dealing with politics and you’re dealing with the county, how do you know how to navigate those kinds of conversations and all of that?

Mike Marshall: Sure. I think the first thing is to realize that let’s say it’s in a county, it’s like a board of supervisors, maybe five, seven, however many there are that are on the board. This one person is just one vote. And so, as he was implying there are other people that are on the board that can vote in the opposite direction and are supportive of it. And so, you could be okay. And the only way you’re going to really know that is by doing similar to what you did, but do it with the others, to kind of get some feedback from them.

Based on how their system is set up, though, if they’re set up in districts where it’s like, they break their county and there’s like five districts or something like that and they’re the supervisor for that district. A lot of times the other people that are on the board are just going to lean in the direction that that one representative wants to go. And the reason they do that politically is because if they support something that that guy doesn’t want, they know that down the road, they’re going to do them a favor and not support something that they don’t want or vice versa. So, it’s a little quid pro quo. And so, that happens quite a lot.

The only way you’re going to really know though is by feeling out the other board members and getting a sense for that. Now, I don’t know if this is like this guy’s like on the regional planning commission, but say he’s on the planning commission. And then even if the planning commission says no, but I kind of hear that he’s inferring too, is that there’s an appeal process. And there’s a process where you appeal it and then it goes from the planning commission up to the board.

Jaren: You can go for it, but it seems like it’s an uphill battle.

Mike Marshall: It is. It is. It certainly is an uphill battle. And the thing to realize too, is that billboards are a touchy subject in some jurisdictions, a lot of jurisdictions rightly or wrongly they see them as blight. They don’t want to see them necessarily in their communities. And I don’t know what the zoning regulations are in that county, but sometimes they’re really explicit to where almost in an essence, they’re prohibited.

Jaren: It sounds like there’s a lot of nuances that go into the particular market that you’re in. At a high level, do you have any suggested states or counties within those particular states that are like the place to go, if your bread and butter is rezoning property? Like spill the beans, man, where should I go to do this business?

Mike Marshall: Sure. And not to keep pushing like the course that we’re talking about here, but in the Rezoning for Profits, I talk a little bit about that. There are states that are rather more advantageous from a land use perspective. And so, you can imagine kind of the ones that are least favorable, but states like California, where I’m at, are not so hot. New York, not so hot. Oregon, Washington, not so hot.

But some of the better ones are going to be like, Texas is usually pretty good. Tennessee is really good. South Carolina is good. I think it was Illinois might be one of them that’s actually pretty good as well. There’s definitely a handful of them that are really good.

One thing that everybody could do, if they’re interested in finding that out a little bit more, there’s an Institute called the Cato Institute, C-A-T-O Institute. And they have something that’s called the land use freedom index. And basically, what they do is they rank all the states by what they perceive from a variety of perspectives. That’s to be the states that have the greatest land use. The greatest freedom of land use. What that means is fewer regulations. And so those states are getting to places that I would certainly start looking at.

Seth: Gotcha.

Jaren: That’s awesome.

Seth: Going back to what you were saying earlier, Mike, it sounds like at least a part of this process of getting a property rezoned is political. Would you agree? How much of this is political versus practical? It just makes sense to do this versus I just need to like kiss a few frogs to get my way?

Mike Marshall: Yeah. It’s a good point. Unfortunately, it really does depend on where you’re doing and the jurisdiction you’re in. I would just say that in general, if you’re moving toward more highly urbanized environments, it’s going to get far more political than it is and the more rural settings. And also costs and time too in the urban settings are going to be more expensive and more timely. Whereas when you get out into the rural areas, it’s going to be less or so.

Well, no matter what state you’re working in, if you kind of do that similar process, when you’re picking counties for land investing, you’re looking at here’s your metro areas, let’s move a couple hours out maybe, and start looking there. Those are going to be the areas that there are just a greater opportunity for easier processes, less of a political environment.

I mean the environment here in California, I just wouldn’t even want to spend a time to describe it to you. It’s just really difficult. And I’ve seen places in Texas where it’s like a one sheet application and there’s this, “Oh yeah, that makes sense” and they just go and do it. So, it really depends on where you’re at.

Jaren: I hear it’s very similar to subdividing too. Like in certain states, it’s literally an email to the county, but in another it’s a huge process.

Mike Marshall: Yeah. But in California, here you’re talking six months to a year. In Texas, it’s much shorter. And Texas is just kind of like the ideal place for subdivisions ultimately. Just the way that their regulations are set up.

Seth: So, Mike, I wonder if you can tell us, are there any examples of the kind of impact rezoning can have on a property’s value? Do you have any examples of this property that quadrupled in value because it changed from residential to commercial? I mean, maybe it’s not that dramatic, but do you have any examples off the top of your head that made a substantial difference in this situation?

Mike Marshall: Yeah, there’s one that always comes to mind when I think of it. Because it just really blows my mind. It’s in my community actually, where I live. There was an existing commercial building and they wanted to change the zoning because the zoning they wanted to go to allowed for a very specific land use.

And at one point it was a furniture store, the furniture store went out of business and the building sat vacant probably for well over a year. These guys came in and bought it. If I remember right, it was just right around the $600,000 mark is what they bought it for. They went through a rezoning process, got it approved. And the new use was, this is funny. It’s almost similar to a furniture store, but the way that the zoning was set up, it quite wasn’t.

And so, they allowed for a flooring sales place. Almost like one of those lumber liquidator type places, if it’s familiar. So that’s what they went to. And so, they bought it for $600,000. They did the rezoning. They sold the property to a new owner who brought in the lumber liquidators. They brought them in and it went from $600,000 and they sold it for $1,850,000.

Seth: Wow, man, that’s huge.

Mike Marshall: Massive.

Seth: Yeah. That’s a big deal. Kind of reminds me of the typical subdivision project I’ve heard of, where you buy a big piece of land and subdivide it into 10 different lots and all of a sudden, you’ve doubled the triple the value.

Mike Marshall: Yeah. Very, very similar. Yeah.

Jaren: Have you ever ran across a deal with numbers that are more similar to the run-of-the-mill kind of land flippers where now, let’s say you buy a property for, I don’t know, $1,000 to $5,000 or maybe even upwards of like $10,000 – $15,000 and then rezone it and then sell it for, I don’t know, over $100,000.

Mike Marshall: Yeah. I mean, I’ve seen one within like, the last year. I didn’t work on it, but somebody I knew did, and basically what it was is a 10-acre parcel in San Bernardino county that was here in California that was zoned for agricultural uses, but it had the path of development moving that way. There was residential zone property, again, almost right across the street. And so, they had this 10-acre parcel. They bought it for $20,000, I believe it was. They just rezoned it and then sold it to the builder. And when they did that, they sold it for I think was like $90,000 – $95,000 just to kind of get off it really quick. And so that was a situation that worked out really well because in that scenario, the investor was just doing the rezoning process. They weren’t doing much more than that. It wasn’t the builder or the developer that was coming in and doing that.

Jaren: Yeah. That’s awesome. And that’s where this strategy really gets me excited. Because I feel like I can use my skills as a land flipper and then just push some paper around if you’re in the right area, in the right circumstances and substantially increase your ROI.

One question I had for you, Mike, for a complete newbie, somebody who has no idea about anything related to rezoning, what are your thoughts about them just calling the zoning and planning department of the county and asking them what they can do with the property? What can they do that has a high potential of them getting support from the county for rezoning?

Because I tried to do that with a property I have in Bloomington. I called down the county and I’m like, “Hey, I want to develop this property. What can I do with it?” And they were just like, “Well, read this section of this super long PDF.” And they were like, not helpful at all. But I don’t know if that was just like a one-off thing in Bloomington or if that’s kind of the run-of-the-mill, you kind of have to have your strategy before you approach the county.

Mike Marshall: Sadly, it’s more often the case that it’s like what you experienced. I’d say that there are people that you’ll find in some jurisdictions who have a mindset that is more supportive of like, investors and the investor mindset. And so, they’re willing to be creative with you and they’re willing to kind of hypothesize and go down that road. You’ll find those from time to time. If you find them, you’ve got to hold on to them because they’re really, really rare, unfortunately. I don’t mean to speak poorly of jurisdictions in the bureaucracy, but a lot of people do behave that way, where they are just going to shove the information at you and let you go.

I will say this, though, the more you learn about the process and the more you’re aware of it and the more you learn the right questions to ask, then they’re going to probably be more engaging with you because they’re dealing with a lot of people that are like, what can I do at this property? And they just let it lay like that. And they want the person at the planning office to kind of give them all the options. And that’s generally not their role, but if you go into them saying, “I want to do this, this and this, can I do it or can I not?” you’re going to kind of get a better response.

Jaren: That’s great to know.

Seth: I was curious, we all sort of are familiar with the land business and it makes me wonder, like suppose I find a property I want to rezone that it’s a vacant lot. So, there are no improvements on it whatsoever. Will that typically make it easier or harder to get the property rezoned? Are there improvements or lack thereof? Is that material to this at all? I don’t know. Are there any consequences if there’s something on the property already?

Mike Marshall: I would say if you have a blank slate, then it may become a little bit more problematic in that, the decision makers are going to want to have more of a hand in what you actually end up putting on the property. So, they may be asking questions like, “Well, you want to rezone it, but what are you going to put here? What’s going to be the land use and what’s it going to look like? What’s the architecture of the building?” Things like that. And again, that’s going to be in more urbanized jurisdictions more than the rural ones.

Again, it’s going to be different based on the jurisdiction but if I had my preference, I’d probably prefer it to be a situation that doesn’t have anything on it. And the reason is that you have more flexibility ultimately because sometimes you can take the cues from the decision makers when they say, “Oh, you know what? We don’t like this, but we like that.” Well, if you can do that and still hit your target and make everybody happy again, you have that flexibility.

Seth: Gotcha. Is there like a hardest type of rezoning to accomplish? Maybe that’s too broad of a question, but going from agricultural to residential or residential to commercial, is there one that sticks out to you as that is the most challenging type to pull off?

Mike Marshall: Moving anything to industrial tends to be challenging just because there are a lot of environmental impacts or potential environmental impacts. And so, that becomes a little bit problematic. Or just in general, if you look at it as like the spectrum of land uses where the left side is easier or less intensive land use being agriculture. And then on the far side being industrial, anything you’re doing though, kind of skip over and move on to that spectrum is going to be that much harder.

So agricultural to industrial would be like probably the hardest type of thing to do or agricultural to commercial could be pretty tough or residential to industrial could be tough. So, anything where you are kind of skipping that over that gradient it’s going to be a tougher sell.

Again, it depends on what jurisdiction you’re in and what their needs are because there are jurisdictions that are like, purely industrial and there are almost no residential uses in them at all. And in that situation that might be more appropriate. But as a general rule of thumb, moving toward industrial tends to be quite a bit harder.

Seth: In that sequence that you just talked about agricultural to residential, to commercial, or maybe to industrial, does it ever go backwards from there? Is there ever a reason where we’d go from commercial to residential? Does it ever happen and why would that happen?

Mike Marshall: Yeah, that’s a great question. So, the sequence that I described is generally referred to as up-zoning where you’re increasing the density or you’re intensifying the land use, you’re going up-zoning. If you’re going in the opposite direction and that’s referred to as down-zoning.

And so, you’ll often see investors or developers down-zoning property, it won’t happen a lot. You’ll see jurisdictions that want to down-zone a property for sure because they want to create, let’s say, open space. And like there’s a piece of property that maybe the city even owns and it’s zoned for commercial. They will change it over to open space because they’re trying to increase their open space holdings, that happens.

More often from a developer’s perspective, if you can imagine a larger piece of property, let’s say you have a hundred-acre piece of property, that’s prime for development and the developer is saying… and the reason I’m using this example is because I’m working on this exact project right now, a hundred-acre piece of property with a creek running through the middle of it. And so, you have, on one side of the creek is about 35 acres. And on the other side of the creek is the balance of the 65.

What they want to do is they want to develop on the 65 acres, but then on the other 35 acres, they want to down-zone that to open space. And the reason they’re doing that is that if they down-zone it from a residential to open space, they donate that open space out. It’s much more advantageous from an environmental perspective because they don’t have to deal with a lot of environmental permitting. There’s a lot of costs and time that’s involved in that.

So, from their perspective, their project can actually pencil just with the 65 acres being developed out and then down-zone the other 35 to open space and then actually having the city take that on. So, there are instances where you can use it as a bargaining chip to down-zone a portion of the property.

Jaren: That’s awesome. So, how do you do this virtually? I know a lot of us land investors like I’m in Northwest Indiana of all places and my land business is based in Florida. And I know based on going through the course, there’s a handful of those states that are kind of in the path of growth and also score high on the freedom land use act. Is that what you said?

Mike Marshall: Yeah. Freedom index I think is what they call it.

Jaren: Yeah. So, let’s take South Carolina or Nevada. Those two kind of popped out at me from reviewing the course. If I’m remote, if I live here, it’s really hard for me to go rub shoulders with the county, right? Isn’t there some process where you have to show up to like public hearings and stuff? How do you do this remotely?

Mike Marshall: Sure. Well, right now, as we sit here today in 2020 dealing with the COVID stuff, there are a lot of more virtual meetings that are happening more often than not. And so, that gets solved immediately right there because you can just be present remotely. In the event that you actually have to be physically at the meeting, of course, yeah, you can go.

But the other thing too is that’s when you have your land use consultant or your land use attorney and they’ll serve in that function for you. They’re going to be local. They’re going to have those relationships. They’re going to be familiar with the process in that jurisdiction and you’ve hired them for that reason. And they’re going to go and be there in your place.

Seth: Do you think with all the COVID stuff going on, maybe these meanings simply have to happen virtually, like they can’t happen any other way. Is that going to make things easier or harder to accomplish this kind of thing? What are your thoughts on that?

Mike Marshall: Yeah, I think that what’s going to ultimately happen at least for the time being is that they’re going to continue doing these virtual meetings. In large part I think it will be a long while before they’ll go back, if they’ll go back. Because if they kind of feel that this is working for them, meaning that the city and then staff and the developers and everything, they may just stick with it going forward.

I think that that environment is far more advantageous for developers than it has been in terms of comparing it to like a live meeting. When you go to a live meeting, it’s much more possible that you’re going to have people showing up at that meeting in opposition, they’re going to be very loud and vocal in a big group of people inside a room and everything like that. And that can get pretty contentious ultimately.

Whereas if you have these Zoom-type meetings, they’re doing a virtual, then the public still has the ability to voice their opinion, but they’re not in one room, in one group. It doesn’t get as controversial. The decision makers don’t feel as pressured in that situation.

So, the longer we go on with these virtual meetings, I think that’s better for developers. And you might start seeing them kind of using that to their advantage by dusting off old projects that have been on the shelves, that they are kind of shelving because of a variety of opposition reasons.

Jaren: So, I want to take a step back here at Mike because I’m sitting here and I’m just daydreaming about like I’m at the edge of my seat. I’m really enjoying this conversation. I don’t know if everybody can tell, but I’m excited. I never thought when I was in high school that I’d be geeking out about a rezoning conversation.

Seth: Calm down, Jaren. Just calm down.

Jaren: But I want to take a step back here and really understand the entire process. So, we have an amazing article, the Land Flipping Life Cycle that has a mind map where it literally shows you step-by-step all of the high-level stages from doing direct mail, from even doing market research, all the way to cash in at the bank.

And so, I want to kind of have you walk us through the mind map, as it were, for rezoning. So, let’s say, step one I’ve already got the deal. And I saw these trends where it seems like, okay, things are starting to residential, but they’re starting to become more commercial let’s say. And so, I go to the county and you said I have to bring a couple options to them, right? So, after I bring my couple of options to them, what happens next? What’s the process from them either accepting it or denying it?

Mike Marshall: So, you have your property and you’re looking at rezoning it and the first thing you’re going to do is… Well, back up one step. The first thing I’d say is that you want to go in and buy your property with the understanding that a rezoning may be your plan A but you have a certain plan B where you can exit out of it and profit and be just fine. Right?

You never want to like, go into it thinking that I’m only going to win on this thing if my rezoning goes through this, because you just don’t want to bank on that. So, you want to have a plan B in place so that you have that going for you. You know that if it doesn’t get approved, you can still get out of this property, be just fine, but you’re going to go for the home run.

And so, you’re going to go and you’re going to talk to the county at the beginning and you’re going to kind of bring to them, like you said, a couple of options. You’re going to say, “Hey, look, this is the property I’m going to have. This is what I’m looking at doing. This is my preference. I’d like to rezone it agricultural to residential. And I want to understand a few things.”

And the things you’re going to want to ask them about, is you want to ask them about what their process looks and that process being, what’s the application itself? What applications do I need to fill out? What materials do I need to submit? Because ultimately what you’re heading for is your next step, which is submitting a complete application. And so, you need to know what all of those pieces are that constitute a complete application.

And the reason why that’s important is that if you submit an incomplete application in a lot of jurisdictions, they can sit on it by law for 30 days or longer without even letting you know that it is incomplete. And so, you’re wasting time and everything as a result of that.

And so, you want to understand what constitutes a complete application. You want to know what the fees are that are associated with that rezoning request, because that’s something you’re going to submit at the same time.

So, you’re going to have these conversations with them. That’s the kind of a technical side. What’s my application look like? What are the materials? What are the fees? Those are kind of like the checkbox technical things.

The other thing that you’re really shooting for is you’re really wanting to get a sense for what the jurisdiction’s level of support might be for your rezoning request. And that’s kind of where it comes in a little bit of nuance. And it may be a thing of where, when you’re talking to the person who answers the phone at the county, they may be just a frontline staff person. And they may not really be able to speak on behalf of the city, in terms of the county, in terms of “Yes, we’d support it or no, we wouldn’t.” You may end up having to kind of work up the ladder a little bit and get to a more senior staff person to get a sense of whether or not you’re going to support it or not.

It’s a series of conversations ultimately, and it’s not just going to be usually like a one-time conversation. I would probably advise having a physical meeting if you’re local or doing a phone call or a Zoom meeting like this and where you can actually ask those questions and get a sense what their level of support is.

Once you have that and let’s say, they’ve said, “Hey, you know what? This is something that staff would support. We can’t guarantee that it’s going to be approved because it has to go to the planning commission or city council, but ultimately staff would support it.” And that’s kind of what you’re shooting for.

Then you’re going to go in and you’re going to make your formal submittal. And at that formal submittal, you’re going to have your complete application and money and all of those things. And you’re going to submit that to the county.

At that point, they’re going to take it in and there’s going to be a review process. And based on what jurisdiction you’re in and everything, it could be very lengthy or it could be very short. In the worst situations, it can be six months to a year. If you’re in the more favorable states that we’ve been talking about, it could certainly be within a couple of months.

And so, that’s what you’re ultimately waiting for is you’re going to have them review it. They’re going to look at it. And what they’re going to do is if they have any issues, they’re going to make comments. They’re going to provide you with comments back to you and they can say, “Here are the things that need to be addressed before we could move forward to the public hearing where it’s going to actually be denied or approved.”

And this is where you’re going to have to have your team on board that’s going to be able to respond quickly, because the city may drag their feet, but you definitely don’t want to be the one dragging your feet. So, you need to have your team in place that can respond and address each of those issues that they’re asking for. Get that information back to them.

And then at that point, hopefully they got what they need and they can move forward to schedule the hearing. And then at the hearing, either you or your land use professional is going to be there to advocate on your behalf. And hopefully you’re going to get your decision.

Jaren: What happens if they say they go through all that and they say no? Is there a way for you to be like “What?” and like fight them? Or is it kind of like, “Well, they said, no, I got to just default to plan B”?

Mike Marshall: Usually the way it works if there’s a planning commission that you’re going to first, if they say no, then you can appeal their decision to the city council or the board of supervisors. So, there’s usually another higher approval body that you can appeal to.

If you get to that level and the top-level approval attorney says no, then you are kind of stuck. The only thing that you have at that point is if there’s some sort of legal justification where you could file suit against the city or the county, that’s one way to go. Or more often than not, you’re going to know beforehand what the feeling is of the city or of those decision makers. And if you know what the issues are, then you’re going to try to navigate through that and work those out. Sometimes those things get worked out at the public hearing itself while everybody’s talking in a public forum. They’ll say we have issues with this, this and this. And you can find a way to navigate through that on the spot. So, there is that opportunity as well.

Seth: So, if somebody really has their arms around this whole process you talked about, they understand how to go through the public hearing, how to get the approval, talk to the right people, go through all those steps. And they’ve got like a specific market that they want to work in, and they’re like, I know how to rezone properties now. If somebody wanted to send out a direct mail campaign and target specific properties, purely for the sake of rezoning them, what types of properties should they be targeting?

I’m just envisioning if I’m going through DataTree or AgentPro, and I’m trying to filter my direct mail list, what attributes would I want to specify? Like these are the properties I want to go after. Is it kind of just come down to the location, understanding where the two zoning jurisdictions bump up to each other and maybe trying to reach out to the people on that border, or I don’t know, what rationale would you use if you were seeking out these types of properties?

Mike Marshall: Right. I’ve tried to go through that mental exercise myself to figure out how you could do it on a broad scale like that. And I think one way you can do it is by literally looking at the zoning map and then figuring out the APN schemes for those properties that are on that border, on that transition and try to go about that and mail out accordingly in that sense. You may not get the 5,000 – 10,000-unit mailer. So, it may be more of a micro mailer situation because you’re being very focused and very specific, but you can still accomplish that in the same way.

Another way maybe to do it is if you kind of start playing with the zoning as one of the attributes on your data filtering. And then another one maybe is like the improvement percentage. So, if you find like a residentially zoned property, that doesn’t have any improvements on it, and it’s a large acreage, let’s say then maybe those are some interesting opportunities as well, or even just looking at agricultural property.

I think ultimately the way that you really have to do is be a little bit more focused and really utilize what you do in the typical land investing realm and kind of get a little bit more focused by utilizing or interacting with the zoning map a lot more.

And so, it may not be as automated in a lot of ways because you’re really getting into the nuanced details of it. There’s a way to do it, but it’s not going to be like pulling a massive amount of properties at one shot.

Seth: When I think about this, it seems reasonable to think that you could offer more on a property that you think you can rezone. Like you don’t have to stick to this 10% of market value thing, because there’s a lot more meat on the bone potentially. That’s the other thing, like, you don’t want to go out on a limb and buy a property and they realize, “Oh, I can’t rezone it.” Does it ever make sense to like, put an option on a property? Like, can you have an option on it, rezone it and then buy it? Does it ever work like that?

Mike Marshall: Yeah. A lot of times it works like that. That’d be my suggestion honestly, is to either one of two things, either put an option on it or just put a very long escrow period on it, where you have that in place. I’ve seen a lot of people that will make the whole deal contingent upon the approval of the rezoning. And I’ve seen that happen a lot of times too. Because it’s kind of more of a commercial application than it is a residential or rural vacant land type of situation. And so, the options become far more commonplace. So, it’s not as frowned upon or it’s a little bit more accepted because it’s seen more.

Seth: And you’re running your own land flipping business. Right, Mike?

Mike Marshall: Yeah, I do a little bit of that on the side. I do it in conjunction with these types of projects we’re talking about. Lately more often than not, I’m doing these kinds of projects, but I do some mailers from time to time and I do flip some gear in there. But I said more often than not, I’m rezoning projects and then quite a bit of subdivisions as well.

Seth: Is it your goal to rezone more of your own properties going forward? Is that something that you’d like to do or just kind of happens if it happens?

Mike Marshall: I would certainly like to utilize the knowledge I have and seek out more of those opportunities. So that is definitely on the radar and something that I’m putting as a priority.

Seth: Cool. Awesome. Well, what do you think Jaren, are there any other questions we should be asking here that we haven’t asked yet?

Jaren: No, I think we hit it pretty well. I’ve really enjoyed this episode. I’m really excited. Mike, you might be getting an email from me in a couple of weeks or a couple of months, like “Hey, how do we really do this?” It’s like “Let’s figure this thing out.” Make a land-flipping life cycle blog posts on rezoning. Like actually go through the process.

Mike Marshall: Absolutely.

Seth: Mike, if people want to find out more about you or, I don’t know, talk to you about rezoning projects or anything like that, is that something you want to do with people? Do you want to give people a website or anything to go to?

Mike Marshall: Yeah, absolutely. If people want to find or go to our website, it’s tolosapropertygroup.com. That’s the website, or you can also find me on Facebook. I have a Facebook group called Sweat Free Equity. You can find me there as well.

Jaren: Free equity, I like it.

Seth: Yeah. Sweet. Sounds a lot better than Sweat Equity. I’d rather just not sweat if I could choose one of the other. Cool. Mike, your effort and putting that course together for our community, I know it’s going to be an awesome value add, and I appreciate your time with us today and just helping us understand more about how this stuff works.

Mike Marshall: Absolutely guys, great talking to you.

Seth: Yeah. And we’ll be sure to link to Mike’s website and all the other stuff we talked about here at retipster.com/82 because this is episode 82. So that was our interview with Mike. I think my favorite part about that was just realizing that there’s not a lot of situations where rezoning makes sense, but there are some of them. And just seeing the kind of profit potential that can be had when you know how to identify and when you know how to pursue it.

Because I know I’ve looked at deals in the past that probably would have been a fair candidate for this, but just not knowing I just ignored it and I just flipped the thing for what I could make from it. But it almost changes the whole land-flipping business model when you consider what you can do with this. If you could offer 50% to 60% of value, knowing that you can change the zoning, that’s kind of a big deal and just kind of a paradigm shift.

Jaren: I got to free up some margin. I wish I could wave a magic wand and have 40 hours in a day instead of 24. But it’s one of these days, when life is a little bit more chill, I’ll probably pick up this as a project. Because I really see the potential in it. I do. Yeah.

Seth: It comes down to most things like what battles do you want to fight? And what are you good at doing? It’s a similar thing with subdividing. It’s just a different knowledge set and skill set. If you choose to do that, that’s limiting a lot of other deals that you would otherwise do. So, it’s kind of just weighing, what do I want to spend my time on in this business?

Jaren: I was just talking to a friend about that the other day. He’s in a transition period in his life right now. When you’re good at a lot of things, it’s almost a curse. I mean, it’s a blessing for sure, but it’s a lot easier in life when you’re just really, really good at one thing. Because then you know what you’re called to do. It’s just a no-brainer. But when you have options, you’re at a fork in the road and you’re like, “Man, I could become an apartment syndicator. I can develop land or I could do this or I can do that. Or I could flip houses.”

When there are so many routes you could go, it creates kind of a paralysis by analysis because every decision you make has a cost to it, every single one. And it’s a big cost because if you’re wrong and you spend the hours and the tears and the struggle and the strive to go after making something happen like that, you could be on the other side and like “I made the wrong choice.” That scares me so much, man.

If you were to ask me those three questions that we ask people, a lot of the time what my biggest fear is, that would definitely be my biggest fear, at least right now in this season. It’s like, I just don’t want to make the wrong choices. Like I want to make sure I’m doing what I’m supposed to be doing with my life.

Seth: Yeah, man. I’m with you. I think that’s like one of my biggest Achilles’ heels is that right there. And the funny thing is the fear of making a choice or deliberating to make a choice is a choice. So, literally anything you do has consequences. It can drive you crazy if you think too much about it.

I’ve got a friend who literally as early as I knew him and I knew when we were like six years old, he was always obsessed with being a pilot, like airplanes and aviation. That’s all he ever thought about and ever talked about. And he just knew his entire life, “That is going to be my career. That’s all I want to do.” Like he didn’t really have a whole lot of interest in other stuff career-wise and I kind of envied him because I never had that clarity. At least it took me like 30 years to get there and he just knew. I don’t know. It just seems so simple for him.

Jaren: Yeah. I mean, I would love that. I would pay money for that. To just have like a big neon sign—“This is what you’re supposed to do with your life. Go.” It would make my life so much simpler because clarity brings the target. And when you know the target you can figure out how to hit it. But when you don’t have clarity, you don’t know where the target is. So, it’s frustrating. These are the things that go on in the mind of Jaren Barnes. These are the mind games that I spin around all the time.

Seth: Well, I think it’s just a sign of wisdom, honestly. There’s a lot of fools in the world who don’t think about this and they just kind of fly by the seat of their pants and don’t think decisions through. And so, I think it’s good. It’s a healthy thing to ponder those things.

Jaren: Yeah, man, to count the cost. I mean, that’s really what it boils down to, is count the cost before you really make a decision or don’t make a decision. Really assess because everything you do has a ripple effect.

Seth: Our little outro question for today is as follows. In your opinion, what is the most beautiful man-made object in the world?

Jaren: I thought you were going to finish it at man. In your opinion, what is the most beautiful man in the world?

Seth: What is the most beautiful man?

Jaren: Oh, man. Man-made object. That’s such an open-ended question. Are we talking like art?

Seth: We’re talking about objects. What qualifies as an object?

Jaren: Anything.

Seth: Literally anything.

Jaren: Just because I can’t think of anything else, I’m going to say the iPhone, because here’s the thing about the iPhone. When you open the iPhone box and you pull it out from the first moment you do that, it’s an experience and it’s a journey with an iPhone. From a design standpoint, from like a hardware standpoint, from a software standpoint, I just really like the experience. And it’s funny because no matter how you slice it, all the competitors in the smartphone world, they’re all just trying to either be like Apple or try to beat Apple, but Apple set the trend. They were like, this is what smartphones are. They set the standard and everybody’s running based on that standard. And I don’t know, I’m inspired by iPhones and MacBooks.

Seth: Thank goodness. I don’t know if you remember much about what cell phones were like before the iPhone, but gosh, they were just really poorly made. Even the marketing of them was the Motorola X99128. Just like these weird names that were hard to remember.

Jaren: All geeky.

Seth: Yeah, it was a huge technological revolution when the iPhone became a thing. So, it makes sense why everybody else there wants to be like them and rip them off and take their ideas and stuff. And I feel like part of that is just in the packaging. Not even the iPhone itself, but just opening it up. It’s presented in such a…

Jaren: Clean way. It’s an experience. It’s an experience to own an iPhone. It really is.

Seth: Yeah. This is something I’ve learned a lot about running websites and stuff, and really just dealing with other software over the years. It’s actually extremely challenging to make any software that just works seamlessly and feels easy. It doesn’t crash on you. That is intuitive. It doesn’t need a lot of training and stuff to use it. It just works and it’s easy. And I feel like they’ve done such a good job of that. All their apps…

Jaren: Everything except iTunes.

Seth: That’s true, that’s true.

Jaren: They needed to completely redo iTunes. I don’t know what happened there. I was actually an Uber driver in the San Francisco Bay area a long time ago. And I actually asked the Apple executive that I picked up one time and I was like, “You work for Apple. Can I ask you a question? Why does iTunes suck so much?’ And he rolled his eyes. He’s like, I know. It’s so integrated with everything to overhaul it would be way too much. So, we’re just kind of stuck with it.

Seth: Yeah. I know. It’s Apple Music now though. Right? The iTunes name is dead, but I’ll agree with you though. Considering how well everything else from Apple works, it’s shocking. Like how confusing and just kind of…

Jaren: I think it is still called iTunes. I think Apple Music is like a Pandora competitor. So, you can subscribe to Apple Music and then it’s like it streams music. But iTunes is like the music processes. So, if you buy stuff like you buy music from the Apple store. That’s where it’s like, hosted. Because I’m looking at my computer and it says iTunes still.

Seth: Does it really? Hang on. I’m going to get to the bottom of this right now.

Jaren: I called him out on the podcast.

Seth: I cannot accept being wrong. Well, how about this listener? What do you think? Does iTunes still exist or not? I just opened it up what was formerly the iTunes app on my phone is Apple Music and, on my Mac, it also says Apple Music. But I feel like there’s something there. I don’t know, because I’m a subscriber to Apple Music. So, I feel like maybe that’s why it’s saying that on mine and why I’m not seeing iTunes. But anyway, I don’t know. But we shall see who was right on that. So anyway, my opinion on that question, the most beautiful man-made object is?

Jaren: I still keep hearing, no man, anyway. It’s hilarious. Who’s the most beautiful man in the world?

Seth: Oh, man. If you want to go there. So, for me, I feel like this is a really easy cop out because it is like the first thing that comes to mind. But the Eiffel Tower is what I think of. I don’t know if it’s actually like the most beautiful thing, but for some reason, it just like, instantly comes to mind. Because I’ve been to Paris. I’ve seen it. It is pretty remarkable. And to think of when it was built. And I think I actually remember learning when I took a French class in college that Eiffel Tower, actually everybody in Paris thought it was a hideous, ugly thing that was built. It was supposed to be a radio tower back in the day. But over the years people have come to love it. But anyway, I guess that’s my answer. Eiffel Tower.

Jaren: That’s interesting. I mean, there’s a lot of landscapes that I think are beautiful, but they’re not man-made.

Seth: Yeah.

Jaren: That was a tough one.

Seth: Yeah. I think it’s very subjective though. Your example of the iPhone, does beauty have to be complex or does it have to be simple? Because I know the Eiffel Tower is a very complex structure. It’s crazy when you look up at the thing. There are so many pieces of metal bent all over the place.

Dear listener, thanks for listening. If you want to subscribe to our email list and stay up-to-date on the things going on, you can text the word “FREE.” That’s F-R-E-E to the number 33777. It’s a really easy way to stay up-to-date on the things we’ve got going on and not miss anything coming from retipster.com.

And again, if you want to hear the show notes from this episode, you can go to retipster.com/82 to see transcriptions and show notes and links and all kinds of helpful stuff. So, I want to say thanks again to Mike for talking to us. It was a great conversation. We’ll talk to you guys again in the next episode.

About the author

Seth Williams is the Founder of REtipster.com - an online community that offers real-world guidance for real estate investors.

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