You are sometimes surprised to know the value of a property as it is less than what you anticipated based upon its features and condition. You know that the value of the same property would have been much higher had it been located only a few blocks away in another neighborhood. You are forced to think why location matters so much to have such a big impact on the price of a property.
A property having similar features and architectural styles has some value in a particular setting. But same kind of properties having same features have a much higher value in another neighborhood. The answer to this question lies in artificial boundaries drawn by the authorities. These boundaries are called school district and zoning.
In old times, neighborhoods developed organically. There were no restrictions on the type of buildings that could be constructed, and one could see not only single-family homes but also duplexes and apartment buildings in the same neighborhood. This freedom meant there was no concentration of any one type of properties in a neighborhood and this prevented any land use to have a big impact on the values of properties. In a sharp contract, there is rigid planned development taking place these days.
Zoning creates artificial boundaries
Zoning puts restrictions on land use and prevents monopoly of builders. It does not allow mixing or concentration of rental income properties in a locality. This means there cannot be a concentration of apartment buildings in an area to have an impact on the values of properties.
Zoning became prominent after 2nd Wold War and it soon changed the way properties were being developed by builders. With multifamily homes increasing in numbers, many of the old large buildings were converted into apartment complexes. Although some old structures still stand in these neighborhoods, their value has somewhat got reduced. On the other hand, the values of similar old buildings in neighborhoods meant for single family homes remained intact or even increased with passage of time.
The importance of school districts
Another artificial boundary created by the authorities was the school district. Families with school going kids have this perception that living in a neighborhood with a school district is advantageous for them as their kids can receive high quality education. Even the builders realize that people are ready to pay a higher price tag for a house in a locality with a school district. Also, parents of school going kids have a strong preference for neighborhoods where school district is perceived to be performing well. This artificial boundary of school district goes against values of properties in a neighborhood when there is a perception that the school district is not doing well.
Gather information about these artificial boundaries before investing
If you are a real estate investor, you cannot ignore the importance of these two artificial boundaries. If you are looking at a property, you cannot go by simply its condition or features as school district and zoning laws have a strong impact on the value of a property. It is in your own interest to have a look at the zoning laws and the quality of school district in a neighborhood before investing your hard-earned money on a property. If location is considered as the single most important factor in determining the value of a property, it has to do with these two artificial boundaries. You can stay ahead of your competitors if you consider these two artificial boundaries when taking a decision in favor of a property in a locality.
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