Developers evaluate every property for its highest and best use by researching zoning, permitting, and physical constraints. A single-family home zoned R-3 could theoretically become a triplex, but the lot was too small even for a duplex, so it got renovated instead.
Chapters
There's a term that we use in real estate development, highest and best use. So when you're looking at an old house that you could tear down, could you fix it up? If you tear it down, can you build a warehouse or a high-rise? And so you have to underwrite every single scenario when you're doing real estate development according to highest best use, figure it out. Like what is the permitting? What does the current zoning allow? So there's a lot of research that needs to go into figuring out like, what am I going to do with this property? What's the potential? We bought a single-family home that was zoned as an R-3, which means you could have up to a triplex on it. And I got really excited. I thought, oh, we're going to go and buy this. But then when I dug into the research, I realized the lot itself, even though it was zoned R-3, was too small to fit even a duplex. So I ended up not tearing the house down, fixed it up and put someone in. So that's the kind of research process you have to go through for highest and best.
