The Real Book of Real Estate

Entitlements = Profits

Entitlements are crucial. They determine what you are allowed to do with a property, as defined by various government agencies. Entitlements can significantly increase a property's value without requiring substantial capital investment. This aspect of real estate is often overlooked but can be highly profitable for those who understand its potential.

Knowledge is key. Successfully navigating the entitlement process requires a deep understanding of local regulations, zoning laws, and political landscapes. By focusing on entitlements, investors can create value through their expertise rather than relying solely on capital. This approach allows for potentially high returns with minimal financial risk.

Market opportunities abound. In any market condition, there are opportunities to profit from entitlements. During downturns, investors can position themselves for future growth by securing entitlements on undervalued properties. In thriving markets, entitlements can unlock additional value in already desirable locations.

All politics is local.

Understand the political landscape. Local politics play a crucial role in real estate development. Familiarize yourself with the political structure, including elected officials, appointed boards, and neighborhood groups. Attend meetings, get to know key players, and understand their motivations and voting patterns.

Build strategic relationships. Develop rapport with city staff, planning commission members, and city council representatives. Support their ambitions and causes, become visible at events, and position yourself as a trusted and knowledgeable resource. These relationships can be invaluable when seeking approvals for your projects.

Navigate election cycles. Be aware of local election dates and the potential impact on your projects. Avoid bringing controversial cases before the city council within 12 months of an election, as politicians' desire for re-election may work against you. Timing is crucial in the entitlement process.

Knowledge is your most important asset.

Continuous learning is essential. Immerse yourself in all aspects of real estate development. Study city plans, zoning codes, and ordinances. Attend meetings, network with developers and builders, and stay informed about market trends and local developments.

Leverage free resources. Take advantage of the wealth of knowledge available through:

• City planning department meetings

• Neighborhood association gatherings

• Planning commission hearings

• City council sessions

• Conversations with developers and builders

Understand various property types. Familiarize yourself with the specific requirements and considerations for different types of real estate, including:

• Single-family residential

• Multi-family residential

• Retail

• Office

• Industrial

• Mixed-use developments

Principal Rule: Use your knowledge base as capital to create value.

Assemble your team. Leverage your network to put together the best team of third-party vendors, including surveyors, land planners, environmental companies, and other necessary professionals. Quality and reliability are key factors in selecting team members.

Identify potential sites. Work with a real estate broker to map out vacant land or redevelopment opportunities in desirable areas. Consider factors such as:

• School district quality

• Proximity to amenities

• Market demand

• Alignment with the city's general plan

Develop a feasible plan. Collaborate with your land planner to create a marketable development plan. Consider:

• Target market needs

• City requirements and recommendations

• Potential profitability based on entitlement value

It is not what you own that leads to wealth generation, it is what you control.

Control trumps ownership. Focus on securing control of a property through purchase agreements rather than outright ownership. This approach minimizes your financial risk while still allowing you to pursue entitlements and create value.

Negotiate favorable terms. Work with property owners to structure deals that give you time to obtain entitlements without risking significant capital. Consider offering:

• Higher purchase prices in exchange for extended timelines

• Sharing of increased value created through entitlements

• Providing valuable reports and studies to the seller if the deal falls through

Utilize legal agreements. Have your real estate attorney draft:

• Letters of Intent (LOI) to outline initial terms

• Purchase agreements that include the right to rezone the property

• Escrow instructions to secure your position

Soil matters. Never skimp on things that cost little and can save you a bundle.

Review title reports. Carefully examine title reports with the help of your title company to identify any potential issues, such as:

• Recorded Covenants, Conditions, or Restrictions (CC&Rs)

• Deed restrictions

• Easements

• Assessments

• Mineral rights

Obtain necessary surveys and reports. Invest in critical studies to understand the property's potential and limitations:

• ALTA Builders/Lenders Survey

• Soils report

• Phase I Environmental Report

• Constraints report (utilities study)

• Drainage report

• Archeological study (if applicable)

• FAA review (if applicable)

• Well documentation (if applicable)

Analyze findings thoroughly. Use the information gathered to make informed decisions about the property's viability and potential development costs. Be prepared to walk away from deals with significant issues, particularly environmental concerns.

Compromise can turn NIMBYs into allies.

Anticipate opposition. Expect resistance from neighbors and prepare for common complaints, such as:

• Changes to neighborhood character

• Increased traffic

• Environmental concerns

• Property value impacts

Engage with the community. Proactively reach out to neighbors and community groups:

• Present your plans personally to nearby residents

• Listen to concerns and address them when possible

• Seek support through petitions and testimonials

• Involve supportive neighbors in the planning process

Communicate effectively. When engaging with neighbors:

• Be polite, honest, and enthusiastic about your project

• Present facts and be prepared to answer objections

• Listen without debating

• Develop relationships and build trust

• Provide clear information about hearings and how to show support

The three secrets to entitlements that lead to success and great profitability. You will hear them from me more than once in this chapter. Please remember: 1. Knowledge 2. Knowledge 3. Knowledge

Knowledge is your competitive advantage. Invest time and effort in building a comprehensive understanding of real estate development, local politics, and market trends. This expertise becomes your most valuable asset, allowing you to identify opportunities and navigate challenges more effectively than competitors.

Apply your knowledge strategically. Use your expertise to:

• Identify undervalued properties with entitlement potential

• Navigate complex approval processes efficiently

• Anticipate and address potential obstacles

• Create value through strategic planning and execution

Continuously expand your knowledge base. Stay current with:

• Changes in local regulations and zoning laws

• Market trends and demands

• New development techniques and technologies

• Evolving community needs and preferences

By focusing on knowledge acquisition and application, you can create significant value in real estate without necessarily requiring large amounts of capital. This approach allows for potentially high returns while minimizing financial risk.