your investment properties. That gives you a chance to influence how those regulations play out. Beyond that, carefully consulting local and online resources can usu- ally deliver the answers you need. 2. ZONING Most seasoned investors and developers will research zoning regulations before undertaking a big investment. Zoning laws do change frequently, however, and an unforeseen change could complicate a property investment. If the property is already finished, it will likely be grandfathered in under new regulations. If it’s not, you could ask the local zoning office for a variance. However, a zoning change that comes early in the conception phase of an investment property can cause stress, delays, and extra expenditures. This is an especially pertinent concern now because work-from- home policies and the housing crisis have pushed many cities to consider rezoning commercial or office areas into residential ones. 3. RENT CONTROL For investors looking to invest in rentals, especially multifamily rentals, rent control is an extremely important consideration. It can affect everything from vacancy rates to the price per square foot. Many cities have experienced huge increases in the rent-to-income ratio. As a result, rent control regu- lations that aim to insulate tenants from large annual rent increases have become more popular as housing costs have escalated. Although New York City has had rent control laws on the books for decades, other cities
have either recently implemented rent control or proposed it. Rent control laws can be complex, and it can be confusing to parse which properties are restricted and which are exempt. If you’re investing in a property located in a rent control municipality, make sure you understand how local rent control regulations apply to you before you finalize your investment. Even if there are no rent control laws presently on the books, you should research whether it’s a political possibility in your area. 4. ENVIRONMENTAL LAWS Regulators have implemented new environmental regulations for years now, but a new proposal from the Securities and Exchange Commission could put added pressure on real estate investors in the near future. The proposed regulation would require publicly traded organizations to disclose their environmental risk and exposure. It would also require them to disclose emissions from upstream and downstream activities in their value chains. Under these regulations, investors who rent commercial property to a publicly traded business would fall under the disclosure requirements. That means regulators may pressure investors to reduce emissions, and investors may have to pressure vendors and contractors to reduce their emissions because the regulations require disclosure from up and down the supply chain. As the climate crisis continues, investors can expect more environ- mental regulations like New York City’s Local Law 97, which places carbon caps on buildings larger than 25,000 square feet. The news isn’t all bad, however. Many investors are
seeing huge profit potential in “green retrofitting” commercial real estate.
HOW TO MANAGE REGULATORY CHANGES Once regulations are in place, there isn’t much a smart investor can do except comply, but there are steps you can take to make that process a little easier. First, try to participate in the regulatory process. Most regulations are local, so you should be able to get acquainted with your local regulators and have some input during their deliberations. Most regulators are fair and want to hear your concerns. Even if you can’t influence the process, participating in it will keep you updated on all the developments and help you prepare. Hiring outside experts can ease your regulatory journey as well, especially when it comes to complex matters such as taxes. Most investors like to keep an experienced real estate attorney on retainer as well as a good tax accountant. Finally, if you’re investing in a very fluid regulatory environment, it’s a good idea to limit your debt and keep adequate capital reserves. Sudden regulatory changes can impact your cash flow, so it’s wise to maintain financial flexibility and minimize risk. •
Luke Babich is the co-founder of Clever Real Estate, a real estate education platform committed to helping home- buyers, sellers, and investors make
smarter financial decisions. Babich is a licensed real estate agent in the state of Missouri. His research and insights have been featured on Big- gerPockets, Inman, the Los Angeles Times, and other online and media outlets. Babich earned a bachelor’s degree in political science, with honors, from Stanford University.
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