Zoning Due Diligence for Real Estate Investors: How to Avoid Costly Lot Mistakes

Avi Kaufman (00:00)
Absolutely. So, like you said, the ADU laws are sweeping the nation. They started on the West Coast and we have some great developments on the East Coast and also in the middle of places like Texas, Colorado, Florida, we see a lot of great developments. Now, the ADU also has accessory dwelling units. This is a great opportunity for any investor or homeowner where you can add an additional unit to your home. Even when they’re allowed, though, you still have to comply with the zoning laws of that.

of that location and there could be other restrictions like environment, like there could be a wetland hazard zone or sinkholes or a tsunami zone, whatever it is.

Cody Crabb (02:13)
Hello and welcome back to the Real Estate Pros podcast. I’m Cody Crabb with Investor Fuel. Today I’m talking with Avi Kaufman, co-founder of FutureLot, an AI powered platform helping builders, homeowners and investors quickly understand what they’re allowed to build on a specific lot before wasting time, money or design work. Avi, thanks so much for you. Clearly you got my memo about wearing matching t-shirts, so I really appreciate you joining today. It literally looks like we’re in like uniform, doesn’t it? That’s pretty funny.

Avi Kaufman (02:35)
haha

Thanks, Cody.

I didn’t know that was the dress code, but I’m glad that I came in the right dress code.

Cody Crabb (02:46)
For sure, for sure. Well, thanks so much for hopping on today. ⁓ So I’d love to hear, before we kind of dive in, I’d love to hear a little bit about you, how you got to where you are today,

Avi Kaufman (02:57)
Thanks Cody and thanks for having me on the show. I’ve worked most recently as a real estate broker for many years helping homeowners and helping people find homes and through that really realized that there’s this gap in information of what’s allowed to be done on any given property. That a lot of times an investor wants to evaluate the potential of a property or a homeowner or developer wants to know.

what else can be, what’s the highest and best use of any given property? And if you’re looking at a broad area, often zoning can be a confusing maze and it can prevent just the time it takes to investigate any given property can be a barrier in itself. So really the motivation for co-founding FutureLot, we wanna shorten that timeline, help people to make those decisions faster or at least where to focus so we can get more housing built.

Cody Crabb (03:49)
That’s awesome. Because I mean, yeah, think every pretty much everyone in every location would agree there is a massive shortage of housing. So this is kind of a thing that like I believe you said in the intro here, kind of before we were talking, ADU laws are kind of popping up everywhere. They’re they’re allowing more. They’re more permissive. What I’d love to know is so can you give me an example of what this process would look like without

FutureLot and then maybe give me a with FutureLot after that.

Avi Kaufman (04:17)
Absolutely. So, like you said, the ADU laws are sweeping the nation. They started on the West Coast and we have some great developments on the East Coast and also in the middle of places like Texas, Colorado, Florida, we see a lot of great developments. Now, the ADU also has accessory dwelling units. This is a great opportunity for any investor or homeowner where you can add an additional unit to your home. Even when they’re allowed, though, you still have to comply with the zoning laws of that.

of that location and there could be other restrictions like environment, like there could be a wetland hazard zone or sinkholes or a tsunami zone, whatever it is.

And these are reasonable things that you need to know about. So without FutureLot, the process often when you’re evaluating a property is you will read through the zoning code, which could be anywhere from 50 to 3,000 pages. You might call the building department with a question, hope for a call back.

Maybe get that call back and be told, well, we can’t answer until you submit plans. Then you might try and figure out through multiple different systems, am I in a flood zone, am I not, what’s going on? And you can do all that, and you should, you should do that regardless, but you can only do that on so many properties. You can’t do that on 20 properties in an efficient way and decide which one is the best one. So with FutureLot, you can put in the address and at a glance,

Cody Crabb (05:34)
Mm.

Avi Kaufman (05:43)
see what’s likely to be allowed on any given property, what are those hazard layers, what is the granular zoning restrictions as applied to that particular lot. And so then you can say, of these properties I was considering, this one seems like it’s the most promising for me, and then that’s the one that you can go deep on. And then you can prepare a site plan, decide that that’s the one where you want to hire a surveyor or a builder or an architect or whichever direction that you’re going.

Cody Crabb (06:56)
I could see how this could kind of save money on multiple multiple avenues like you’re avoiding a deal a bad deal before you get too far into it you’re moving faster on ones that are good you’re kind of the you know the can any consultants like you’re not relying on them as much and and that can save some money too ⁓

Avi Kaufman (07:15)
Right, it’s

not just that. I mean, you are saving on there. You should still do those consultants on the project you actually go forward with. You’re avoiding them on the ones that you would have thrown the money out the window. But even more, you’re figuring out how you can make more money. You’re finding out what’s the best use, which lots have the most opportunity for you.

Cody Crabb (07:23)
Yeah, of course.

Yeah, give me a, ADUs are something we talk about ⁓ very infrequently actually. ⁓ So the, I think the idea, the main idea people have of them is like the whole mother-in-law apartment or as that’s kind of called. Is there, there other types of ADUs? Is this just, is this just like a separate house on your property or kind of what are some different forms that that could take?

Avi Kaufman (08:01)
Yeah, so the traditional view, as you said, it’s sort of the mother-in-law suite, sort of a suite in your home, but really the modern accessory dwelling units are self-contained living units. They could either be a detached freestanding structure, a detached ADU,

So you could have a detached ADU, which is a freestanding accessory dwelling, like a backyard cottage. You could have it carved out from inside your home or attached to your home. That’s an internal ADU. Now, traditionally, these were used, even most people who inquire about them tend to be asking for their own use or their family use for a caretaker. And that’s why they’re so well received. But with the rising cost of housing and the housing affordability crisis, a lot of locations allow the home to be rented out.

And even on a property where the principal dwelling is not owner occupied, you’re allowed to rent it out in many locations. You do need to check the laws in your particular location. You can do that on FutureLot or you can look it up yourself. But in Massachusetts, in California, and many other places, if you have a single family home or a two family home or a three family home and it otherwise meets the criteria, you could essentially add on an additional unit and get that much more rent.

and you will spend money to do it, but compared to buying a new piece of land and building, it’s the cheapest possible way to add an additional unit.

Cody Crabb (09:25)
Yeah, I think that’s definitely a way that a lot of people could kind of look at a deal differently then because they are kind of looking at the potential instead of just what it currently is. what’s the biggest mistake that you’ve seen where people kind of assume things are legal or they kind of assume things like what kinds of problems are you avoiding ⁓ when you

when you kind of use this app and get your information before it’s a problem.

Avi Kaufman (09:54)
There’s so many directions that can go wrong by making assumptions based on you know I saw the neighbor had one so I must be allowed to or you know even things like wetlands They can affect one property and not affect the next property one town might allow Pretty pretty lenient in the wetland buffer zone the next town might not be There could be height restrictions that dramatically change the structure

There could be, know, often a popular way to build is modular so that you can do it quickly and not impact the neighborhood and save costs and have higher quality. But, you know, you need to see where the power lines are and where can you put the crane. So there’s a lot of different considerations. Or you need to know what the setbacks are. You know, there’s so many different nuances in these zoning codes. No two of them are alike. So doing that initial due diligence of seeing what’s likely allowed here is gonna save you, the more you can,

the more you can figure out upfront, the smoother it’s gonna go when you actually go to do it. The other mistake that’s not related to the zoning analysis, but you need to understand what the costs are to doing this, and you need to see what things, I think a lot of times people get optimistic cost estimates. And in these high cost of living areas, the cost of building is also high, and you just need to factor that in. I think that often it can be a positive thing for investors. Like I said, you’re not gonna,

be able to figure out a cheaper way to add a unit to your multifamily than an accessory dwelling unit. But you need to factor the cost inappropriately. Sometimes that can mean that there’s additional utility connection or community impact fees or if you’re on a septic system, certainly you need to factor in the extra bedrooms. Things like that can affect the cost. So do your due diligence and ⁓ factor in correctly.

Cody Crabb (12:18)
Yeah, so can you kind of give me an example? say there are, well, let me just, let me phrase it this way. How granular do these laws get? Like we’re talking about like they’re different everywhere, but are we talking like…

the county level, the city level, the subdivision level. Like I know that these are kind of, there’s a little bit of an HOA vibe to some of these kind of rules and things. Like, I don’t know why we have them there kind of laws. So I’d be curious, like how granular does it actually get? Like how careful do you need to be?

Avi Kaufman (12:49)
Yeah, I mean, it can get pretty granular. And it depends on the locations. The answer to what level, the answer is yes. Right, like there’s laws at every level here. And then the good thing is a lot of states are leading with having sort of these, what we call override laws. Like California has really strong override laws, Massachusetts has really strong override laws. More and more states are making these saying, look, regardless of what the individual municipality said, you have to allow these accessory dwelling units by right.

And these laws, they evolve over time, but they tend to evolve in the direction of more clarity and being stronger to allow these things. That being said, local zoning often does still exist and does still factor in. The state override might limit what it’s allowed to do. But in California, for example, if you have a protected use ADU, then the town can’t require you to have

more restrictive than four foot setbacks. They can’t say, oh, you need a 10 foot setback. They have to allow at least a four foot. And many municipalities will be less restrictive. That’s okay. You just can’t be more restrictive. Or in Massachusetts, for example, the state override law says for any residential property in a single family zone, you have to allow up to the lesser of 50 % of the gross floor area or 900 square feet. And that’s a fantastic law. Now, even if the municipalities law says 700 square feet,

you still have to allow up to that 900. Or it might say, the municipality might say, you know, the single family setback in the back is 10 feet and an accessory structure or a shed is five feet. And then the town might try to interpret it as well. For an ADU, we meant the single family. The state comes down and says, no, you have to do the most permissive of those. It’s five feet. So that’s where you do need to get the laws at every level. And

sort of see which ones apply until we do that in FutureLot.

Cody Crabb (14:47)
Yeah, well, so tell me a little bit about that. I mean, I love the idea that that the AI can kind of be intelligent enough to put those together. So tell me about how those interact.

Avi Kaufman (14:56)
So we try to show you all the restrictions that we considered. And it’s not all AI. There’s a human review element, and there’s also a data science element. We’re also bringing in GIS layers and assessor data records and so much data. ⁓ So we’re using AI as one piece of this. But when we’re saying something, for example, with setbacks or with the size limitations, we try to show you these are the rules that we evaluated. And of these five rules,

These three we don’t think apply because of such and such reason, either the state overwrote it or a different restriction is more restrictive or less restrictive that applies. And these are the two that we think do apply. So we give all that to our users and our report. And then we also give them the link to the actual citation, to the actual zoning bylaw, so that when they want to go to the next step, they have a citation that then they can research further and confirm.

Cody Crabb (15:51)
Yeah, I think, like you’re mentioning that I think that the human element of it obviously is important, but I think that what I like about what you’re doing is it’s both working together. Like you’re using the advantages of people and AI in the way that it makes sense to do that. Whereas just using AI, it’s prone to errors. Just using people, we’re just people. We can only do so much. So the idea that you’re collaborating, I’m sure that really allows for a lot better.

ever as old.

Avi Kaufman (16:22)
I think that’s the best way. And we’re really collaborating between the AI process we set up, our humans in our company, and also our human customers, where we’re all sharing information and creating a better, I mean, our vision is that you should be able to know on any given address pretty quickly what its potential is. We think that there’s many barriers to building and investing and creating more housing. There’s labor, there’s materials, but one that…

is big but we don’t think should be so big is just that legal zoning hurdle of even understanding what’s allowed.

Cody Crabb (17:39)
Yeah, think, do you think that kind of holds people back sometimes from they have a perfect idea, they’ve got everything set up except for they’re like, I don’t want to deal with all that.

Avi Kaufman (17:49)
Absolutely, absolutely. even people who do that initial inquiry and then get these sort of vague answers or kind of get the brush off. know, people track how many permits are filed, how many permits actually got billed. No one knows or even knows how to track how many people were interested in this and got turned off because the town’s bylaw or this…

person gave the wrong answer or they called the builder and the builder didn’t call back for three weeks. So they were busy and didn’t know how to answer the question. know that, yeah. I mean, it’s, huge and no one’s trying to be difficult. Like I can’t imagine a town being like, will purposely delay all of our answers. You know, no one’s saying that, right. I hope not. but it’s, it’s just like, it’s hard to give these answers.

Cody Crabb (18:21)
Yeah, the, forget it people. Yeah. Yeah. Yeah.

So what’s next for a FutureLot? mean, this sounds like it would be a really awesome way for people to kind of look at lots of different deals and no pun intended, and then kind of make some decisions on the best ones. What other things are you kind of planning in the future? More features, more functionality? I’d be curious to know.

Avi Kaufman (18:58)
Yeah, we’re going in all those directions. We want FutureLot to be the location where you go when you want to know what else you can do on your property, how you can improve it, any question you have about what’s allowed. So, you know, we’re adding more building types. Right now we have, you know, as of today’s date, we’re in May, have backyard, we have detached ADUs, internal ADUs, home additions, single families.

love to add swimming pools, multi-family, lot splits, all of that, because that really expands the use for investors, builders, developers, homeowners. ⁓ We also, we’re improving our data and a lot of the features day by day. A lot of it in response to how our customers are using it. We noticed customers…

doing sort of these proto site plans using the software. So now we’ve built an actual site plan tool right into it. So you can search a property and then create and annotate and print out an actual site plan that you can bring to the building department for early feedback or the homeowner for early feedback. We have reports. We have a lot of marketing tools in here too for the builder or developer or investor so that you can reach out and as an investor, let’s say that you have determined that your investment hypothesis is

you want to buy homes that could support an ADU so you can add one, increase the value overnight by 30%, and then sell it or rent it out, right? So how are you going to reach those homes? We have a tool built into our software that we call Get Leads where you can upload a letter and do filters to identify those homes that qualify, and then we take care all the mailing for you and send letters. Yeah, so you identify and send letters, the physical letters to those addresses.

Cody Crabb (20:41)
Wow.

Avi Kaufman (20:47)
And yeah, and let me tell you, there’s nothing like a physical letter for something like this. Like the emails get deleted, the ads get forgotten. A physical letter, we did a test of this. Actually, at this point, two years ago, one of the first pilot tests we did of this concept, I still get calls from these letters, from people who call, I was waiting to talk to the family. had your letter in the desk for, you know, people hold onto it till they’re ready.

Cody Crabb (20:48)
Awesome.

Yeah, yeah, yeah. If you’re anything like my mom, you should see your fridge. If it can be put on there, it will be put on there. Yeah, that’s a nice little addition there. I’m sure that would be way more effective too. Well, okay, so let’s say people wanna check out FutureLot. They wanna see what you do. They wanna check it out, use it. Is it available everywhere or is it only in certain areas?

Avi Kaufman (21:17)
Yeah.

It’s available everywhere in the US, all 50 states, which is a major milestone for us that we’ve achieved 50 state coverage. We cover, we’ve pre-processed the zoning bylaws for, you know, where 95 % of the population lives. For any other area, we can process it in usually less than 24 hours, based on what you need. So I say go to futurelot.com. Anyone can create an account for free.

even a homeowner, and with that you get three free property lookups. Then if you’re a builder and an investor, a developer where you need to do more than that, then you should sign up for a plan. And we give a 30-day free trial, so it’s risk free. You can see how it fits into your normal working process and see how it improves your process. Or if it doesn’t, at least you’ll know what else is out there as tools.

And then during that time, you’ll have access not just to the lookup tool, but also to all the other tools, like the GetLeads that I mentioned you could try, or the light version you put on your website, or ⁓ many different options.

Cody Crabb (22:43)
awesome. Yeah, this definitely sounds worth a look, especially if you are doing some kind of single family investing or you want to be able to expand what you’re doing without, know, it sounds like you wouldn’t even have to acquire anything. You just kind of look at what you’ve got already maybe and just see where what can be expanded. Thank you so much, Avi, for joining us today. I really appreciate all the tips and things. This has been pretty interesting.

Avi Kaufman (23:06)
Thanks so much for having me. This was fun to talk and connect with you.

Cody Crabb (23:10)
Yeah, thanks so much. thank you audience as well. If you got something out of our episode today, go ahead and give us a like, subscribe, follow make sure you don’t miss another episode Once again, it’s been a real pleasure, Avi. Thanks so much.

Avi Kaufman (23:20)
Thank you, bye.