Commercial Real Estate for First Timer in Philadelphia?

Question

My husband and I have been looking for a multifamily unit within walking distance to our current home that we will use both as an inlaws suite and an investment property. All of the multiunits within our budget that is available near us currently have commercial store front on the first floor with apartments above.  We are quite comfortable with the idea becoming a residential landlord (although we know that it will come with its own learning curve) but we have very little knowledge about commercial real estate.  Should commercial real estate even something that we should consider or should be rule it out altogether?

Should we consider changing the zoning of the commercial unit into 2 separate apartment units?  through some research, I found that rezoning a property in Philadelphia is time-consuming and costly so we hesitate.

For some background, we are looking within few miles of zip code 19147 (within 20 minute walk), budget under $700k, quadplex preferable or potential for a quadplex, will put 20% down.  Thank you in advance for any input.

Joseph ODonovan · Answer

@Achillina L Rianto What you are describing is a mixed use property. Financing on mixed use properties differ compared to residential properties. Insurance on the property requires a commercial policy. The tenant base is obvious different as residential tenants will be fairly easy to find in south philly but a brick and mortar business may be challenging to find.  As a landlord, managing commercial tenants are much different than residential tenants. I will do as much due diligence as you can before jumping in. I'm not saying it's a bad investment, it could actually be very profitable if managed properly. The 19147 zip code is an excellent location for real estate, best of luck!

Achillina L Rianto · Answer

@AlinaTrigub, thank you for the info! Commercial store front seems daunting to me now considering my current limited knowledge.

Ty Martin · Answer

Hi Archillina!  I may have an opportunity for you.  Currently 3 units, but are all "loft-style" meaning they can be made into up to 6 units.  It may be a little bit further than a 20 minute walk, but regardless, let's talk!

Thank you!

Alina Trigub · Answer

@Achillina L Rianto

Welcome to BP community!

As for your decision about entering the commercial real estate space, you should educate yourselves first as to what it entails, what the demand is in the area and whether the property(ies) you're considering to buy will pan out to make financial sense as a good investment. Start by reading two of David Lindahl's books on multifamily. Also network with like-minded investors virtually and locally (you can find them via local REI clubs).

Last but least, just to give you an example of the difference between residential and commercial: residential is valued on comps in the area while commercial is valued based on the NOI it produces. So again education is the key here!

As for your zoning question - again if there's a particular reason it should be re-zoned go for it, but otherwise no need!

Best of luck!

Aziz Wali · Answer

@Achillina L Rianto

Hello. I live in 19149 would like to meet up sometime