Does land zoned commerical/residential add value?

Question

There are 2 parcels of land on the literal "Main Street" where I live that the owner has contacted me about off of a YL mailing.  One is commercial and is essentially a parking "lot" at this point, the other is residential/commercial and has a SFH on it that he is renting out.

I know zippo about commercial property.  I have some ideas about what this could be used for and I'm wondering if this dual type of zoning is a benefit or a hindrance . . . and whether it could allow me to offer more in terms of an offer than I would on a straight residential SFH flip or buy-and-hold.

Who out there have wholesaled a property like this and what would you recommend?  Thanks in advance for your advice.

Theresa W. · Answer

Hi @Christina R.  Download a zoning map from your community or drop in to talk with a city planner to find out the exact zoning.  That SFR may be a "legal, non-conforming" residential use in a commercial or mixed-use zone.  I love these properties the best, because you can still get a residential loan (get a letter from the city stating it's grandfathered and legal) and you have future development possibilities with whatever the C zoning allows.  Be aware that changing or ceasing to use the residence as a home for a period of time (often a year) will lose the legal non-conforming status and require it to be used as one of the permitted uses in that zone district.  If it's mixed use, then residential is usually forced upward, that is, allowed on the second floors and higher, reserving the first floor for commercial uses.  It's a common zoning for Main Street properties.  Good luck!

Micki M. · Answer

It also depends on what's happening in your area.  In Denver live/work is in high demand, but very rarely are properly zoned/permitted properties found. I'll jump on anything with mixed use near downtown.  Is there a demographic in your area looking for that type of property?

Jen Shrock · Answer

@Sean OToole  Thanks for your thoughts.  They definitely give me something to think on.  I think that I need to do a little more research into what the highest and best use might be.  My initial thoughts were to remodel and rent as a SFH with the knowledge that converting it to office space for a business might not take much, if any transformation.  The only drawback for office space is that there is not much off street parking.  You and the others have given me a direction to help focus my analysis.

Bill Jacobsen · Answer

You need to find out the permitable uses of property with those zone designations.  In my area the commercial/residential zone allows more different uses.  The commercial uses may be the highest value uses so one zone would not have an advantage over the other.

Good Luck,

Bill

Sean OToole · Answer

Micki M. nailed it. It all depends on what is happening in your area. I've had a few great deals where there was a valuation discrepancy between current use and allowed use. The key is to discover each possible use for the property, and then get a rough idea of what value that use would bring on the open market minus the cost to convert from the current use to that use. This is called finding the "highest and best use". At times there can be huge discrepancies that no one is aware of allowing you to make big profits through what I consider "information arbitrage".

How you play it can also depend on the market and the buyer. Sometimes you just need to acquire the property and point out the discrepancy to the right buyer, who then buys it at a premium and does all the work to convert the use. Other times you may need to acquire the property and get it entitled (approved by the city / county) at which time the the buyer will step in, pay you are premium and do the work. And sometimes you need to do the conversion and sell it fully converted to realize the value.

Sounds like an interesting deal and I definitely think it would be worth taking the time to research.

Jen Shrock · Answer

I had a depressed 3/1.5/2 SFH come across my radar that also sits in an area with commercial (CCG-2) zoning and I was wondering if I should place a little more value on it in my evaluation because of the commercial possibility even though I would want to rehab for residential purposes.  I would be looking at this as a buy and hold.  It is on the edge of an area that is undergoing a revitalization.  The listing for it states residential but says that it is currently zoned commercial.  I haven't been to the property yet.  Just looking and evaluating at the moment.  I would appreciate any thoughts and comments.

Bill Gulley · Answer

Getting residential financing is possibly, improbable but possible, the appraiser will need to determine highest and best use of the residence as well as it being common for the area. Saying residential loan takes in secondary market, requirements to the appraisal mentioned apply, a bank residential portfolio product more likely.

Saying "commercial/residential" I'd think to the zoning will be commercial and the residence a permitted use. The issue is marketability as a residence. Marketability as to RE can be very good, I too think such deals are worth searching for, there may be opportunities to increase use and thereby value rather quickly. Good luck :)

Christina R. · Answer

Thanks all for all the replies.  I have a call into the planner for the city and hopefully he will return it today.  I do know that this area is under a sort of "revitalization" and there are tax credits and incentives for businesses to come in.

I'm sure I'll be back to ask more questions, and definitely to post updates.  Thank you!

Does land zoned commerical/residential add value?

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