Buy garage in San Francisco to convert to commercial?

[Paul Smith]

Hi all,

Long time BP reader and first time poster. To give you a little background, I'm in my older 20s and bought my first SFR in San Francisco a few years ago.

My expenses have lowered as I've built up some "passive" rental income from the SFR, and I make a decent salary outside of RE. I'm saving up for my next potential investment and thought I would turn to this group for thoughts and advice.

Next potential investment ideas include (1) buying a multi-unit out of state for cash flow, (2) buying a vacation home (only 10% down) in-state where the rental covers most of the expenses and where I get to use it once a month (the home could potentially/eventually be used for retirement), or (3) the topic of this post... attempting to buy a garage in SF which I can eventually convert to a commercial unit.

The garage idea is a bit more novel and risky. Some parts of San Francisco on commercial corridors are zoned to allow mixed use developments (e.g., this has been done successfully on 18th Street in the Castro). I have a specific area in mind (a B location that is up and coming quickly), and thinking about mailing property owners along the commercial corridor to see if they would be willing to sell their garage. I could potentially get a good deal on one, maybe $20-$50K (big assumption) plus legal fees? I understand there are costs and time required to convert to commercial (maybe $100k on the cheaper side), but I think there is potentially a great deal to be had here especially for a long buy and hold strategy in an up and coming area. I also realize commercial rents are typically cheaper (as low as $1.25/sq ft depending on location in SF) than residential properties but I would factor all that into the purchase price and theoretical renovation costs.

Thoughts?