Lease Commercial Space While Living in Attached Apartment

[Ken Van Haitsma Jr]

I'm in the process of rehabbing my first single family purchase in Northwest Indiana to be used as a buy & hold and I'm already thinking about where to go from here. Part of me wants to stick with buying distressed single family and use BRRRR strategy, but I've also been interested in commercial real estate.

I would really like to find something, for example, which had some office space on the ground level, and a couple apartments above, one of which I could live in.  Has anyone had success with this strategy?  Are there any considerations to think about when doing this?  It seems like a great blend of house hacking with breaking into commercial space, but I'm sure there are some cons to consider as well.

[Tristan Escove]

Hello Ken, and congratulations on the start of your RE investment career!

I am a Realtor in Stockton, CA who currently has two mixed downtown commercial property listings on the market(commercial spaces downstairs and residential upstairs).  These two downtown properties were built in 1920, and were boarded up for the most of the last 30 years.   These properties were boarded up because these properties had so many code violations, the owners felt the cost needed to fix the code violations outweighed the value of the investment.  The current owner bought the properties in 2014 eager to take on the renovation projects.  The owner found it to be very difficult to get his improvements approved by planning and permits and then inspected by building, fire, utility, and code enforcement in a timely manner.  As a result, this owner has incurred significant amount of fines on these properties as his original one year rehab timeline has exceeded two years, he can no longer afford to pay workers, and has even found himself in court proceedings from failure to comply with code enforcement regulations.  Please, talk with building/permits, fire, and code enforcement, and have them explain as much of their processes and requirements as much as possible before taking on a commercial investment.  Ask code enforcement if they have any record of violations, and if they could walk you through it.  It could really save you from having major headaches by letting you decide if the necessary work is comfortable for you or not.  

Of course another thing to consider is location, location, location.  Where most single family homes have other single family homes next each other for blocks, commercial zones could vary dramatically lot to lot.  These two mixed commercial buildings happen to have major automotive repair, recycling, and cabinet/granite businesses surrounding them.  As you could imagine, these neighbors have a significant impact on the types of potential residential and commercial tenants the property  will attract.