What to Do With Duplex Zoned Commercial

[Andrew Merritt]

I'm currently interested in purchasing a duplex that returns moderate numbers as a residence.  However, it's zoned commercial and I'm wondering what I should do to take advantage of that (highest and best use)?  Would I get better returns if I placed a business in there?  How would I go about marketing that?  
Probably not the best time right now w/ COVID but I'll wait it out and see what happens.  Just want to be prepared with a good strategy when the time is right.

[Frank Chin]

My dad owned a mixed use property for many years, zoned  commercial years ago, grandfathered, and rented to commercial tenants. It's in a mostly residential district.

First, get hold of commercial brokers, as many commercial tenants sign up with these guys. The broker knows what type of property is suitable for each type of business. I was looking for laundromats  for a while, the guy I used was a business broker and a store broker.

Then my dad's mixed use property is located in a more residential district, not much foot traffic compared to commercial districts. Here, you rent to people requiring commercial space, such as real estate brokers, attorneys who is required by law to operate out of an office, or accounting firms where street traffic is not required.

In fact when 09/11 came, my dad had a store for rent. A flood of inquiries came in from Manhattan's commercial district, and he rented to a wholesale travel agent. This travel agent packages vacation packages for travel agents, and his customers are other travel agents, not people off the streets looking for vacations. The two old ladies that worked for the agent for years happen to live down the street from the store office, couldn't be more thrilled walking five minutes to work compared to suffering an hour in the crowded subways going to the office in midtown Manhattan, in fact on 5th Avenue and 42nd street, a most prestigious address. My dad's place was a fraction of what they were paying in rent.

The building next to his was also zoned commercial, but used many years as residential, then a CPA firm bought it, turned the entire building into a CPA headquarters. Again, foot traffic is not relevant. In fact, when he had space for rent, it's a fraction of rents demanded in nearby heavily trafficked commercial areas, so the demand is high.

My dad like renting to office tenants, as his insurance is a fraction of renting to corner grocers, or small coffee shops, where insurance rates are higher due to foot travel, such as slips and falls. 

I looked into mixed use properties, where the downstairs is commercial and upstairs residential, found normally in downtown areas of small towns. The worst case is having a restaurant downstairs, and an apartment upstairs. The resident tenants upstairs constantly moving due to smelly odors, and noise downstairs late into the night. So I looked into converting the whole building commercial and have offices upstairs.

And yes, you get more rent and commercial tenants also pays real estate taxes and utilities, they expect it, unlike residential where you get pushback when use ask for them. Here you should get an attorney conversant with commercial real estate practices and have them prepare your leases, which is a whole lot different than residential.