For those of you in the real estate industry who are in the business of constructing your own properties, it’s crucial to know where and what you can build. In the past, constructing residential and commercial properties came with its share of challenges. It was difficult to build a residential property on commercial land due to zoning regulations and land use designations.
However, the lines between residential and commercial spaces have begun to blur over recent years, giving rise to new possibilities. As such, building a multifamily house on a commercial lot is not something you should write off the real estate investment books yet. Let’s explore this further in the blog.
What are Commercial Lots?
Before we tackle the question itself, we need to establish a foundation to understand what constructing on commercial lots means. Commercial lots are spaces of land that have been designated for non-residential use. They are intended for businesses, office spaces, retail outlets, or for industrial purposes. These properties have their own specific zoning regulations and land use restrictions that are different from residential lots.
The Issues With Building on a Commercial Lot
The most important factor that will lead to determining whether you can build on commercial lots is the local zoning regulations. Zoning ordinances were created to regulate land use and ensure compatibility between the many properties in the local area. Depending on the regulations in your jurisdiction, it may be impossible to build residential structures on a commercial lot, or at the least may require special permits or rezoning.
Land Use Designation
On top of the zoning regulations, we also need to factor in the local area’s comprehensive plan and land use designations. These are the documents that provide the outline of the intended development patterns and will designate areas for residential, commercial, or mixed-use purposes. If you go through the comprehensive plan, you will be able to find out whether residential developments have been intended for commercial lots in your area.
Financing a commercial-to-residential conversion can be quite challenging. Financial institutions may be reluctant to provide the required loans as this is not a conventional request. You may need to find a lender who already has experience in financing commercial-to-residential conversions, which can be a difficult situation to overcome.
Additional Construction Costs
You should expect to pay more for a converted project than a traditional residential or commercial real estate investment. There will be additional construction costs incurred as you will need to make changes to the existing building to modify it for residential use. Additionally, you will need to apply for a new building permit, so factor in the costs and challenges for that as well.
Conditional Use Permits
This will not apply to all projects, but in some cases, you can obtain a variance or conditional use permit which allows you to build multifamily houses on commercial lots. Variances will grant permission to deviate from specific zoning requirements, and conditional use permits allow for land use that is not typically allowed. However, to secure these permits, you will often have to go through a review process, as well as public hearings, where you need to demonstrate how the proposed development aligns with the interests of the community. This will of course come with additional legal costs and real estate attorney fees.
So, Can I Build A Multifamily House On A Commercial Lot?
Based on what we have explored so far, we can ascertain that it is indeed possible to build a residential property on commercial real estate. But, whether you want to or not will depend on your appetite for risk as it does come with its fair share of challenges. Compared to building on residential land, this project will require more time, effort, and money.
But, with the growing demand for housing, this could be a lucrative venture for real estate investing. The supply of housing is often limited due to zoning restrictions, but if these can be circumnavigated, it is definitely a rarely-tapped market for you to invest in.
Communicating with Local Authorities
To get started on your project, you will first need to verify the feasibility of building multifamily properties on commercial lots in your specific area. You will need to engage with local planning departments and zoning authorities who can provide valuable insights into these regulations. Look to obtain professional advice from architects, land use attorneys, or real estate consultants who could be beneficial in navigating the complexities of this market.
Mixed-use Development Projects
We know that constructing multifamily houses on a commercial lot has its challenges, therefore, it may be worth exploring mixed-use land developments instead. Mixed-use projects are a combination of residential, commercial, and even recreational spaces within a single development. An example is a property built with a commercial shopping center on the bottom floor and residential apartments on the remaining floors.
This method opens up more avenues than residential rental income in the form of rent from commercial businesses. The challenges of constructing and converting the property on commercial lands are reduced as well.
This approach not only maximizes the efficiency of land use but also enhances the overall appeal and functionality of the project. Doing so will create an inclusive community, bringing together work and play, thereby increasing its value in the local community’s eyes. This type of project could even enlist the help of the local government, making financing and legal considerations simpler to manage.
It is definitely possible to pursue commercial lands for residential construction projects. Building a multifamily house on a commercial lot is not a far-off reality in the modern world. While local zoning and land use designations can pose challenges, it is possible to overcome these equipped with the right research and knowledge.
However, if you want to explore alternative avenues such as variances, conditional use permits, or mixed-use developments, these are all possibilities as well. Remember, each jurisdiction has its own unique regulations and considerations. Engaging with local authorities and consulting with professionals can make the process so much smoother.