Considering buying commercial real estate and converting it into a home
May 27, 2021 6:58 AM   Subscribe

I'm going to be buying a home soonish, and it seems like buying a commercial building with a storefront + a condo on top currently costs around the same as buying just the condo on top. What do I need to be aware of when thinking about buying commercial real estate and converting it into a home? How do I compare apples to apples when I'm comparing it to normal home purchasing? And who are the right experts for me to consult if I really want to go down this rabbit hole?

Just as an example, this is a 5k square foot building for $400k in Chicago (3k sq ft warehouse, 2k sq ft condo), when a 2k square foot condo in the same area seems to run about the same cost:

I'm not super interested in leasing out the warehouse to another business, but I can't say I'd mind having an extra 3k sq ft of living space. I *am* seeing that taxes on commercial property seem much higher ($28k in this example compared to $7-12k for residential). And I don't know anything about whether tax deductions or losses look different for residential vs commercial, especially if I'm (intentionally) failing to lease out the commercial part.

So I guess open questions would be:
- Can I actually do this?
- How do I assess if it's a good or a bad idea? Who are the experts who would be able to really calculate this properly?
- Do I get the same sorts of home loans? Different? This is my first property purchase/home.
- Anything I'm not thinking about?
posted by sirion to Home & Garden (14 answers total) 4 users marked this as a favorite
I'd personally be unlikely to do this unless I planned to have a business, gallery or rent out the commercial space.

I also am not sure what the city rules might be about living in a retail space. You might get hassled by the cops or the city or your local chamber of commerce/biz associations, too.

I had a friend in the 90s who was an artist that lived in a commercial space in a heavily trafficked urban area, though he didn't own it. He was an artist so used the open space quite well. Nearby businesses haaaated it and often let him know.

It was cold and loud and felt pretty unsafe. It wasn't meant to be lived in so it wasn't insulated for it, didn't have the kind of heating a residential space would have, etc. If it is close to the street with a storefront, I'd be worried about security.
posted by pazazygeek at 7:33 AM on May 27, 2021 [3 favorites]

First, there is the question of zoning & housing regulations -- the property is presumably zoned commercial, so you'd need a zoning variance or have the property re-zoned. You cannot skip this; in Chicago I'd probably talk to my alderman staff first (if the alderman opposes this change you're hosed, so you want to feel them out first thing). The alderman may also have thoughts on which neighbors to talk with (you don't want them to oppose your zoning change at the meeting I discuss below).

The actual rezoning would, if I recall correctly for Chicago (it's been years now so I may not), require a meeting and vote, so be aware that you could be denied permission several months after you've purchased the space, leaving you with no place to live and a commercial property you'll need to get rid of (or become a commercial landlord).

Next, spaces intended for commercial use will almost certainly not meet residential code requirements. This is mainly an issue for your remodel -- you'll need to do a bunch of work to bring the space up to code (number of electrical circuits, location of outlets, location of windows/doors, and so on).

Read up on your local zoning & building regulations FIRST, or hire a professional architect (I strongly suggest hiring a pro, but reading up on zoning will give you a feel for whether it's sufficiently possible that it's worth trying in the first place). If you buy property before being fully apprised of your local circumstances you are asking for a world of pain -- this is not 1960s New York where people could just convert willy-nilly and skate by largely unnoticed.
posted by aramaic at 7:34 AM on May 27, 2021 [16 favorites]

In addition to everything aramaic said, you would have a harder time getting a regular mortgage as well, especially if you are planning to convert the commercial space. You might need to get a construction loan and bridge it to a regular mortgage.

If this is your first time buying a house, you will definitely have your hands full with all the other fun surprises in your life, so I'm not sure I would try and complicate matters by taking on a major project like this.
posted by goingonit at 8:25 AM on May 27, 2021 [4 favorites]

(Caveat: This wasn't in a big city, so the experience might be different.)
I have a friend who bought an existing mixed-use building, part residence and part commercial space. Buying it was a headache -- it was hard to get a mortgage, and it was hard to get insurance, because the normal processes are set up to be either commercial or residential but not both, so at every step she had to find an actual person who could work with her on a custom solution. Same with e.g. getting a security system, getting utilities - the companies are set up to slot you into either commercial or residential. She also has to be aware of more complex zoning/code stuff when she wants to make repairs/alterations both inside and outside the building.

Again this might be different in a big city where there are more mixed-use buildings? But I think you're right to anticipate it will be significantly more complicated than just buying a residential-only building, and I'd try to find a real estate person who has worked with this kind of transaction before.
posted by LobsterMitten at 8:33 AM on May 27, 2021 [4 favorites]

If you need a loan to finance the purchase, you will also need to factor in that this would likely be treated as a commercial mortgage rather than residential. This would require a larger minimum deposit and they generally have higher interest rates. Loan terms also tend to be shorter for commercial loans.
posted by Kris10_b at 8:39 AM on May 27, 2021 [7 favorites]

It sounds like the places you're thinking about already have a legal apartment, so the "conversion" aspect would just be whether you're allowed to use the warehouse space for something unwarehousey, and in most cases it's unlikely anyone will care so long as you're not sleeping or cooking or renovating down there. Like if you want to put a couch and a desk and an air hockey table in the "warehouse", it's unlikely to be a problem.

But the loan issue *is* likely to be a problem. You will not be able to go on RocketMortgage or whatever and just get a normal commodity mortgage for this - you will need to work with an actual human, probably at a local bank, and even if the purchase price is the same, your payment will probably be much higher.

If you've never owned real estate before, this would possibly be biting off more than you can chew. But if you're really excited about the prospect, talk to someone at a bank that offers home mortgages and commercial real estate loans and see what they think.
posted by mskyle at 8:44 AM on May 27, 2021 [8 favorites]

I'd strongly recommend some professional input on this decision. This is considered a change of use and will likely require permission from zoning and fire marshal/life safety authorities. It may or may not trigger any number of required renovations. Many cities do mandate through ordinance some level of mixed use in certain zones specifically to prevent conversion to residential (aka gentrification). So, that's the number one thing to verify first.

Echoing all that was said above.
posted by meinvt at 10:17 AM on May 27, 2021 [2 favorites]

I would also echo what aramaic says.

I'm a town planner in the UK, where the government has been passing lots of legislation in recent years allowing the conversion of offices and other buildings in commercial use to houses without needing planning permission (don't even get me started on that pearl of wisdom), so it isn't an unfamiliar discussion here. The sorts of issues aramaic identifies, especially about build quality / suitability, have caused some very poor quality "dwellings" to appear over here via office conversions. You will likely need any saved money to make the building safe and comfortably habitable. And get all the professional / technical advice you can muster.
posted by Martha My Dear Prudence at 10:36 AM on May 27, 2021 [1 favorite]

I don't know about Chicago but most of the areas I've lived in actively tried to keep people from doing this so make sure everything is done within what's required by code/law.

Commercial utility rates may also be different than home ones.

Make sure that fire evacuation stuff is up to code with an upper level condo.

Commercial buildings that are that old may have chemical contaminates from over a century of use and things like asbestos and lead paint.
posted by Candleman at 11:29 AM on May 27, 2021

I'm going to take the point of view that this idea is awesome, and you should definitely do it.

Assuming that you have done all the due diligence suggested here which could lead to higher costs, and still decide to proceed: the sizes here are huge (2000 square feet of house plus 3000 square feet of warehouse!). That has some amazing possibilities! Rather than aiming (at least immediately) to convert the commercial space to residential space, instead, think of how much fun you can have with a 3000 square foot open area that belongs to you!

I'm thinking soccer, tennis, softball (whiffle ball if things are breakable), electric go-kart racing, roller skating. Just think like a kid for a minute and I bet a ton of fun ideas will occur to you. Indoor snowball fights!

Second there are a ton of low involvement ways to make money from 3000 square feet of warehouse space. Self storage lockers. Toy storage (small boats, jet skis). Maker spaces. 3D printing. Get some Hololens 2s and call it an augmented reality demonstration space. Get some Hololens 2s and make an internal virtual video game space!

If I had the chance to get a 3000 square foot warehouse included with my house, I would dive on that like Scrooge McDuck's money bin. This could be the ticket from a good life to an awesome life.
posted by BeeDo at 1:07 PM on May 27, 2021 [8 favorites]

I’ve often toyed with living in a warehouse and understand the draw. One thing I wonder is what are your utility bills going to be like? How do you heat that warehouse in the winter?

Also side note, I assume you are familiar with Logan Square well, because this is barely within its bounds and not “a 3 block walk” to the blue line like the listing says. If I lived here I would feel car or Fullerton bus dependent unless taking the Metra downtown. A warehouse area that far west in Logan might feel a bit deserted and unsafe at night. Not saying it is, but often industrial areas are deserted at night or have loud noises and weird times (say, early deliveries, etc. when most people are sleeping). Also think about what it would be like to live a few doors down from a train line for noise, pollution, and dirt. Sorry to derail on this one property but I think some of these points carry can over to other industrial areas.
posted by Bunglegirl at 1:46 PM on May 27, 2021 [4 favorites]

Don’t forget to think about resale.

As you’ll see from this thread, there are a lot of folks who wouldn’t want to live in that sort of an environment for a lot of reasons. So, you take a commercial building and make it half residential. You suddenly need to move or resell.

You’ve lost half the appeal to the commercial buyer, they don’t want your residential half. And you have a residential property that’s got a limited market interested from the residential perspective, most of your market wants a traditional residential neighborhood of some sort, whether it be urban, suburban or rural.

Not a lot of folks are like “I want 3,000 square feet of extra rough space in my home so badly I’ll live near some warehouses with view of the ugly highway overpass with my nearest amenity being an old CVS.”
posted by slateyness at 8:42 PM on May 27, 2021 [1 favorite]

It depends on a lot of factors.

Artists have lived in re-purposed storefronts in many different cities for a long time.

Worst case scenario anecdote: someone I know went in with some friends and bought an old factory building to convert into studios. The town municipal board had it in for them, and made their lives hell with a barrage of petty and major red-tape, random fines, and open harassment. Basically drove them out of town and forced them to sell-off at a loss. I'm guessing that the property was eventually re-sold to developers with friends in higher places.
posted by ovvl at 3:37 PM on May 28, 2021

You've gotten a lot of negative responses, so I thought I'd pass along this article as a positive result:

If I had the ability, I would do it in a heartbeat!
posted by alexei at 8:25 PM on May 29, 2021

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