What is the best commercial use for my property?

1. Understand Zoning Laws and Regulations

• Check zoning classification: Contact your local planning or zoning department to find out how your property is zoned (e.g., commercial, mixed-use).

• Know what’s allowed: Understand what types of commercial activities are permitted or require special approval.

2. Assess the Location

• Foot traffic and visibility: Is your property in a high-traffic area? Near public transit? Easy to access?

• Surrounding businesses: What types of businesses are nearby? Are there any gaps or oversaturated markets?

• Demographics: Understand the local population’s income level, age, and preferences.

3. Analyze Market Demand

• Commercial real estate trends: Use market reports or platforms like CoStar, LoopNet, or local real estate agencies.

• Feasibility studies: These evaluate the viability of certain uses (retail, office, restaurant, etc.) based on current demand.

• Competition: Assess how many similar businesses are in the area and how well they’re doing.

4. Evaluate the Physical Property

• Size and layout: Is it better suited for retail, office, restaurant, or storage?

• Condition and infrastructure: Will it require significant renovation or is it turnkey?

• Parking and accessibility: Important for many types of commercial uses.

5. Estimate Financial Return

• Potential rent income or business profit: Estimate income from tenants or from running your own business.

• Operating costs and taxes: Include utilities, insurance, property taxes, and maintenance.

• Return on Investment (ROI): Calculate potential ROI for each use case.

6. Get Professional Help

• Commercial real estate agents: Can provide insights on what’s working in your area.

• Appraisers or consultants: Can give value assessments based on use.

• Architects or contractors: If redevelopment is needed.

7. Consider Mixed-Use or Adaptive Reuse

• If zoning allows, combining uses (e.g., retail + office or café + co-working space) may yield better returns.

Based on financial return (e.g., rent vs. mortgage) and how many people might live in the property over 10 years

Step-by-Step Financial & Use Analysis

1. Estimate Mortgage Costs Over 10 Years

• Get your monthly mortgage payment (PITI: principal, interest, taxes, insurance).

• Multiply by 12 months × 10 years to get 10-year total mortgage cost.

Example: $2,500/month × 12 × 10 = $300,000 over 10 years

2. Estimate Rental or Lease Income

• Commercial rent: Estimate monthly income from a commercial tenant. Use market comps.

• Residential rent (per unit or room): If it’s residential, determine how many tenants (or families) will live there over 10 years, and calculate rent.

Example:

• Commercial rent: $3,000/month × 12 × 10 = $360,000 over 10 years

• Residential rent: 2 tenants/families, $1,800/month = $21,600/year × 10 = $216,000

3. Factor in Vacancy and Turnover

• Commercial properties may have longer vacancies but more stable tenants.

• Residential may turn over faster, possibly allowing higher rent adjustments—but comes with higher management costs.

Assume 5-10% annual vacancy unless your area has very high demand.

4. Estimate Number of Occupants Over 10 Years (Residential Use)

• Count average tenants per lease and how often leases turn over.

• This helps if you’re evaluating impact on wear-and-tear, utilities, or personal preference for number of occupants.

Example:

• Avg 2 people per lease, 5 leases in 10 years → 10 people over 10 years

5. Net Return Calculation

Calculate Net Operating Income (NOI) for each option:

NOI = Total Rent - (Mortgage + Operating Costs + Vacancy Losses)

Compare the NOI of:

• Commercial leasing

• Residential renting (including number of people using the home)

6. Consider Future Value and Exit Strategy

• Will commercial zoning make the property more valuable long-term?

• Will residential use preserve property value or give more flexibility for resale?