pros and cons of 4-unit that also has a commercial storefront

Multi-Family and Apartment Investing
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pros and cons of 4-unit that also has a commercial storefront

Dan C.
Milwaukee, WI · Member since 2013 · 384 posts · 109 votes

It's very common in the old parts of Milwaukee to find small commercial storefronts which also have 2-4 residential units.

I found a 4-unit which I like purely on the merits of the residential units. I like it enough I may make an offer even if there is some downside to the storefront. The four apartments are occupied. The storefront is empty now, it recently lost a convenience store.

I am curious to hear any pros and cons of this configuration people might suggest.

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Carl Schmitt
CT · Member since 2010 · 135 posts · 100 votes
13y

Rather than renting the store front, could you put you're own laundromat? Possibly partner with an experienced laundromat owner? I know someone that evicted the tenant in the store front of their apartment building and did this. He sold it 20 years ago and I still hear h talk about how great it was

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  • Simon Campbell
    Miami, FL · Member since 2012 · 612 posts · 189 votes
    13y

    Honestly, if the location is good, then mixed unit properties can be very profitable. The key to creating a stable investment is locking in a good long-term commercial tenant. Commercial tenants can be easier to maintain.

    The only problem that you may have is getting financing. You will most likely have to get a commercial loan - especially if it is zoned commercial. The terms will not be as favorable.

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  • Account Closed
    Investor · Saint Louis, MO · Member since 2012 · 46 posts · 19 votes
    13y

    Dan C. that sounds a lot like St. Louis City where I'm from. There are TONS of mixed used properties like what you're describing. Many have been converted to residences - not sure if that's an option for you.

    I would want to know why the convenience store left - did it fail or did it move on to another location?

    It's true that commercial loans don't have as good terms but that's not a reason to back down if the cash flow is good. I'm not sure if you could attract a well known tenant but there are some huge benefits to commercial leasing - passing all expenses through to the tenant, 5 year lease terms, etc. etc.

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  • Dan C.
    OP
    Milwaukee, WI · Member since 2013 · 384 posts · 109 votes
    13y

    I appreciate the tips @Adrian Allen and @Simon Campbell.

    I believe this particular property can be financed as residential, but I'll double check. (The owner is a bank which will also finance).

    Unfortunately this location I don't think would be described as one that would attract good long-term tenants. We're talking a run down area with convenience stores, cell phone stops, T-shirt shops, nail salons and even a dreaded store front church (I remember an Urban Planning professor describing store front churches as an indicator that the commercial value was in the lowest tier).

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    13y

    Sounds like what the developers call "the dead part of town" when we would drive through looking for site locations.

    When going through a city you can tell renewal areas, from new corridors that are thriving, to old corridors with mom and pop type businesses that are older and more run down.

    It's okay to have a mix of new and old and I like to see some big corporate tenants around also. If it's old town with all mom and pop with that mix of business you were saying it's not that desirable at least to me.

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  • Carl Schmitt
    CT · Member since 2010 · 135 posts · 100 votes
    13y

    Rather than renting the store front, could you put you're own laundromat? Possibly partner with an experienced laundromat owner? I know someone that evicted the tenant in the store front of their apartment building and did this. He sold it 20 years ago and I still hear h talk about how great it was

    1Reply
  • Dan C.
    OP
    Milwaukee, WI · Member since 2013 · 384 posts · 109 votes
    13y

    Kudos @Carl Schmitt - potentially a nice idea.

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  • Simon Campbell
    Miami, FL · Member since 2012 · 612 posts · 189 votes
    13y

    Even if the commercial building is not in the best of areas, look around for vacancies. As long as you are not looking at an area with abandoned buildings or lots of storefronts with "For Rent" signs, you could still have a viable location. It wouldn't hurt to give a commercial real estate appraiser a call and ask for his $0.02. They will be qualified to talk to you about vacancy rates and rental terms.

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