Offer Accepted. Zoning twist.

2 Replies

Hello BP Community!

Here is a deal that I currently have an accepted offer on. There are a few new twists and was hoping to could help give me input on what you would do.

House:

- 3985 sqft 6 bed 5 full bath

- A beautiful 1000+ sqft open studio with bedroom and full bath attached which is part of the overall sqft. This space is currently being used a salon. It has its own gas, AC and electric utilities.

- The rest of the house is a 2 family 3 bed 2 bath for each floor

- B-/B neighborhood

Numbers: here is the report that I ran through BP rental calculator. I ran the rents to see the numbers following the seasoning period. For the first 6-12 months the cash on cash return will be current- $1600.

https://www.biggerpockets.com/calculators/shared/532264/db508ce3-dc0a-4e28-976a-0b93512ac4cf

** HERE IS THE TWIST**

- Because the studio has its own utilities, bedroom and full bath I obviously was going to turn it into it's own beautiful unit renting at 1000+/month. However, due to the house being zoned in an agricultural area it can only be a legal 2 family with a "storefront" as it currently is as a salon, yoga studio, massage, etc.

- Therefore I ran below market #'s for commercial space.

- I'm just wondering what some of you might do. The #'s still work nicely however I have never tried to rent commercial space and am worried that it will sit vacant for a while. It is currently a turn key salon and might rent right away and could always be turned into any other type of studio.

- I am currently trying to apply for a variance on the property but know that those do not usually go so well.

- Even if the commercial space sits vacant the property will still cash flow a little but not my current numbers. I'm trying to leave emotion out of it and rely on good deals only.

Thanks for the help! Let me know if any other info should be provided!

- Brett

Brett,

Your mention of yoga, massage etc. service businesses are great ideas. 

You don't specify if the salon is going to continue to be rented, or will be vacant when you take over. I am going to infer from your asking about a "commercial rental" that the salon will be vacant.

If the salon is all set up to go, then you can rent chairs until you can find someone to either take it over, or do something different with the space. I would take myself down to one of the chain hair places. Book a hair appointment with the manager or most experienced person in the place. Hairdressers (as a rule) are a talkative lot. I would casually mention that you just bought a place that has a completely set up salon, and you need someone to help you get it up and running. Then ask who the hairdresser knows that might be interested. It could take a few $15 "haircuts" to figure it out... but hey if you can get a good tenant (and a bunch of information) for less than $100 somewhere else.

If it's in a community like Wenham or Beverly, MA where most of it is residential, but there are a few small family farms left over, then consider leasing it to someone who wants to open a small organic grocer, CSA store or something along those lines.

Another option, depending on your business plans, is to utilize it yourself for a REI business. This would be the same idea as the dentist owning their own building. They make no money on the dental practice, but the real estate makes them plenty.

Creativity will most likely be the way to get it rented, and keep it rented. Also, keep in mind, if the rest of the building takes care of the cash flow, then you are free to make your commercial space into a business incubator for you. Give a reduced rent for a share of the business that is going in. This gives you diversification, community support and potentially a good chunk of change if the business is successful. If it's not, you get some cash, and you still own your performing building.

Good Luck!
Jim