From Residential to Commercial to Enhance Investment Potential

In cities all over the country close in city neighborhoods transition from residential to commercial regularly.

Single family homes, even large ones get divided into rentals or transition to businesses like small shops restaurants or bars.

I was reading this morning about a street of small bungalows in Texas close to a city center. They began as small family homes. Eventually the neighborhood was designated “Historic” for the quaint appearance of the old houses. It did not fix the decline of the properties which were mostly run down rentals, some abandoned.

Eventually some enterprising person turned one into a bar. Then more turned into bars. Most were preserved as the original bungalows on the outside to comply with the historical designation and then gutted and remodeled on the inside.


Now developers are jumping on the bandwagon that street has spawned and building hotels and condos in the area close to what is now a destination instead of a street of shabby rental properties. This kind of revitalization of a neighborhood happens.

These types of properties can be attractive to investors.

They might buy a few houses that can become rentals for families or singles who want to be where the action is close into downtown areas.

Such neighborhoods are often zoned for mixed use residential and commercial locations that seem more exciting to young residents and even for some retirees. The walking distance amenities have more appeal for many people than a long commute to suburbia and having to mow an acre of grass. Anyone can see the attraction. Walk to work and walk to play for adults.

And a good many residential houses in the city have big lots that could turn into cluster homes or rentals even ones that are multi-storied, mixed use buildings that generate income all the time. It’s investor hog heaven. Properties that produce a constant stream of income are a good thing.

For investors with tight budgets a stream of rental income is a desired luxury. For developers with deeper pockets the value of a piece of property close to a thriving city area might be in development tuned to enhance value and income.

Finding this type of neighborhood is the trick. You have to be able to spot the trends of a combination of desirable locations that are reviving. Renters find them attractive enough to draw them. Businesses move in and the residents like the enhanced entertainment options and don’t mind the noise and traffic. Many residents who move to these areas want to avoid long commutes to work and want a lifestyle that includes evening recreation.

Developers and investors in real estate also like to get in before property values rise.

But what if values DON’T rise.

If you are not sure how things will go take a conservative approach. Buy a building in a downtown area and turn it into mixed use rentals or condos plus shops and amenities that will attract customers. If you need to renovate the building, you probably can’t get bank financing as banks want “stable” properties. You should be able to get short term financing via commercial bridge loans.

Or…tear down the building and make it into parking for shoppers and people who work in the area. Parking lots do generate income.

Then, when the time seems right build a new building with homes, shops and parking on the original land purchased before the real estate got really expensive.

Especially nice is the income that happens over time.

Do we know an investor who did this?


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