Will Commercial Zoning Increase Your Property Value?

If you have the correct combination of items and you have a large enough pocketbook, this may be your ticket to retirement. But sometimes, it’s your ticket to the poor house.

I looked at a home that is zoned mixed use. In this area, this means that you can either use the residence as a home or use the residence as a commercial site. These types of sites are usually limited to low impact items such as office buildings, apartments, etc.

What’s the catch? Well, you’ll have to own a large enough parcel of land to make a commercial deal work. This is why you see five homes along a busy street all for sale at once and the zoning is commercial. This is because in order to be approved for commercial development, there must be a large enough parcel to make the commercial development work.

Usually, for mixed residential zoning, these areas are close to town or close to other apartments or business in the area. I’ve appraised several of these types of property. Many times, advertising the zoning as mixed use is enough to sell the home for more just because it may appeal to that specific buyer that wants to live in the same home and run a business out of the home. One home that I appraised offered a living area on the main level and a daylight basement offered office buildings that were rented out.

My understanding is that some banks that specialize in residential zoning will not loan money on mixed use properties. This, of course, is a downfall, if you’re trying to get a residential loan. Some buyers will not want to use their residential home for office use. This will limit the number of buyers that may want to buy your home.

So, will commercial zoning increase your property value? If your home is a residential home with the best use as a residential use, commercial zoning may decrease your home value and make it difficult to get a loan and make it difficult to sell, because you’ll be located on a busy street. If your home is residential use and the highest and best use is to build a commercial structure, most often, your land used as commercial use will be more valuable than your home used as residential use.

So, the moral of the story is to keep an open mind on these types of properties. I looked at some homes the other day where the home is an older residential home with a larger lot. The zoning can be switched from residential to commercial for $1500. Residential homes with larger lots with similar zoning were selling for $350,000 to $400,000. Residential homes that have been switched to commercial zoning were selling for $500,000 to $700,000. So for $1500 and some time, this would be a good investment for your money.