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Coming home to commercial real estate

By Greg Bell

In today's residential real estate market, many prospective buyers are finding themselves priced out of homes they might have been able to afford just two years ago. So it's a moment for creative solutions, especially for first-time buyers or those without property to sell who can be flexible in their living arrangements.

One way to sidestep the overheated housing market is entry-level commercial property, which offers slightly better returns and, in many cases, the chance to live on-site at a commercial space such as a retail shop, cafe, gallery or other enterprise.

There are many ways to think about dual-purpose commercial real estate.

Commercial v. residential
What is the difference between these two types of real estate? Just to brush up on the basics, property zoning isn't as simple as commercial versus residential. It usually has many different zoning types, ranging from:

  • Waterfront and marine industry zone.
  • Industry investigation zone.
  • Research and technology industry zone.
  • Extractive industry zone.
  • Special purpose zone.
  • Limited development zone.
  • High density residential zone.
  • Rural residential zone.

Each of these come with their own set of rules and required permits. So you will need to work closely with your real estate agent to discuss the differences between each kind of zoning. The concerns are often quite practical, for example having plumbing for showers or bathtubs installed in the space, or plumbing permits. This will take some research — but our team can assist you.

Rates of return
If you are a first-time homebuyer, you might not realise that the returns on commercial real estate are generally higher than residential real estate. Commercial properties typically range from 3 to 4% rate of return while residential properties range from 1 to 2%. In this way, they may help you build wealth more quickly — going toward your ultimate goal of owning your own residence.

Commercial properties also often come with multiple areas for separate businesses. Say you buy a building which has space for retail and a cafe, then you live above it. This means you can collect rents on two spaces and apply those toward your payments. This way you are getting help paying your mortgage while simultaneously building equity.

Research the process
Unless you've previously invested in commercial real estate or work in the real estate sector, you might not realise the process of purchasing commercial space differs from the ways residential property is bought. There are key questions to ask about commercial properties that differ, too. These include the importance of inquiring about existing leases and tenants, since it's commonplace for these to be handed down to new owners.

Likewise, commercial property works differently as it relates to your taxes. Purchasing commercial residential property may entitle you to claim GST if it's included in the purchase price. But this isn't completely straightforward; the seller may have used a margin scheme to include GST in the price.

Either way, it's essential to negotiate and fully understand whether GST is included in the price of your property — before you sign a contract.

Our dedicated team of professionals fully understands and can advise you about the process of purchasing commercial and residential property — including the many kinds of hybrid, dual-use spaces. We are available to support all your creative endeavours, so please contact us today.

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