Transitioning From Residential Real Estate to Commercial Real Estate
There are many potential options when one thinks of changing a residential property into a commercial property. The real estate industry has always been dynamic and the Indian real estate market is expected to be on the verge of a boom.
As markets rise, investors naturally seek to capitalize on opportunities. Whether changing a house into a café or a jewelry shop or a chic office, the scope is endless. However, turning a dream into a plan is a major undertaking.
So, how do we begin to understand the details by asking relevant questions that drive this transformation? Can you change the zoning of a residential building to commercial? How does a successful conversion process work? We will also touch upon the technical lingo that one is required to know before starting such alteration works.
Research on the Topic
Yes, any residential property can potentially be used for commercial purposes. However, while attempting this conversion, multiple factors need to be considered.
A house that was previously located in an urban area can now be easily repurposed into a small shop or coffee store. A multi-roomed apartment can be easily refurbished into professional office space as well.
The kind of structure that you are wishing to make alterations upon also stands out as significant. Many high scale alterations such as converting an industrial building into a retail superstore comes with certain requirements and these can be very difficult to abide by.
Factors to Consider Before Conversion
Zoning Regulations
Local zoning laws allow properties to fall under a specific areas such as residential, commercial, or industrial zoning. These zoning laws may pose a question as to whether the conversion is possible or not. These laws and restrictions can potentially make or break a project so it’s important to understand them beforehand.
- Identify the zoning classification of the property that you intend to convert.
- Find out whether the area can accommodate mixed-use developments.
If mixed-use is in fact not permissible then you can approach the local authorities through an application for rezoning which is essentially the delegation of authority needed to change the existing property usage. So, in order to initiate this step it is critical to contact relevant businesses or the city planning department.
Property Location and Market Demand
As we shift deeper into the issue of property transformation, one area that receives a facelift with the possible changes is the location and geographical scope. If the plot is along a busy road, then a commercial establishment might be feasible. Besides, it is equally important to establish the extent of the market need for the particular business type that you have in mind.
Geography appears to be the major factor distinguishing low-end commercial spaces from high-end commercial ones. Other dimensions include a prime location, high visibility, and easy access amongst others. Many other factors that this geography is composed of will determine how successful your property facelift will be as well.
What is the Process of Changing from Residential to Commercial?
Legal Considerations
If through lack of experience you do not understand the legal side of such a project it would be best if you make a real estate investment or leave this project. This area is very much situation oriented and one should not ignore the risks involved with the conversion of the home to a commercial property.
- One of the first things that a home owner should keep in mind is the local law regarding buildings and structures. Perhaps, the greatest challenge with commercial property development is the ability to meet all safety-related and access-related aspects of the standards or the codes outline for such properties.
- One should make sure that such structures and premises saves and protects people and occupants not only legally but for self-safety reason too.
The taxes you owe may vary if you change your property from residential to commercial, This is because the two sets of properties are assessed differently for taxation purposes. It is best to speak directly with a tax expert regarding the tax impacts of this change to your property.
Lease agreements and Contracts
Assuming you are going to lease out the newly converted commercial space, it’s important to get well crafted lease agreements and contracts in place. Key lease and commercial tenancy information that may need to be included in the documents includes but may not be limited to the following: the rent, the term of the lease, who is responsible for the repairs, and what the commercial space will be used for.
Most commercial leases also have longer lease periods than their residential counterparts. This is a mutually beneficial arrangement whereby the tenant occupies a space to run his business and the landlord collects rent regularly from the tenant.
Tax Implications and Assessments
Depending on your business type, there are many arguments that explain the reasons why one should consider taxes in their business plans. This is why it is always advisable to liaise with a tax expert as they will be able to explain the taxes that will go with this project more easily.
But the tax considerations do not stop there; when someone makes an investment in a property the potential returns are also considered so any change in the currency value of the property due to the tax changes within the country also matters. So A proper assessment of these considerations should be done to see if it is in line with your investment plans before you proceed to converting your property as making this point amends the whole focus on finances.
Preparing for Conversion Expenses
Preparing to convert requires that a clear budget pointing to all potential and actual expenses has to put in place. This is crucial because the budget should include even the future running costs of conversion.
- Evaluate how much you have or are able to get. Establish how you will be supporting this venture, such as through personal savings, a loan or through potential investors.
- In terms of your financial backing, a proper picture is in place and now the project parameters can be set along with budget distribution.
Use of Funds
Buying Permits and Paying Fees
All the relevant authorities should be requested for the permits required for the change in property usage and this will require paying some fees. The costs for these vary depending on the location, project scale, and type of commercial use. These Permits and Licenses will be required to be paid for and do not require debate as they are simply required in order to comply with the law.
Construction and Renovations
More likely than not, a greater portion of the overall construction budget will be used towards construction and renovations. In the case of conversion of a home into a commercial space, the space is likely to be restructured and re-interior decorated. Knowing the size of these expenditures will also be easier if working with architects, contractors and designers.
Do remember that if you are undertaking a construction project, there is a possibility that the project may run into unforeseen costs, so it is advisable to have a buffer fund in order to cope with any such occurrences that may come up during the course of executing the project without throwing the entire project off track.
Conclusion
In the course of this article, we have fundamentally asked the question of how one goes about changing a residential property into a commercial one. In case you have ever been curious about how such a procedure works, take note of these specifics:
- Legal aspects
- Leases and Contracts
- Taxes and assessments
- How much One has to pay to change the property
- Breakdown of expenditures
Would you like your premises to be transformed into a commercial one? Receive advice from Dream Location so that they can guide you throughout the entire process of converting the property. Don’t worry about getting lost in it all. With Dream Location on your side you will be able to safely navigate this experience.