Advantages and disadvantages are of buying residential property in an area which has approval for commercial developments?

Hi All, Just wondering if anyone happens to know what the advantages and disadvantages are of buying residential property in an area which has approval for commercial developments? Will I be paying a premium simply because the property is commercially zoned? The rental yield for the property is fantastic however, in my research I discovered that this property was previously purchased less than two years ago at almost half the current asking price with little movement in the general area as far as capital growth is concerned. That said the price is still reasonable in comparison to other similar residential property in the area so not sure whether it is a good deal or not? ANY advice greatly appreciated.

Thank you

Looks like you might be taken for a ride when it comes to 'value'. Selling a residential property that is actually zoned commercial may prove hard (and thus it's low price 2 years ago).

It might be that the current vendor saw an opportunity to sell to "Positive Cashflow Investors". The property might only be worth half of what he is asking, but he can charge a premium because it is positive cashflow.

Just be careful. If you are buying to achieve growth then you might find this property impossible to sell at or above the price you paid for it. Regular people don't want a residential property that is commercially zoned. Just something to think about.

This doesn't mean it is a bad investment. If the cash flow is good it might be worth it...but just be careful. If you fall on bad times then you might struggle to sell.

Ryan McLean
http://CashFlowInvestor.com.au
Positive Cash Flow Properties Are Just A Click Away

Thanks for the great advice. Couldn't agree more. Still tempted to throw in a low ball offer and see how motivated the seller really is becuase the yield is double digit and the prospects for the area seem pretty solid too if I can get it at the right price to justify the risk.

I have an advantage that may be used down the track. As you may be aware, SMSF's can borrow via instalment warrants. Although the regulation is not based around zoning, it would be easier to  evidence that a commercial zoned property is business real property. Under certain conditions i.e. the property must be used wholly for business purposes to name one regulation, the outcome is: your SMSF may purchase this property from you to free up your capital......

www.birchcorp.com.au 

Future residential tenants may be driven out by commercial development around them.
When I picture a house between factories or warehouses, I only see problem tenants.
Land should appreciate, could be a site to place a commercial building in the future.

cheers
thecrest

the cosmos always delivers so order carefully

Why not make a low ball offer? Just explain why you have made the low ball offer. Tell the real estate agent that is sold for X only 2 years ago and due to the commercial zoning you don't believe it is worth the current price. See what they come back with. The Vendor might counter offer.

Ryan McLean
http://CashFlowInvestor.com.au
Positive Cash Flow Properties Are Just A Click Away

Just because someone paid half price 2 years ago it doesn't mean its not worth double now, I bought a property for $100k over what the previous owner paid a year earlier and know one would touch it as everyone thought it was to dear and people said i paid to much but now i have done something to this property and the property is now valued $250k over what I paid and I have future plans for this property which will send the value threw the roof, acheived this in 8 months with hardly any effort put in  

At the end of the day it comes down to what the property is worth to you and this should reflect your offer, and 'knowing' you can make a good return on your investment

This can be a benefit, but it goes both ways....
Residential property that is re-zoned commercial can be a great investment if the area becomes industrial or commercial.
Property that's currently zoned commercial, but is then made available for residential can also work well.
The issue is what the underlying demand is for in that area. Not much use having commercially and industrially zoned property if there's no commerce or industry in the area.

Design & Build Consultant
http://brutalart.com.au