Converting Residences to Businesses - Part 3

Having looked at using a portion of your residential property for retail or health care services, we now turn toward other professional small business uses -- architects, engineers, consultants, attorneys and similar enterprises. These differ from the prior uses in that they do not necessarily require customers to visit the property in order to transact business. Yet they still demand dedicated space and particular infrastructure to become functional. Getting to that point, as with the other uses, means addressing issues of legal status, financial capacity to effectuate the remodeling; and home value before and after the proposed reconstruction.

Does Adding a Simple Office Really Affect Zoning?

Local zoning boards and planning commissions each have their own references and criteria when it comes to the build-out of a home office. In issuing a variance -- or variances -- for such a project, municipal authorities will often refer a petitioner to the public guidelines, available online or on paper. Expanding your house for a new use, in most places, often makes two variances necessary: one for expanding the structure's size; the other for utilizing it for something other than a residential purpose.

A small business may be able to avoid a variance on both counts. A self-employed book editor, for example, who does the entirety of business online within a small addition to the house might receive a pass because the neighbors remain unaffected as do the traffic patterns. If, however, an inordinate number of courier deliveries come with the daily operation of the business, a strict zoning body could decide that there are some repercussions worth examining. Likewise, a freelance commercial artist will engage in a fair amount of shipping and receiving of prints, models and other media. Again, much depends on the strictness and experience of the decision-makers.

Paying for the Home-Based Office Space

Whether you will add a room to the house; remodel an unfinished basement; or a combination of new construction and repurposing, this type of conversion is often costly. For the person who can pay all cash, you are in a stronger position to negotiate with contractors since they will not have to go through lender approval and endure the process of drawing funds under the lender's rules. In fact, when you create a business on your property, you create a mixed-use lot. If you need financing, you might qualify for a residential mortgage -- a much simpler and easier option than a commercial loan.

Fannie Mae, the quasi-government corporation that purchases home loans to enhance liquidity among lenders, publishes the following criteria for homes with attached (or detached} offices. Residential financing is extended if:
- The house is a single-family residence with the borrower as owner.
- The borrower must also own and operate the business that will occupy the new space.
- The property must serve as a residence more than a place of business.
- The modifications shall in no way inhibit the marketability or home value of the property.

Value at the Time of Re-Sale

As noted above, better financing comes with the confidence that the sale price will not suffer because of the construction and/or re-modeling. In this post-COVID era, that preference gets more likely. Realtor.com conducted a survey at the height of the pandemic that revealed 63 percent of respondents planning their next home purchase with on-site workspace as a requirement. This trend does not get by Fannie Mae or its affiliated banks, institutions and finance companies. These days, additional space for an office will enhance market values of many houses.