Thanks to the Covid-19 pandemic, people have taken 'work from home' to a whole new level.
A report from the U.S. Census Bureau reveals that over 75% of U.S. businesses are run from home. These businesses have no employees.
When I say "businesses", I am not just referring to remote work alone. Bakeries, hair salons, music and dance schools are now home-based.
During the pandemic lockdown, many residents saw the possibility of turning their homes into business sites.
Now, after the lockdown, this new trend is still growing. From the statistics above, more U.S. residents are ready to forgo the confines of a commercial setting and embrace the flexibility that comes with home-based businesses.
However, the main question remains: is running a business in a residential property okay? Is it legal to do so?
This article will answer these questions and provide more information about running your business in a residential property.
Pros of Running a Business in a Residential Property
1. Cost Efficiency
One of the biggest reasons people run their business from a residential property is the cost.
Commercial properties tend to cost more than residential properties. This is due mainly to the high cost of maintenance.
Most people who run their businesses at home instead of a commercial site do so to cut down on rent.
Why pay for rent in two areas when you can easily kill two birds with one stone?
Also, running your commercial business from home cuts down on commuting costs. You save time and money you would have spent commuting.
2. Flexibility
One of the reasons people prefer to run a business from a residential property is the flexibility it gives.
Running a business from home gives you more time to work and relax. You can align your work schedules with your personal life.
Home-based businesses give entrepreneurs a work-life balance—no wonder more people prefer to operate from home rather than office spaces.
Also, a home-based retail business is closer to the target audience. People would rather prefer proximity.
For example, a home-based local bakery is closer to families. Residents may prefer to purchase fresh bread without having to commute to the local mall to get it.
3. Low Entry Barrier
Statistics from Brimco show that about 50% of all small businesses start from home. Starting a business from home requires little expense.
There is no need to scout for locations and consider paying rent.
Over time, as these businesses expand and become more commercial, the owners will most likely relocate to bigger commercial spaces.
For example, an art teacher can start dance lessons in their apartment. However, when classes begin to attract more people and the business expands, the teacher may have to relocate to a real studio.
Running a business from home makes it easier for people to pursue their entrepreneurial dreams.
4. Tax Benefits
Running a business from your residential property can offer various tax advantages. You might be eligible to deduct a portion of your home expenses, such as mortgage interest, property taxes, utilities, and home office supplies. This can help offset some of the costs associated with operating a business.
5. Flexibility
Home-based businesses offer unparalleled flexibility. You can customize your workspace to fit your needs and adjust your schedule to accommodate personal commitments. This flexibility can enhance your overall efficiency and satisfaction.
6. Improved Work-Life Balance
By integrating your business into your residential space, you can more easily blend personal and professional life. You have the ability to create a dedicated work area within your home, which can help you maintain boundaries between work and personal time, potentially leading to a more harmonious balance.
7. Reduced Overheads
Without the need for separate office space, you can minimize additional costs related to leasing, furnishing, and maintaining a commercial property. The savings can be redirected into other areas of your business, such as marketing, product development, or hiring staff.
Challenges to Consider When Using a Residential Property for Business
Although using a residential property to run a business seems like the easiest option to start a business, it is more challenging than it looks. Some challenges may affect the business and your property's performance if not handled.
1. Zoning and Legal Restrictions
Before you use a residential property for commercial use, ensure that your area’s local zoning laws accept it. Zoning laws are the specific rules and regulations that guide properties within a particular area.
These laws also govern the uses of a property, thus ensuring that properties are safe and properly used.
Failure to comply with these laws could lead to penalties, cease-and-desist orders, or property loss.
As a landlord or property owner, before you lease your residential property for commercial use, ensure it complies with the zoning laws for the area.
2. Disturbance to Neighbors
Let’s face it, no one wants to live in an environment plagued by consistent noise just because someone decided to turn their house into a business center. Before using your residential property for commercial, ensure it won’t affect your neighbors in any way.
If you live in a condo or closely attached houses that share common walls, it’s advisable not to run a business that requires noise.
3. Professional Image
Most people view home-based businesses as unprofessional and don’t take it seriously. It doesn’t matter if you are running a legal business and have your papers to prove it, they believe that residential businesses are illegitimate.
Even so, home-based businesses are vulnerable to less traffic. This is because they are located in private locations, not commercial ones.
Home-based businesses are quite limited to their locality and have limited access because they are private property.
These businesses also have limited space when compared to commercial properties. It may be difficult to operate fully in tight corners.
4. Limited Space
Residential properties often have limited space compared to commercial properties. This can restrict your ability to store inventory, accommodate multiple employees, or set up specialized equipment. Overcoming space limitations may require creative solutions or additional investments.
5. Distractions and Work-Life Balance
Home environments can present distractions that impact productivity. Family members, household chores, and other non-work-related activities can intrude on your work time. Establishing a clear boundary between work and personal life, and maintaining a disciplined routine, is essential to staying focused and productive.
6. Parking and Accessibility
If your business involves client visits or customer traffic, parking and accessibility can become issues. Residential areas may not have sufficient parking or may not be easily accessible for clients, which could impact customer satisfaction and convenience.
7. Insurance and Liability
Standard homeowner’s insurance policies may not cover business-related risks, such as property damage or liability claims. It’s crucial to obtain appropriate business insurance to protect yourself from potential liabilities and ensure that you have coverage for business equipment, inventory, and potential legal issues.
8. Internet and Utility Costs
While you may save on commercial rent, business operations can lead to increased usage of utilities like electricity, water, and internet bandwidth. These costs need to be factored into your budget, as they can add up and affect your overall expenses.
9. Scaling Limitations
As your business grows, a residential property may not adequately support your expansion needs. Scaling up might require moving to a commercial space or making significant modifications to your home, which can be costly and disruptive.
Note: Not all businesses are suitable for residential properties. Business operations like manufacturing and construction should never be done in a residential area. Additionally, businesses that involve harsh chemicals or rearing of animals should be done far away from residential environments.
Before you lease your residential property to anyone for commercial use, ensure you know the kind of business they want to do. The business must not cause a nuisance to the neighbors or the environment, or else you will experience severe loss.
Tips for Successfully Using Your Residential Property for Commercial Use
1. Create a Dedicated Workspace
If you ever want to rent your residential property for commercial use, creating a dedicated workspace area is best. Doing so will encourage your residents to be more productive if they wish to work from home.
For example, you can create an extra room that serves as a study or home office. The office can be separate from intricate areas in the house. This arrangement can attract tenants who are looking to work from home.
If you manage an apartment, condo, multi-family home, etc., it is advisable to use thick or soundproof walls to ensure each resident enjoys privacy and peace.
2. Set Rules to Protect Other Residents
Your tenants' satisfaction should be your utmost priority. Therefore, you need to ensure that they are comfortable.
Before you grant anyone permission to use your residential property for commercial use, ensure you set rules that protect your tenants.
For example, you could limit the access strangers have to your property. Or you can set a time limit where all commercial operations stop.
Your primary focus should be your tenants' comfort and security.
These rules guide the kind of businesses you allow in your property. Let’s see this example: Because you value your tenants' privacy, you will not allow a home-based restaurant.
In fact, you will not allow it because that kind of business gives access to strangers and can cause noise.
3. Communicate with Other Tenants
It only makes sense to notify your tenants about the new commercial development.
I will feel uncomfortable waking up one morning to find my next-door neigbor has started a piano or dance class. It means I have to deal with loud music.
The situation will become very uncomfortable. I value my comfort, and I’m sure you do too.
Hence, always communicate with your tenants before accepting commercial operations.
You can effectively communicate with your tenants with a proper PMS. Booking Ninjas is an all-in-one solution PMS that makes it easy for you to speak to your tenants.
As long as you have the contact info of all your tenants, you can send notifications to all of them.
4. Stay Compliant With the Zoning Laws
Finally, most importantly, ensure you comply with your zoning laws. If you are not sure, ask your state or local government officer.
It is best to research legal issues about home-based businesses. Know what businesses are acceptable at home in your local area and state.
If you don’t comply (and get reported), you risk losing your property and paying higher fines.
5. Enhance Professionalism
To boost your business’s professional image, consider a separate business address or a virtual office service for correspondence. Use professional branding in your communications, such as a business phone line and email address. Ensure that your business operations, even from home, project a professional image.
6. Manage Privacy and Security
Implement measures to safeguard your privacy and security. This includes using a separate entrance for clients if possible, installing security systems if necessary, and ensuring that sensitive business information is kept secure. Communicate with neighbors to address any concerns they may have about increased traffic or noise.
7. Address Parking and Accessibility
If your business involves client visits or deliveries, plan for adequate parking and accessibility. Clearly communicate parking instructions to clients and consider signage to guide visitors to your property. Ensure that your location is easily accessible and convenient for clients.
8. Invest in Insurance
Obtain comprehensive business insurance to cover potential risks associated with operating from home. This includes coverage for business equipment, liability insurance, and any other policies relevant to your business activities. Review and update your insurance regularly to ensure adequate protection.
9. Monitor Utility Costs
Keep track of utility usage to manage costs effectively. You may be able to claim a portion of your home’s utility expenses as business deductions, but it’s important to monitor usage to avoid unexpected increases in your utility bills.
10. Plan for Growth
Prepare for potential growth by planning how you will manage increased space needs. Consider options such as modular furniture, off-site storage, or expanding your workspace within your home. Having a growth strategy can help you adapt more smoothly as your business evolves.
FAQs
1. What does it take to run a business in a residential property?
As a tenant running a business in a residential rental property,
- Zoning laws and regulations
- Workspace setup
- Neighborhood impact
- Insurance coverage
- Tax implications
- Security measures
2. What are the laws guiding businesses in residential properties?
Residential zoning laws allow small businesses to operate in residential areas as long as they are not disrupting the environment.
However, the laws differ depending on location. For example, some jurisdictions may prohibit home-businesses from putting up any signs.
Other jurisdictions may limit the portion of your residential property that can be used for commercial purposes. In some areas, the zoning laws ban businesses from operating in residential areas.
Also, laws limit the number of employees a home business can have. All these laws are essential.
It is best to visit your local government zonal offices to know which laws guide your area.
3. Do I need permission to run a business from home?
Yes, you do. As a resident, you need to seek legal permission and determine if it goes against the zoning restrictions.
If you are a landlord considering renting your residential property for commercial use, ensure you seek permission before doing so.
Final Thoughts
Renting a portion of your residential property for business purposes is beneficial. It gives you an extra stream of income.
So, it is okay to run a business in a residential as long as it is not harmful to the environment and obeys the zoning laws.
As a property manager, you will need to effectively manage your residential property, especially if it is used for business purposes. You have to monitor what happens in the property to see if it poses any threats to your other tenants or the environment.
Merging residential properties with commercial operations can become tasking; hence, you need a PMS like Booking Ninjas. Our PMS makes it easy for you to track your property’s performance and manage its operations.
With Booking Ninjas, you can track and solve all your tenants’ complaints, especially if they find the home business disruptive and invasive.
The software helps you prioritize your tenants’ experience and adequately manage your property. Send us a message to see how you can achieve this.