One real estate investment trend on the rise is mixed-use properties. Typically, these properties have a combination of residential, retail, or commercial ventures in one building. In recent years, this type of development has become commonplace in many urban areas. However, for investors familiar with traditional residential management, is gambling on mixed-use the right move? Join us below as we explain the types of mixed-use properties along with tips for deciding if this real estate investment trend is right for you.
What is Mixed-Use Property?
Mixed-use property is defined as real estate that includes the planned integration of residential, office, commercial, retail, or recreation functions. An example would be a multi-level apartment complex with ground-floor retail space.
In this real estate investment trend, entities can seamlessly coexist or be completely disconnected depending on the individual business needs. Additionally, as the area around the property grows, so does its resale value, making it a worthwhile investment for those that do their research.
Common Categories of Mixed-Use Property
Mixed-use property can be a combination of many things. However, local zoning laws will play a huge role in what type of development can occur. So, investors must carefully research local regulations before embarking on this real estate investment trend. To get you started, let’s take a look at the various categories of mixed-use properties.
The New Face of Office Space
The COVID pandemic created a scenario where a large portion of the workforce had to work from home. Now that the pandemic is passing, many companies are choosing to stick with a work-from-home model. Therefore, these scaled-down businesses require smaller office footprints that mixed-use buildings can offer.
Classic Main Street
Since the Victorian Era, properties along “Main St” have been a staple of American life. Generally, these properties offer ground-floor retail space with 2 to 5 floors of residential units above. Residents and commercial tenants alike appreciate the location amidst all of the action with convenient access to amenities.
A Live-Work Model
The convenience of living where you work is a popular concept. The live + work property is where residents have a workspace or small business that is above, behind, or alongside where they live—for example, a pottery studio or hair salon with an apartment above.
Adapting Existing Space
With online shopping filling the needs of so many, it has led to a sharp decline in brick-and-mortar stores. In some cases, entire shopping malls and suburban retail centers have been abandoned. However, savvy investors use this as an opportunity to reimagine the uses for an existing space. For example, some developers have turned old shopping malls into desirable mixed-use office and apartment spaces. In fact, many downtown areas are experiencing a renaissance of old buildings converting to useful residential spaces close to amenities.
Why the Mixed-Use Real Estate is a Good Idea
Mixed-use property comes in many varieties, sizes, and shapes. That said, they offer benefits that a traditional single-use development does not. For example, a successful commercial property offers a wide range of amenities, convenient locations, and competitive affordability. Let’s take a look at some of the reasons why this real estate investment trend will continue to grow in years to come.
Why Mixed-Use Properties Are Great for the Community
- Mixed-use property builds a bridge between commerce and lifestyle that creates a strong sense of community.
- Providing varied amenities such as dining and retail so close to where people live is a huge plus for all age groups of renters.
- Repurposing unused space as mixed-use is better for the environment. Thus, avoiding over-development and creating a more sustainable outcome.
- Thriving local business relies on being where customers need them. Therefore, a commercial-residential space is perfect for boosting economic growth in a community.
The Benefits of Mixed-Use Properties for Investors
- Higher Rent – Overall, the potential for higher rent is better in mixed-use properties. Generally, commercial rates are between 6% and 12% of the purchase price. This boosts profits when combined with the 1% to 4% on residential units.
- Broad Appeal – Mixed-use buildings provide benefits for commercial and residential tenants alike. In particular, the proximity to amenities is a big plus for seniors and younger generations looking for convenience.
- Less Risk – Diversity of use properties offers less risk for owners than a single-purpose development. In addition, mixed-use buildings offer landlords a buffer if they lose a tenant in one sector or another.
- Lower Turnover – In residential units, turnover is inevitable. However, commercial tenants tend to stay longer and maintain their units better since they need to create a positive public image.
The Cons of Mixed-Use Real Estate
- Investors may find it more difficult to secure financing
- The added foot traffic of commercial space may clash with the quiet enjoyment of residential tenants
- If commercial tenants cannot draw in needed customers, the profits will suffer and cause a higher turnover
- Mixed-use projects can cause traffic and parking conflicts when not properly planned
Important Due Diligence for Commercial Properties
Real estate due diligence is a vital step in the investment purchase process. This helps prospective buyers evaluate the viability of the property and estimate potential profits.
That said, when purchasing a commercial property, the seller needs to provide certain documentation to the buyer upon request. So, to help you make the right choice, check out this list of critical due diligence documentation below –
- Leases for all current tenants
- Financial expense reports and rent roll for at minimum the last 3 to 5 years
- Tax bills
- Building inspection reports
- Land survey or environmental study records
- Service and repair records
- Applicable zoning documents
- Local permits and certifications
- Records of any pending or current property-related litigation
How to Maximize Your Mixed-Use Real Estate Investment?
Investing in a rental property of any kind can be a lucrative endeavor. That said, comprehensive knowledge of the local market is critical to making the best choice in property opportunities. Mixed-use real estate offers many options for the savvy investor with excellent ROI potential.
Once you have purchased an investment property, the real work begins. Successfully managing a mixed-use property requires a thorough knowledge of local regulation along with excellent customer service skills. The expert local property managers at Bay Property Management Group can help owners with all of their commercial and residential property needs. So give us a call today for a free, no-obligation rental property analysis.