One real estate investment trend on the rise is mixed-use properties. Typically, these properties combine residential, retail, or commercial ventures in one building. Recently, this type of development has become commonplace in many urban areas. However, for investors familiar with traditional residential management, is a mixed-use real estate investment the right move? Read along as we go over the types of mixed-use properties and tips for deciding if this investment trend is right for you.
Looking for Something Specific?
- What is a Mixed-Use Real Estate Investment?
- Common Types of Mixed-Use Property
- Why Mixed-Use Real Estate is a Good Idea
- Essential Due Diligence for Commercial Properties
- How to Maximize Your Mixed-Use Real Estate Investment
What is a Mixed-Use Real Estate Investment?
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.
Mixed-use real estate projects can range from one building to an entire neighborhood, and they’re typically developed around a specific environment. Ultimately, mixed-use real estate investments can incorporate various types of properties that are complimentary to one another.
Commonly, mixed-use development include outdoor spaces and public infrastructures, like outdoor corridors between buildings and sidewalks. A lot of mixed-use projects in areas with larger populations encourage people to access places of work though walking, biking, and public transit.
That said, entities can seamlessly coexist or be completely disconnected depending on 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.
Next, let’s check out some different types of mixed-use property investments.
Common Types of Mixed-Use Property
Mixed-use property can be a combination of many things. However, local zoning laws will play a huge role in this type of development. So, investors must carefully research local regulations before embarking on this real estate investment trend. To get started, let’s look at the various categories of mixed-use properties.
The New Face of Office Space
The COVID pandemic created a scenario where many people had to work from home. Now that the pandemic is passing, many companies are sticking 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.
Additionally, with close proximity to stores, restaurants, and other attractions, it allows more people to walk or bike instead of traveling by vehicle.
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 Mixed-Use Real Estate is a Good Idea
Mixed-use properties come 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 the 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 – 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.
- Better Property Management – Mixed-use properties include a blend of residential, commercial, and industrial real estate. As such, professional rental property management in Baltimore is required to address the needs of each area. Good management can also bring in higher quality tenants, less turnovers, and improved support.
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 drive traffic and parking conflicts when not properly planned.
Essential Due Diligence for Commercial Properties
Real estate due diligence is a vital step in the investment purchase process. Due diligence includes the reasonable steps taken by an investor to address the details and liabilities of a potential property investment. 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 investments offer many options for the savvy landlord 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 regulations and 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. We offer comprehensive management services in Baltimore, Philadelphia, Northern Virginia, and Washington DC. Contact BMG today to learn how we can benefit your rental business.