Mixed-Use Property Investing

Mixed-use property investing allows real estate investors to diversify their risk and create convenient living communities for residents. A mixed-use property combines residential, commercial, retail, and entertainment units into a single building or community.

Read on to learn why mixed-use buildings can be a profitable investment strategy. We’ll review the most common mixed-use types, the different zoning options, and the pros and cons of this investment type. This article will also review a few critical steps for obtaining funding for your mixed-use project.

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1. What is a mixed-use property?

The ability to generate passive income is one of the most common reasons investors choose real estate. Passive income can help you reach your financial goals faster or save more for retirement without having to work more hours in the week.

Whereas many real estate investing projects may require a good degree of work and capital upfront, once the repairs and renovations are complete and you have a tenant in place, you can sit back and enjoy the rental income. Adding real estate to your financial goals is a great way to obtain financial stability faster.

2. Long-Term Financial Security

A mixed-use property is an asset that serves multiple purposes, including a mix of residential, commercial, or industrial. Mixed-use properties may be physical buildings or land developments. A mixed-use property is typically desirable to real estate investors because it offers diverse money-making opportunities.

Mixed-use properties may include any of the following:

• Commercial properties
• Residential units
• Retail space
• Offices
• Industrial
• Parking lot
• Storage space
• Hospitality units (hotel)
  

Types of Mixed-Use Properties

Mixed-use properties may be any combination of residential and commercial units. A mixed-use commercial property may include any of the following:

Main Street

Main street properties are among the oldest and most traditional types of mixed-use developments. A main street property combines residential units with commercial. A developer may plan for main street mixed-use real estate projects in a city center.

Most commonly, the residential units are on the upper floors, whereas the commercial properties line the main street on the lower level.

Live and Work

Some commercial properties may have on-site housing for employees, making them mixed-use buildings. Office buildings may be on the ground floor, with residential apartments or condos in the same building. In smaller buildings, the apartment complex may be directly above the ground-floor commercial rentals.

Mixed-Use Hotel

In a mixed-use hotel, a commercial space may be used for long-term residential and short-term hotel rentals. In addition to living spaces, mixed-use hotels may also have retail, dining, or entertainment facilities within the same building.

Office Space With Amenities

Some investors may opt for an office space commercial building with on-site amenities. This type of space provides workers with easy access to retail stores and restaurants, benefiting both business owners and employees. Employees can complete many errands without making extra stops on the way home, and small business owners can easily obtain repeat customers.

Mixed-Use Zoning

Mixed-use zoning refers to land developments specifically zoned and licensed for multiple purposes. Mixed-use developments are typically categorized into one of the following:

Horizontal

A horizontal mixed-use property combines multiple single-use properties in the same neighborhood or within a close distance. Horizontal mixed-use properties may include single-family residential units, commercial office spaces, and brick-and-mortar stores in the same block or development area.

Vertical

Vertical mixed-use buildings include different residential and commercial real estate within the same building. A vertical space most commonly features offices or commercial spaces on the lower level and residential property on the upper level. Mixed-use hotels are also an example of a vertical mixed-use project.

Walkable

A walkable mixed-use property may be a combination of both horizontal and vertical mixed-use developments within walking distance of each other. Investors often use walkable mixed-use planning projects to create new communities.

What is the difference between mixed-use and mixed-commercial property?

A mixed-use property is an asset that includes a mix of residential and commercial properties, whereas a mixed-commercial property is a collection of commercial real estate. Mixed-use properties include apartment buildings with commercial rentals. A mixed-commercial property only consists of a mix of different commercial-use rentals.

Reasons for the High Demand for Mixed-Use Properties

Mixed-use properties tend to be a less risky investment with higher quality tenants, making them a high-demand strategy. Investors prefer mixed-use properties for many reasons, including the following:

• Sustainable business model – Local businesses enjoy mixed-use commercial properties because it tends to be a sustainable business model. As long as residents continue living in the building, retail stores and restaurants will always have access to customers.
• Longer tenant retention – Mixed-use property investors can typically expect longer tenant retention. Mixed-use properties benefit the whole community, and there isn’t usually much competition, making them a lower-risk investment.
• Pedestrian-friendly – Mixed-use commercial property is highly walkable and pedestrian-friendly. People prefer convenience in today’s times, and the ability to live, work, and shop within the same commercial building or location is a big selling point.
• Housing shortage – Mixed-use buildings that have residential space are in high demand in today’s economy, which includes a housing shortage. People seek affordable housing, and having retail stores or office space nearby can be a big bonus.
  

The Pros and Cons of Mixed-Use Property Investing

Before investing in mixed-use real estate, reviewing some of the pros and cons can be valuable. Here are a few pros of investing in mixed-use real estate:

• Increased demand – More people want to live in residential spaces near where they work and shop. Investors who can create profitable mixed-use developments can typically find significant demand to fill their rentals.
• Ability to sell more easily – Mixed-use developments tend to hold their property value well, meaning the property owner can easily sell in the future. Selling a mixed-use property with multiple signed leases could earn the seller a nice profit.
• Caters to up-and-coming generations – Today’s customers value ease and convenience, and having commercial real estate near a residential apartment complex is highly desirable. With a housing shortage, mixed-use investors should have a steady demand for rental space in the coming years.
• Retailer and business demand – Investing in mixed-use developments can provide investors with a diverse tenant market, offering multiple sources of revenue.
• Risk management – Investing in a mixed-use building can be an excellent way for an investor to diversify risk. If the retail stores don’t perform well and tenants end their lease, investors could convert these units to other property types.
• Sustainable and environmentally friendly – Mixed-use developments reduce transportation needs, helping residents and businesses conserve natural resources.
  

Here are a few cons of mixed-use property as an investment strategy:

• More in-depth planning – A successful mixed-use property requires careful planning and strategizing. Choosing the right mix of residential and commercial real estate is essential to meet tenant needs. Real estate investors also need to stay up-to-date on their local regulations to ensure adherence.
• More skills to manage – Managing both office and residential units may require more skills. Investors will need the expertise to manage both residential and commercial tenants.
• Needs unique funding options – Obtaining funding for a mixed-use property requires a special loan. Working with the right lending company is critical to success.
• Higher up-front costs – Getting a mixed-use property up and running often requires more capital than single-use properties. However, with the right lending, you can plan a multi-use development that offers good returns, helping recoup the additional upfront costs faster.
  

What to Consider Before Investing in Mixed-Use Property

Before purchasing mixed-use real estate, it can be beneficial to consider a few key elements, such as:

• Lender – The lender you choose is important for a successful investment. The lender you select affects lending terms and interest rates, both of which can cut into your profits.
• Zoning laws – You may have to rezone areas to complete your mixed-use development plans. Researching mixed-use regulations and zoning laws in your city and state ahead of time is crucial to avoid any surprises.
• Location – The location of your mixed-use property significantly affects potential revenue and proposed plans. Make sure you choose a property with convenient access to nearby units.
• Management – You may need multiple property managers to assist with a multi-use project. Mixed-use investments combine multiple tenants with unique needs.

How to Invest in Mixed-Use Properties

Ready to invest in a mixed-use property? Get started with the following steps.

Finding Mixed-Use Properties for Sale

The first step to investing in mixed-use developments is to find the right property for sale. You can sometimes find mixed-use properties on your local area’s multiple listing service (MLS). Some investors may work with a commercial real estate agent or local business partners to find affordable property types that work with their mixed-use development plans.

Asking about off-market listings may help you secure the right land or building for your intended project. Another benefit of off-market listings is minimizing the number of people involved in the transaction and reducing fees for intermediaries.

Finally, one of the most important considerations when buying a mixed-use property is location. The wrong building or location can make it challenging to find long-term tenants or turn a profit. Carefully evaluating the local market and demand can ensure you choose the right location and rental types.

Financing Mixed-Use Properties

Funding your mixed-use real estate project is an important consideration. A mixed-use property development requires a special commercial loan with residential options. Creating a development plan can help you share your project ideas with the lender.

Develop an in-depth business plan that includes the intended location, the number of each unit type, and the layout. It can also be helpful to include your experience.

Obtaining funding will primarily depend on your credit score, available down payment, and experience. The best way to evaluate your financing options is to talk with a lender who’s knowledgeable about mixed-use real estate. Visio Lending offers real estate investors unique loans that cover a diverse range of investment types.

Managing Mixed-Use Properties

Once you purchase your mixed-use space and fill it with tenants, your strategy should transition to managing the investment. Many mixed-use investors rely on property managers to help find tenants, review leases, collect rent, and handle repair requests. You may need multiple property managers to oversee each unit type.