Mixed-Use Property Guide & How to Invest in Them

Posted by Hannah Lapin on Jul 27, 2022 2:32:22 PM

modern office and residential building

Real estate investors are always keeping an eye out for new opportunities, and while some focus solely on residential properties and some only watch for commercial properties, there might be valuable opportunities in the space between these two categories. What we’re talking about today are called mixed-use properties and can sometimes be overlooked by investors. Because of this, we want to explain what they are, the different types, pros and cons, and how you can begin looking for one so that you’re as informed as possible about these opportunities.

What is a mixed-use property?

Starting with the basics, a mixed-use property is a real estate property that combines residential and commercial (and sometimes even industrial) units. There are a range of different combinations that we’ll discuss next, but the variety that mixed-use properties provide allows investors to work with different property types through a single investment.

Types of mixed-use properties

Because of the different combinations and uses that mixed-use properties can have, there are a number of different types that investors typically classify them by. The primary types of mixed-use properties are:

  • Main Street - Usually seen in and around town centers, this property type combines residential and commercial units (generally residential on the upper floors and commercial on the lower floors).
  • Live/Work - These property types have tenants that live and work in the same building (hence the name), often with a business on the ground floor and living space above it.
  • Residential/Office - Like the other two mixed-use types, these feature residential units but include office space coexisting in the same building.
  • Mixed-Use Hotels - The final type usually includes a hotel alongside other amenities such as food, fitness, entertainment, and retail spaces.

Types of mixed-use zoning

Another set of categories that mixed-use investors should know about is the different types of zoning developments. Also known as mixed-use planning, it allows for a wider range of property types within the same area. The three main categories of zoning are:

  • Horizontal - These types of developments typically have a variety of buildings with functions that complement each other and are in a single block.
  • Vertical - In contrast, this development is usually a single building with retail spaces on the bottom floors, office space in the middle, and residential units at the top.
  • Walkable - A combination of horizontal and vertical developments that often also features things like an outdoor plaza, event space, and more.

Pros & cons of mixed-use investing

Before jumping in and deciding to invest in one of these properties, you should know that this strategy and real estate type isn’t for everyone. Let’s go through some of the pros and cons of mixed-use properties to see if this is a good investment for you and your situation.

Benefits:

  • Less risky - high demand for mixed-use properties means that your investment in one has less risk of falling through or not being filled. They also diversify your investment across multiple types of properties, which helps mitigate risk as well.
  • Convenient for tenants - a big reason behind the high demand for these properties is the convenience factor for tenants. Being able to quickly and easily get to work, the store, public transportation, and more is a huge draw.
  • Liked by millennials and older generations - this draw isn’t limited to one age group, as the convenience factor is great for everyone from millennials to elderly tenants who don’t want to travel very far for food, errands, etc.
  • Conserves land/resources - properties that serve a variety of real estate needs also conserve land and resources by compacting them into a smaller area while maintaining the functionality of each property type. They also reduce the need for cars, which helps decrease the property’s environmental impact.
  • Diverse pool of tenants - with a diverse group of property types also comes a diverse group of tenants to fill those units. By having a more vibrant, interesting community, you also increase the value of the whole neighborhood.
  • Appealing to retailers - while the past few years have been difficult for many retailers, setting up shop in a mixed-use property with lots of foot traffic and in convenient reach of lots of tenants is an appealing way to grow the business and avoid potential losses.

Drawbacks:

  • More complicated - with all of the benefits of having different types of properties in one place, it shouldn’t be a surprise that it also makes things more complex. Commercial and residential tenants have varying needs and expectations, making mixed-use investments more involved than traditional residential property investments.
  • Poor planning can lead to conflicts - if the property isn’t properly planned or communication between management and tenants is poor, it can lead to conflicts, for example between residents and store owners.
  • Can be difficult to find a lender - financing these properties through an institutional lender can be tricky. However, your best option for these situations is to finance through a lender like Visio, who is experienced in mixed-use properties and loans.

How to find properties for sale

While these properties may seem more niche than your standard residential properties, finding them doesn’t have to be difficult. However, the best returns on your investment will happen when you take your time to research and verify opportunities rather than just looking for any mixed-use properties available. The first step to take is also the most obvious — check current market listings for anything that catches your eye.

If that doesn’t yield any results (or you want to look elsewhere), you can also search for off-market properties. Doing this usually involves talking with real estate agents or brokers, word of mouth, direct mail, and more. However, this strategy requires much more patience in return for a larger pool of opportunities.

Get mixed-use loans with Visio Lending

Whether it’s your first or just your next mixed-use property, the best place to fund it is with Visio Lending. We offer great terms and have been helping investors just like you expand their real estate portfolios for over a decade. If you’re ready to get started, contact us today!

Topics: Real Estate Investing

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