Whether you are beginning your investing career or diversifying your commercial property portfolio, investing in mixed use commercial property is a smart decision. A mixed use commercial property has many advantages of both a commercial property and a residential property. For many beginners in real estate investment there is much confusion about what exactly is a mixed use commercial property. Investing in mixed use commercial property is also looked at differently in regards to financing. Here we will explain what a mixed use commercial property is, advantages of investing in mixed use commercial property and some things to be aware of when considering a mixed use commercial property.
What is a Mixed Use Commercial Property
A mixed use commercial property is a property that is used for a combination of residential and commercial purposes. For example, a mixed use commercial property could be a combination of apartments and stores. The first floor, street-side could be any variety of businesses, with the above floors housing apartments. Really investing in mixed use commercial property is the best of both worlds, and here’s why.
Advantages of Investing in Mixed Use Commercial Property
There are many advantages when it comes to investing in mixed use commercial property. Not only are you diversifying your portfolio, you are protecting it. Now what do I mean by that? By investing in a mixed use commercial property you are investing in two different markets at the same time. It allows you to maintain a stable income regardless of fluctuations in market conditions. Let’s say that commercial lease markets falter, instead of being hung out to dry, having well-established residential units can carry you through the slow commercial lease times. On the flip side of that, with commercial leases being much longer than residential, commercial rents could help you through times of residential unit vacancies. Investing in mixed use commercial property creates a diversified incomes independent of each other’s market situations.
Another advantage of a mixed use commercial property lies in the fact that the two businesses could benefit from each other. The residential units could benefit from the business, and vice-versa. For the commercial unit of the mixed use property, there is an onsite customer base, and at the same time, the amenities the commercial unit provides could be an incentive for a tenant to commit to the residential unit.
Another advantage of investing in mixed use commercial property would be the property’s flexibility for future development. When it comes to rezoning, it is far simpler if a portion of the property already falls under the desired category. This will not only save you time and money in the future, but it can increase the market value of the property if it were to sell quickly.
Things to be Aware of When Investing in Mixed Use Commercial Property
There are many things that you need to be aware of when investing in mixed use commercial property. One thing to consider is that you will be technically running two businesses. You need to look for the right mix of inhabitants of the mixed use commercial property. Think about it from both perspectives. If you are a potential tenant for the residential unit and you want a quieter location, you would not even be considering an apartment above a bar. Conversely, if you were a tax office and you go to look at the property and residential tenants are always smoking cigarettes outside, crowding the sidewalk your business would suffer. Finding the right mix of inhabitants is crucial. Another thing someone should be aware of when investing in mixed use commercial property is lease length. Residential leases are usually 12 months in length. This could create a situation where you are looking for new inhabitants annually. But at the same time it is fairly easy to fill a residential unit because of the short commitment time. For commercial units the lease length is often much longer, creating a bit of security in the fact that you will be looking to fill the vacancy a lot less often than the residential units. That being said, because of the time of commitment it takes longer to get a business to sign a lease than a person.
If you have any questions about investing in mixed use commercial property or would like to set up a consultation, we can help. One of the strengths of S&D Realty is our ability to evaluate real estate in terms of highest and best use, feasibility and investment performance. For more information on investing in commercial real estate, don’t hesitate to give us a call at 516-248-6905. We look forward to hearing from you!
