Mixed-Use Property

A mixed use property is a single real estate asset that comprises both residential and commercial units. Sometimes, even industrial units collaborate to make such assets a perfect combination of multiple types of real estate establishments covered as one single real estate investment. It is one of the most common types of real estate properties observed in densely populated areas, suburbs, or heavily crowded marketplaces. 

When real estate investors invest in such mixed use properties, they benefit from all types of residential and commercial units coupled together, such as two—or three-bedroom apartments on the residential floors and a wide range of commercial and office spaces, which are usually cafes, fitness centers, offices, retail shops, and even branded stores.

A mixed use property is ideal for urban areas and metropolitan areas where there is always a space crunch and people want multiple facilities and amenities nearby. An investor prefers investing in one single property rather than multiple real estate properties as it offers consistent cash flow, is more sustainable, and attracts a larger pool of renters and buyers.

Though there is no particular limit or restriction in terms of the kinds of properties that can be called mixed, there are still four main types of mixed use properties in the real estate domain:

1. Main Street - This is the most common type of mixed use property, generally located in center marketplaces or suburban areas where a combination of residential and commercial units is structured. The residential units take up the top floors of a building, and the ground floor is designed for commercial use, such as offices and shops.
2. Live/work - It is again a combination of top floors structured with residential units and ground floors designed for commercial use but in a live/work environment. Tenants live and work in the same building. Sometimes, even business partners live adjacent to one another, creating co-working space.
3. Residential and office - These are multifamily residential properties fitted in a building that also has commercial units for offices and shops. The buildings are structured so that they coexist and complement each other. However, the primary focus is on commercial units.
4. Mixed-use hotels - These mainly include different types of commercial units, such as hotels, cafes, fitness centers, and areas allocated for retail shops and stores. The hotel takes up a substantial part of the whole real estate property, and the rest coexist by giving and taking advantage of each other. Such a setup boosts footfall, organic audience, and customers, which add to the hospitality industry and hotel profits.

Following are the basic steps to invest in mixed use properties -

#1 - Checking Location

The very first step is to find the right mixed-use property for sale. Local area listings can be helpful in this. The best way to find such property is to work with a commercial real estate agent. Considering the location beforehand while finalizing the investment is essential. A good location comes with its perks and attracts long-term tenants. On the other hand, a bad location can cause a decline in profit.

#2 - Finding Finance

The second important step is to finance such properties. Such properties require special commercial loans for mixed use property. Many lenders tend to demand project details and development plans during the loan process or before approving the loan. To get the loan approval, a good credit score, credit history, down payment, and other documentation will be required and necessary. As a real estate investor, it is best to evaluate financing options and discuss every detail with banks or lending institutions.

#3 - Managing Property

When a property is managed well, it calls for more and more profits. Hence, managing these mixed use properties becomes an important factor in ensuring the investment is fruitful. An investor can have property managers do all the work, such as marketing the property, finding tenants, collecting rent, reviewing and assisting in the lease, taking care of repair requests, and handling other property concerns. Depending on the size and complexity, multiple property managers can be employed to oversee different units.

Here are two distinct examples to help understand the concept better:

Example #1

Suppose Lawrence is a real estate investor. He has invested in many different small and big real estate properties across the town, but now Lawrence is planning to invest in a nine-storey mixed use property. This means that the building will have residential units on the top floors while the ground floor will have a series of retail shops, a small cafe, a fitness center, and space for commercial and business offices.

Such a building will attract more tenants and property buyers who are interested in residential and commercial spaces. It will also bring more comfort and convenience to the people and automatically increase the value of property in nearby places and areas. Lawrence invested in it, and as planned, many people considered and chose the mixed use property for rent immediately, reaping high benefits for Lawrence. 

Example #2

A recent article published in September 2024 revealed how artificial intelligence and automation are playing vital roles in boosting the mixed use properties market. It discusses how the implementation of technological tools can help investors make better and wiser investment decisions related to these mixed properties. It also stated how utilizing smarter technology can help improve communication with the tenants. Other than deploying the technological tools to allow investors to make investment decisions and tenants to engage in interactive sessions with owners, AI, and automation can also help in the collection of data to assess customer behavior and improve user experience.

More and more people are interested in such properties and plan to have their home and office in the same building. However, there are some drawbacks to investing in them, such as complexity, additional costs and charges, etc. Yet, given the rising population and space crunches, they are one of the best real estate investments one can make for the future.

The pros of mixed-use properties are -

• It pulls a bigger audience and attracts customers willing to buy residential or commercial units or at least take them on rent. It eventually leads to a more diverse and broader tenant market.
• Mixed use properties bring a lot of convenience and comfort to the tenants or people who bought the property. People living in the residential units on the top floors get easy access to retail shops, restaurants, and different business offices located just on the ground floor.
• For real estate investors, mixed use properties are less risky and full of return opportunities because they have invested in one single building but are reaping benefits from it as commercial, residential and even industrial units.
• Such properties induce sustainable and more environmentally friendly investments compared to separate and individual real estate properties. When a mixed use property is built, the land, area, and natural resources are conserved, and pollution and traffic issues are reduced.

The cons of mixed-use properties are -

• Such properties often have management issues and require multiple property managers for monitoring, maintenance, and control purposes.
• In a smaller market, such properties become harder to find a financing entity or a lender willing to fund the project.
• Mixed use properties are expensive, whether a party is willing to become tenants or is interested in buying a residential property such as an apartment. They also involve many additional upfront costs. Unfortunately, if the building is unable to draw new tenants, the profit becomes limited.

Although it looks quite convenient and comforting to have a mixed-use development with hotels, offices, apartments, cafes, fitness centers, and shopping stores, all of this is complicated and takes longer than usual to complete and furnish. This is a common cause for conflicts between residents and shop owners.