How do you invest in mixed-use properties?

1 What are the benefits of mixed-use properties?

Mixed-use properties offer several advantages for investors who are looking for long-term returns and stability. For instance, they can appeal to a wider range of tenants and customers, reducing vacancy risks and increasing cash flow. In addition, shared common areas and amenities can lead to lower operating expenses and potentially tax benefits. Moreover, mixed-use properties can have a positive community impact, enhancing the quality of life and economic activity of the surrounding area. All these factors can improve the net operating income (NOI) and increase the property value and demand.

2 What are the challenges of mixed-use properties?

Mixed-use properties can come with drawbacks that investors should be aware of. These include higher acquisition costs due to higher demand and limited supply, complex zoning and regulations that can complicate the development process, and management issues that require more coordination and communication between tenants, owners, and managers. This can lead to conflicts or disputes that require professional property managers or third-party service providers to handle the daily operations and maintenance. All of these risks may increase legal and administrative fees.

3 How to find and evaluate mixed-use properties?

Finding and evaluating mixed-use properties can be difficult due to their limited availability and advertisement. Investors should use various sources and methods to locate and analyze potential deals. Networking with brokers, agents, developers, lenders, and other investors can provide off-market opportunities, referrals, and insider information. Online platforms that specialize in commercial real estate, such as LoopNet, CREXi, or Brevitas, can help search for mixed-use properties based on criteria such as location, size, price, or cap rate. Market research on the area, demographics, competition, and trends can identify the best locations and optimal mix of uses. Financial analysis on the property can determine current and projected income, expenses, cash flow, value of the property, and key metrics such as NOI, cap rate, cash-on-cash return, and internal rate of return (IRR).

4 How to finance mixed-use properties?

Financing mixed-use properties can be more difficult than financing single-use properties, as lenders may have stricter criteria and requirements for mixed-use properties, such as a higher credit score, a larger down payment, a lower loan-to-value (LTV) ratio, and a higher debt service coverage ratio (DSCR). Investors can consider several financing options for mixed-use properties, including conventional loans from banks or other financial institutions that follow the guidelines of Fannie Mae or Freddie Mac. These loans usually have lower interest rates and longer terms, but also higher down payments and stricter qualifications. Small Business Administration (SBA) loans are another option; they are partially guaranteed by the government and designed to support small businesses. They usually have higher interest rates and fees, but also lower down payments and more flexible qualifications. Private loans from hard money lenders, bridge lenders, or crowdfunding platforms are suitable for investors who need quick financing or who cannot qualify for conventional or SBA loans; these typically have higher interest rates and shorter terms, but also lower down payments and faster approvals.

5 How to manage mixed-use properties?

Managing mixed-use properties can be more complex and time-consuming than managing single-use properties due to different types of tenants, leases, services, and issues. Consequently, investors may need to possess more skills, knowledge, and experience to deal with the various aspects of mixed-use properties. To ensure success, some tips to manage mixed-use properties include hiring a professional property manager, establishing clear communication channels with tenants, and keeping up with the market and regulations. A professional property manager can handle the daily tasks and responsibilities of mixed-use properties, such as collecting rent, maintaining the property, resolving conflicts, and enforcing the rules. Additionally, communication and cooperation are essential for success; thus, you should communicate clearly and consistently with tenants via phone, email or online portals. Furthermore, you should foster a sense of community and collaboration among the tenants by organizing events or activities. Lastly, you should keep up with the latest trends in the market as well as current and upcoming rules and codes for each type of use.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?