Rental Property Investing - Mixed-Use Properties

Another category that you will encounter in most markets, is the ‘mixed-use’ (MU) variety. By definition, this is a property that has a combination of both residential and commercial units. Typically the commercial are the lower floors (most often the ground level), with the residential component above.

In your own neighbourhoods you may have seen this type of real estate, but never having taken a view of them from an investment perspective. Let’s consider in what the advantages/disadvantages might be:

Advantages:

·    Income is diversified relying on both commercial & residential demand

·    Traditional downtown cores were conceived in this fashion

·    Design suits commercial users wishing to reside in apartments above

·    Built-In Business support for commercial tenants from the residents

(particularly in larger complexes)

Disadvantages:

·   Tenant needs can be different/unique, creating potential conflicts (ie. noise)

·    Mortgaging challenges (many lenders avoid this category)

·    Restricts the type of tenant (for either component), which you can attract

·    Physical issues as they might relate to parking/signage/basement access (being more of an issue in the case of larger complexes)

   

Is it a good or bad potential investment? As always it depends on many factors – but best practice is to do your homework (due diligence) and the answer should become clear.  Beyond looking at the financial details of the properties (ie. lease details/expense summaries), take a hard look at the neighbourhood, taking note of how many other MU properties are within the immediate area. Do they appear successful and well occupied? Are MU properties more or less the building standard on the street(s). How do the comparables look and with what sort of market time?

We are moving on from our review of  ‘ property types’…. next up management issues and considerations in buying commercial properties.  As always, seek out experienced commercial realtors within your market to assist with reviewing potential MU investments.