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.

Press Release - Windsor Star April 4, 2013

FOR IMMEDIATE RELEASE

Local RE/MAX Team Lalovich Ranked #12 in Commercial Real Estate Sector

Mark and Russel Lalovich of RE/MAX Preferred Realty Ltd. have been ranked #12 in the International RE/MAX Network for Top Commercial Teams.  This honour is not one bestowed lightly. It goes to highlight the hard work and dedication to providing quality client service and a clear focus on promoting Windsor Essex as the place to find commercial real estate for expanding businesses from across Canada.

This Father and son team focuses on developing a broad client base that in the past year has included many commercial property seekers from Alberta and Saskatechewan.  Mark Lalovich attributes the success to his expertise in the market and his ability to create win/win situations in commercial negotiations.

“We have definitely benefitted from the out of town clients, including investors and commercial tenants alike  and see this trend continuing as the region continues to improve economically” says Mark.  He and Russel continue to post to their blog Commercial Real Estate 101, which also features videos of commercial properties that are current listings to assist potential clients in understanding available listings as well as get a sense of who Mark & Russel are, and how to work with them.  “Tapping into technology is the beginning of reaching other audiences, helping them to start a relationship with us while establishing us as an expert team in the local market” says Russel.  “The feedback we get on the blog, posts and especially the videos is really great. We know we are developing a following”. 

Glen Muir, Broker of Record of RE/MAX Preferred Realty stated “Team Lalovich continues to be the go-to group in our market, creating the opportunity to be recognized in this way.  They provide the highest level of professional service to investors, tenants and landlords alike in Windsor-Essex.”

RE/MAX has over 89,000 Sales Associates, in more than 6300 offices operating in more than 80 countries around the world.  Both Mark and Russel will be recognized at an awards ceremony later in 2013.

Rental Property Investing - "Non-Performing Properties"

Is buying a ‘Non-Performing Property’ (NPP) as an investment a good idea?  Well that depends on a couple of key factors – primarily what type of re-development plan for the property do you envision – and how do you plan on financing it in the interim? Suffice it to say, this type of investment is higher risk, but potentially with a higher reward/upside.  

Consider the following examples:

·            Plaza with 50% vacancy

·            Vacant Commercial Building

·            Distressed Property Requiring Extensive Rehabilitation

·            Commercial/Industrial Land Site

·            Institution Lands (previous school or church)

·            Bank Sale (Foreclosure/Power of Sale)

In all of these cases, there is either no cash flow, or less than there should be.  Cost to carry properties is a serious consideration, and you need to factor it in for a period of transition – say 6 months to renovate a building for a new user.  In the case of a multi-unit development, you may also face a further holding period - assuming it takes another 6-12 months to find the right tenancies.  Cost to carry is a major part of your Due Diligence, in analyzing NPP opportunities.

If you are owner-occupant/user, looking at this type of real estate may make a lot of sense, given the value they can offer.  Re-purposing of NPP over the past few years, has been a popular theme in challenged markets across Canada.  By definition, this type of property continues to lose money daily for the current owner (Seller), and the Buyer leverage should only be strengthened in any purchase negotiation.

In every market, there are investors who make their living in this category and do so successfully. Take the time to not only examine these properties, but the background  of what was required to make them viable investments.

As always, seek out experienced commercial realtors within your market to assist in reviewing potential NPP investments.  For an example of a current NPP we have listed, please click here.