A glance across Main Street in a bustling town reveals a blend of restaurants, stores, and services at ground level with apartments rising above them. Many downtown condominiums inhabit the same city block as coffee shops, supermarkets, and theaters. Every day, more of these mixed-use developments rear their heads. And landlords wonder if they should join this growing trend. If you’re considering this type of investment, read on for some background and recommendations.
What is a Mixed-Use Property?
A mixed-use property purposefully integrates different types of units (residential, office, retail, commercial, or recreational) in the same development. Such real estate ventures range from one building to an entire neighborhood, combining complementary functions. For example, a mixed-use development allows residents to work, shop, dine, and play within walking distance of their lodging.
Why are Mixed-Use Developments Growing in Popularity?
Mixed-use properties have existed for a long time. But in recent years, they’ve increased in number and popularity. Tenants gain a sense of community from such developments since everything they need lies within a convenient radius. And for landlords, mixed-use real estate provides multiple income streams via a single investment. In addition, these properties let cities house more people while maintaining a high quality of life. Mixed-use developments also protect the environment by reducing vehicle use and repurposing existing structures.
Risks and Benefits of a Mixed-Use Investment
The growing demand for residential units within walking distance of local amenities is a significant advantage of investing in mixed-use property. As more Americans choose to rent rather than purchase a home, mixed-use developments efficiently allocate urban space and resources. Such investments also benefit retailers, who receive better traffic and visibility. And the increased convenience and community spirit will attract a broader pool of renters. All in all, maintaining both commercial and residential tenants produces a more profitable and stable investment.
On the other hand, some unique risks and challenges are inherent to mixed-use developments. Due to the scope and complexity of such an investment, these developments require higher upfront costs and more detailed planning. Conflicting expectations from different types of tenants (bustling restauranteurs versus peace-loving residents) can produce friction. In addition, such an investment requires navigating intricate regulations to maintain compliance.
How to Invest in a Mixed-Use Development
A landlord who wants a mixed-use investment must do plenty of research! Learning local zoning laws and other applicable regulations is a must. Before starting a new development, make sure your location is flourishing and accessible so you can attract tenants. To purchase an existing mixed-use property, review all relevant leases, permits, inspection reports, tax bills, etc. Developments with diverse tenants will remain most stable during economic downturns. However, determining fair rent prices for diverse renters will require extensive real estate market knowledge.
Due to the increased complexity, planning, and creative management, you should never lightly undertake a mixed-use investment. But forward-thinking landlords who want to diversify and increase profits may find such developments an intriguing next step.
About Rentals America
Rentals America provides full-service property management for residential rental properties. Our team is wholly dedicated to property management, and we’re here to help landlords navigate the rental market.
