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Having trouble deciding between a residential property and a commercial space to add to your investment portfolio?
The good news is that you don’t have to choose between one or the other.
With mixed use development investing, you can have the best of both worlds.
It’s true!
With mixed use development investing, you get the benefits of combining commercial and residential spaces.
However, these property types are not for everyone.
In this article, we’ll uncover what makes mixed use development investing so sought after. Also, we’ll help you decide if mixed use development investing is right for you and your investment portfolio.
What is Mixed Use Development?
Mixed use development is when residential and non-residential buildings are combined in the planning of a city.
Mixed use development is a type of real estate investing especially ideal for those that want to diversify their investment profiles and are having trouble deciding between a commercial or residential property.
While these properties typically combine residential and commercial properties, they can also include industrial sites.
Due to the combined benefits of both properties into one package, these types of investment opportunities are appealing.
However, investors will want to make sure that they do their due diligence to ensure that a particular property is right for them.
Advantages of Mixed Use Development Investing
Many potential investors are attracted to mixed use development investing once they are familiar with the concept, and for good reason.
Mixed use development investing offers unique opportunities and provides a way to diversify your investment portfolio.
Here’s a few other advantages of mixed use development investing.
- Mixed use properties are located near other high-traffic properties. Since mixed use properties are typically around other amenities and different property types, they are often excellent places for living.
- Wide variety can help to lessen risk. Mixed use properties typically have a wide-range of different properties within one location, which means varying tenants. The combination can help to lessen an investor's overall risk.
- Walkable communities are peaking in interest. Those on the hunt for a place to live are seeking out communities that are more pedestrian-friendly and have shops, as well as other amenities, that are within walking distance to where they live. This could lead to a high demand in rental properties.
Disadvantages of Mixed Use Development Investing
When investing in any property, you will always want to assess any disadvantages or issues that may arise.
While mixed use development properties typically offer a sound investment opportunity, potential investors will want to primarily look at how well the area can support an uptick in foot traffic.
Look into the public transportation situation for that area, as well as how pedestrian-friendly the area is.
Just because a neighborhood is “up and coming” doesn’t mean it will actually pan out. This can be a huge risk, and one of the main disadvantages of mixed use development investing.
Securing lending for mixed use development investing may also present its own unique set of challenges, as some lending companies shy away from these properties.
It is important in order to secure lending that you research the area heavily and formulate a pitch.
Types of Mixed Use Development
Mixed use developments include multiple different property types, just as the name suggests.
Combinations are virtually endless, which provides unique varieties for investors to choose from.
Here are the most common types.
Residential Mixed Use Development
Residential mixed use development is when there is a combined space that includes livable spaces, typically in the form of apartments.
For instance, you may see the main floor of a building have amenities, such as a grocery store or shopping plaza, whereas the upper levels will be rentable units.
Office Mixed Use Development
One of the most common types of mixed use developments is office spaces combined with residential or commercial spaces.
For instance, you may see office spaces on a main floor and then apartments on the upper levels.
You may also see office spaces alongside other working spaces and businesses.
Horizontal vs Vertical Mixed Use Development
While we have described one of the most common types of mixed use development, which includes having amenities on the main floor and residential living spaces on the upper floors, there are other ways that mixed use development can be set up.
This type of set-up is what is referred to as vertical mixed use development.
In vertical mixed use development, the main floor is reserved for commercial space and the upper floors are reserved for residential space.
However, there is also horizontal mixed use development.
Horizontal development has each space serve its own purpose within a horizontal building.
How to Get Started Investing in Mixed Use Development
There are two different ways that an investor can get started investing in mixed use properties.
Development is one way, involving an ownership strategy that is geared towards the long-term by focusing on construction projects.
Potential investors could also look into direct investing. However, these properties are usually in a pool of local investors and may be difficult to snag right away.
But, these investors may be able to find an opportunity with a mixed use property that involves a rehab.
While these are the most common avenues of breaking into mixed use development investing, there are other ways, such as REITs or trade avenues.
4 Tips When Investing in Mixed Use Development
Mixed use development investing can feel overwhelming. The following tips can help guide you.
#1: Location, Location, Location
Not every location is created equal.
You will want to choose an adequate location that is promising for growth. Check:
- market data
- job growth in the area
- unemployment numbers
- upcoming projects
Tenants
Since your tenants could make or break your property, ensure that your property will appeal to the type of tenant you are looking for.
Design
Check out the layout of the property.
Does the visual appeal and the construction lend way to potential growth?
You will want to see if the property presents walkability, one of the main upsides of mixed use development investing.
Affordability
Everything else might line up, but where does the price point sit for the tenants?
How does it match up with demographic data?
You will want to ensure that the property is affordable for those in the local area.
The Bottom Line: Mixed Use Development Investing
Mixed use development investing may seem overwhelming at first, but the numerous benefits soon become clear.
These properties can add value to an investor’s portfolio, proving mixed use developments are sought after by tenants and real estate investors alike.
Not can mixed use development investing enhance your real estate portfolio; it can grow and reshape your community at the same time.
