What is mixed-use real estate and is it a good investment?

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    When people think of real estate, they often imagine a long-term contract with a tenant who pays rent. While this summarizes the equation, it is nowhere near comprehensive enough to cover the industry. We should consider real estate as a general term covering several leases. In this article, we will focus on a section of this complex sector called multifunctional real estate.

    Investors looking to use less traditional models are asking, “What is mixed-use real estate and is it the right investment?” If you’re a landlord who doesn’t understand the hype, you’re in the right place.

    Categories of multifunctional real estate

    Main Street is perhaps one of the most common examples of mixed-use real estate. This style dates back to the Victorian era and is still quite popular. It is a model that combines residential and commercial units in one building, with the former usually on the top floors. This model guarantees more stability for property owners, as they can earn more from the business and get longer lease terms. So it allows landlords to use some of the proven ways to make money on real estate.

    Another category of mixed-use real estate that is gaining in popularity is the live-work model. This model works similarly to the street model. However, “work” usually refers to businesses with fewer footfalls. Therefore, you can conveniently install them above or next to living spaces. As more and more people are now working remotely, this has become a very sought-after accommodation.

    Despite ​​the growth of online shopping and transactions, physical shopping centers are not dead. On the contrary, those within walking distance of residential areas are thriving. After all, they are the perfect solution for squeezing several businesses under one roof. They are a huge draw for multiple tenants who want the peace and quiet of a cul-de-sac without compromising on the convenience of getting things done.

    Why is mixed use a good investment?

    One of the most significant advantages of investing in a mixed-use model is that you can charge higher rents, especially for commercial properties. For many investors, profit is everything, and when you can take up to 10% more from your business units, this model looks like a gold mine. However, it can be difficult to determine a fair rate for each space when everything merges. Therefore, it is highly desirable invest in quality property managers to help maximize the potential of your mixed-use investment.

    Another reason investors are looking to mixed-use properties is the larger pool of tenants. You can attract residential and commercial tenants per square foot as a property owner. This broad appeal increases your chances of selecting high-quality tenants who can make your business more profitable and stable.

    As a result of having access to a larger pool of tenants, landlords can also enjoy fewer vacancies. The mixed-use property is a great location for both residents and businesses. The former because of the added convenience and the latter because they can attract more customers. Therefore, most tenants will be willing to sign up for a long-term lease. Plus, you can easily find a replacement if they have to move.

    What contributes to the high demand?

    Like all investments, high demand for mixed-use real estate is driven by profit. Business owners are often willing to pay more for a mixed community because it increases traffic. In other words, they make more money by being closer to their target audience. As a result, they can save on online and offline marketing costs.

    With mixed-use properties, communities can enjoy a greater diversity of tenants. For example, tenants may enjoy greater social interaction because they have greater access to commercial spaces such as restaurants, bars, and shopping centers.

    A mixed-use property provides many amenities for its tenants, both residential and commercial. For the former, it increases their access to amenities such as laundry facilities, gyms, and restaurants. This means that they can save more time and money when such things are nearby. Therefore, businesses close to them will also thrive because their customers are right next to them.

    Owning mixed-use real estate offers investors greater stability. You can host residential and commercial tenants in the same area, allowing you to quickly diversify your income stream. Diversifying your portfolio can help you weather an economic downturn and make more money, experts recommend. Therefore, mixed-use real estate appears to be a better financial alternative than its traditional counterparts.

    Disadvantages to consider

    Despite all the advantages of multifunctional properties, not everything is so rosy. On the contrary, it has unique challenges that are not found in residential and commercial areas. One of them is conflicting interests. For the most part, the hustle and bustle of retail space will clash with tenants’ need for peace.

    • Limited income for business owners

    While businesses in the cross-functional model have the added advantage of being close to their customers, sometimes that’s not enough. In other words, if they can’t attract traffic from neighboring areas, the business can suffer. If this happens, the turnover rate will increase, causing even the landlord to lose.

    Parking is often difficult in mixed-use properties as commercial businesses increase traffic. As a result, tenants and housing customers may experience more inconvenience and conflict.

    Finally, financing can also be an issue for investors. As we’ve highlighted in this article, mixed-use real estate is still evolving and has a much smaller market than its traditional counterpart. As such, it can be difficult for a developer to obtain loans from institutions that will instead follow more proven methods.

    Conclusion

    Like any other type of rental, multi-use real estate has its pros and cons. On the one hand, investors can charge higher rents by choosing from a large pool of tenants. However, the combination of commercial and residential real estate can complicate financing and harmonious living. Therefore, in the matter of multifunctional real estate, the right investment depends on each investor.

    However, mixed-use properties seem to remain a trend, thanks to added amenities for tenants and increased stability for landlords. Successfully managing such a business model depends on your knowledge and skills. So, you can feel free to contact an expert property management company that can help.

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