Top 5 Reasons to Consider Mixed-Use Properties
Before you can understand the great benefits that mixed-use properties can provide, it’s essential to understand what a mixed-use property is. In real estate, mixed-use property is any property made up of two or more property types. The most common types of mixed-use properties are commercial, residential, office, and retail. An example of a mixed-use property would be a building with offices and stores on the first level and apartments on the second level. This property type is growing more popular as it provides an excellent opportunity for both investors and residents. Here are the Top 5 reasons to consider mixed-use properties as viable commercial real estate investments:
1) Growing Demand
The world has dramatically changed, and people’s desires and needs have changed too. Owning a home is no longer everyone’s endgame, and many prefer urban life to suburban life. In the last decade, apartment rentals have increased substantially. Another thing that has grown is the desire for convenience. In a world where almost anything can be done with a touch of a button, it’s hard to get consumers to go out of their way for things. Mixed-use properties address both demands by providing urban living spaces in areas with options for working, shopping, and even playing all in one convenient space. Studies show that over 60% of millennials want to live in flexible, hybrid communities, and even older generations are starting to shift toward the trend. With this level of demand, mixed-use property owners have a much easier time reaching high occupancy. They also have the room to raise rent and make more money on their investment.
2) Maximize in High-Density Areas
It’s no secret that urban space is limited. Since recent trends make high-density areas the most desirable, it might be hard to break into the area’s real estate market. Even if you break in, it’s hard to amass many properties. Mixed-use properties are a great solution to this lack of availability. It allows you to maximize one investment, giving you a diverse and successful portfolio. This diversity reaches into the population of these high-density areas, too. There are many people with vastly different needs. By providing a mixed-use property for them, you can ensure there’s a little something for everyone all in one economically positive space.
3) Higher Quality Tenants
Due to the high demand for mixed-use property, tenants are much easier to find. Not only does this mean you’ll have an easier time keeping occupancy rates high, but you or your management teams can also be pickier about whom they accept as tenants. It’s not rare for mixed-use properties to even have waitlists for tenants. These tenants will be more likely to keep the property well-maintained and to respect rules because they know they’re lucky to have scored a spot in your property. They’ll also act this way because they are more invested in the area where they work, shop, and play. This is particularly true for tenants who live and work on the same property.
Tenants for mixed-use properties also enjoy the convenience of living and working in the same space, making it less likely for them to break their leases or choose not to renew them. It also helps that many mixed-use properties start to feel like a community. A sense of community and belonging will keep a tenant happier and wanting to stay longer. This has been proven, with statistics showing that tenants in mixed-use properties have a much higher retention rate.
4) Low Risk, High Reward
As previously mentioned, the high demand and convenience of mixed-use properties give investors an easier time reaching occupancy. It also encourages high retention rates and allows for rent increases because of the lack of rent control that comes with the non-residential property. These are just some reasons why a mixed-use property is a safe investment. Losing one tenant won’t drastically affect revenue from a property with multiple tenants, unlike a property on its own with only one store. When that store leaves, you’re left with an empty building and no revenue until you can fill it with a new tenant. In a mixed-use property, this isn’t an issue as other tenants remain to pay you while you’re waiting to fill the single vacancy. By investing in this kind of opportunity, you diversify your revenue and secure profits. This is especially true in times of economic struggle as it provides much-needed breathing room for the investor. This is why mixed-use properties are seen as low-risk but high-reward.
Nobody likes paying taxes, especially investors who want to hang onto their profits. If that sounds like you, there’s good news – mixed-use properties offer many advantages regarding taxes. The main reason is the difference in depreciation rates between property types. As you may know, investors can get tax deductions for depreciating assets. Unlike commercial properties, which take 39 years to fully depreciate, residential properties depreciate over 27.5 years. By investing in a mixed-use property and following a few specific guidelines, you could get a tax break nearly ten years sooner because the property will be allowed to depreciate at the lowest depreciation rate out of your property types. If you’re willing to be patient, this can be a significant monetary bonus.
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