Once you’ve familiarized yourself with the Canadian real estate investment market, you may be ready to start investing in commercial properties. Most new investors tend to gravitate toward residential properties since the properties are less expensive and the investors often have home-buying experience already. When you need a new—and profitable—challenge, however, mixed-use commercial properties can offer a great return on your investment.
Table of Contents - Are Mixed-Use Commercial Properties Still a Good Bet?
- Defining mixed-use commercial properties
- Refine your investment strategy when pursuing mixed-use properties
- Why mixed-use commercial properties are still a good bet
- How Commercial real Estate is valued
Mixed-use commercial properties combine several different property types into one building or complex. Not only can you attract multiple, varied tenants, but they present the opportunity to harness several diverse revenue streams.
Of course, after getting through 2020, investors are wondering whether mixed-use properties are still a good bet. Thanks to their economic diversity and tenant flexibility, they still are a great way to expand your portfolio. If you’re new to this type of investment property, read on.
Defining mixed-use commercial properties
Mixed-use properties contain at least three different land uses in a single property. This could range from hotels, restaurants and retail locations, residential units with stores below, grocery stores, parking garages and more. The most successful mixed-use properties keep their residents’ or visitors’ best interests in mind: choose the land use types carefully. For example, hotel guests are likely to want restaurants, bars, parking and retail locations nearby. On the other hand, properties with apartments should consider parking structures, banks, grocery stores, gyms and other amenities that make everyday life more convenient. A truly savvy investor will choose tenants and land uses that naturally promote each other.
Mixed-use properties are designed to benefit the tenants, but the investor's profit, too. When you have several types of tenants in one building or complex, you’ll receive multiple revenue streams. Investors are no longer solely dependent on the success of one industry type or the housing market.
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Refine your investment strategy when pursuing mixed-use properties
As 2020 taught us firsthand, life—and real estate investing—can be unpredictable. Few people expected the market to be affected by a global pandemic, especially since experts predicted 2020 would be a banner year in real estate. (In some cases, it still was!) For example, while the hospitality and restaurant industries floundered, residential real estate did quite well in certain areas—especially as families sought out larger homes to support working and schooling from home.
That’s a great example of why mixed-use commercial properties are a smart investment, and it can also help you refine your investment strategy. Generally, investors can pursue these properties in two ways: getting in on new construction, or purchasing existing properties. Whereas it may have been difficult to find a good deal on an existing mixed-use property before 2020, it may be easier now. Some investors will want to sell their properties below market rate instead of looking for new tenants.
Keep an eye out for properties with some existing tenants, or older buildings that you can renovate before going back on the rental market. You’ll still need to do your due diligence, but with plenty of research and advice from real estate professionals, you may be able to score your first commercial mixed-use property at a great price.
Why mixed-use commercial properties are still a good bet
Command higher rents
One of the best things about mixed-use commercial properties is the convenience they offer, especially if your property includes residential units. On average, mixed-use properties can charge up to five percent more than strictly residential buildings. It’s also a great way to attract residents—if you choose your commercial tenants wisely, residents will be interested in the convenience your property offers. They’ll gladly pay more to save time walking to the grocery store, bank or department store.
Commercial is always in demand
As we know, both real estate markets and industries fluctuate—and that’s not always predictable. With mixed-use properties, you’re not limited to strictly residential or retail tenants. For example, businesses may want to rent office space underneath residential units, since living near work is a perk for both employees and owners. As long as you choose your tenants carefully, you can maximize these potential benefits—and charge more in rent as a result.
Multiple flexible revenue streams
If your building isn’t performing as well as it should be, you’ll have the opportunity to make adjustments. Commercial buildings aren’t subject to the same protections that residential tenants receive. It’s much easier to adjust the rental rates and terms for commercial tenants instead of residential ones, so you can keep your profit margins where they need to be.
Commercial tenants have a vested interest in improving properties
Since commercial tenants need to appeal to their customers and clients, they often take a much more active approach to improving and maintaining their storefronts. In turn, this benefits you: your building is more likely to stay desirable to visitors, which attracts more residential tenants.
Appeal to a wider demographic
If you’re trying to market your residential portion of the property to young professionals, having a mixed-use property can be a real boon. Whenever you can save people time and money on commuting to work and recreational opportunities, they’re more likely to pay more and stay longer. Commercial mixed-use properties offer multiple opportunities for investors, residents and commercial tenants—when done right, they can create a natural community.
Great Financing options
When your buying commercial investment properties, financing is based on the income generated from the property. If you have a small personal income, you may still be able to qualify. Its always best to speak to a commercial property lender like LendCity Mortgages who specializes in helping investors qualify for their Commercial Properties. LendCity can be reached from the link above or by calling them at 519-960-0370.
As you can imagine, some of the most successful mixed-use properties are in busy downtown areas, or up-and-coming neighbourhoods within major cities. However, those also tend to be more expensive. If you’re making your first foray into mixed-use commercial properties, you might want to consider spaces in mid-size cities and towns.
With flexible income streams, convenience and high demand, commercial mixed-use properties can be a great bet. Now is a great time to start exploring properties in your area—what kind of community will you create?
How Commercial real Estate is valued
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