When it comes to investing in beneficial real estate, there are many options on the table, one of which is a mixed-use real estate investment property. While these types of investment properties can typically be beneficial, there are some pros and cons to this particular type of real estate strategy.
The term “mixed-use” is often used to describe a property that has both residential and commercial properties on the same lot. Here are some of the pros and cons to consider before investing in this type of property.
Pros of Mixed-Use Investment Property
- The property can be used during any real estate cycle.
- Greater value can be brought to a property that would otherwise sit vacant if an investor should choose to sell commercial-only lots/property.
- The rental income is relatively stable, allowing for multiple possible tenants in various types of industries (e.g., retail, restaurant, office space).
- There is an opportunity for long-term appreciation on the commercial portion when sold.
- Most investors who buy a mixed-use property will rent out the residential portion and work from home offices located within the commercial side of the lot/property.
Cons of Mixed-Use Investment Property
- There are generally more moving parts involved with a mixed-use property, which can make it much more complex to manage and maintain.
- It can be difficult to secure financing for a property that is considered “commercial” unless you have plenty of equity in the commercial portion of the property (**Consider getting a hard money loan from a private lender for this type of loan**).
- It is much more challenging to find a good tenant when you want to sell residential or commercial property. Depending on the market, vacancies can be difficult (or expensive) to fill.
- Rental income from one portion of the property might not cover expenses if it becomes vacant while the other side is occupied.
- Taxes can be complicated. Since the professional portion of the property generates rental income, it may be taxed in a manner significantly higher than the same property would be if purchased and carried as two separate lots/units.
This information should give you some things to consider before investing in a mixed-use real estate investment property.