What is a mixed-use property?

Quick insights

• A mixed-use property is a type of real estate investment that combines residential, commercial, retail and sometimes industrial spaces within a single complex.
• There are different types of mixed-use properties that first-time homebuyers may encounter such as vertical mixed-use, retail-residential mixed-use and live-work mixed-use developments.
• Investing in a mixed-use property requires careful planning, thorough due diligence and expert guidance to capitalize on potential returns and manage risks.

In the real estate landscape of urban development, mixed-use properties have become increasingly more popular and emerged as unique hubs where living, working and creating blend seamlessly. A mixed-use property is a type of real estate investment that typically combines residential, commercial and sometimes even industrial spaces within a single building.

Mixed-use commercial property can come in various forms, from residential apartments built on top of street-level shops to more contemporary designs with live-work spaces and entertainment districts. For first-time homebuyers looking to buy an investment property, this can be a compelling option because of the potential for diversified income streams and the opportunity to build equity.

Mixed-use property: What is it?

Mixed-use property refers to a real estate building that combines two or more different types of uses within a single complex. This typically includes a combination of residential, commercial, retail, office and in some cases industrial. The concept of mixed-use property or mixed-use housing comes from the blending of different types of properties into one cohesive development. This is where residents can live, work and engage in leisure activities all within the same area.

Some of the benefits of mixed-use development can include fostering a sense of community, reducing commute times and supporting local businesses. Before you make any major investments in real estate, it can be beneficial to do more research on multi-family homes and various mortgage options to finance the property.

Types of mixed-use properties

The different types of mixed-use properties that first-time homebuyers and current homeowners may encounter include:

• Vertical mixed-use development: This is a single building that combines different uses vertically, often with residential living spaces on higher floors and commercial or retail on lower levels. This is the most common form of mixed-use development.
• Horizontal mixed-use development: This complex combines different uses across a larger area of land horizontally. This can include clusters of buildings where multi-functional spaces are adjacent to one another.
• Live-work mixed-use development: This type of building is designed to accommodate both residential living and workspace within the same unit. This type of development often features flexible floor plans catered to residents, offices, retail spaces, restaurants and creative uses to enhance quality of life. For instance, artist lofts are a prime example of this in NYC.
• Retail-residential mixed-use development: This mixed-use housing property combines residential living spaces with retail spaces, typically at street level.
• Transit-oriented development: This mixed-use commercial property aims to reduce dependency on cars by creating mixed-use environments around public transit stations.
• Renewal and revitalization: This type of property involves revitalizing underutilized areas through mixed-use projects. It incorporates a mix of residential, commercial and cultural spaces to rejuvenate neighborhoods, create walkable communities and promote social connectivity.
• Destination mixed-use development: This development focuses on creating energetic and vibrant destinations that attract residents. These developments typically include residential spaces, hotels, retail outlets, entertainment venues and cultural attractions.
• Waterfront mixed-use development: This mixed-use property is typically along waterfronts like rivers, lakes and oceans. Waterfront mixed-use developments typically include commercial, residential, recreational and sometimes public spaces like city and state parks. It capitalizes on picturesque views, boardwalks and waterfront promenades to enhance public enjoyment of the waterfront area.

Why mixed-use properties are in demand

Mixed-use properties are in demand for several reasons such as:

• Convenience: They offer residents the convenience of having retail outlets, dining options and entertainment within walking distance.
• Cost efficiency: Mixed-use properties can be a cost-effective investment due to shared infrastructure and the dual-income model, which can help offset the monthly mortgage payment.
• Lifestyle appeal: Mixed-use commercial properties often cater to individuals who want a live-work-play lifestyle. Residents have the chance to live close to where they work and socialize.
• Long-term value: This type of development tends to hold its value due to its prime location and multiple revenue streams from residential and commercial tenants.

Pros and cons of mixed-use developments

Mixed-use developments can offer various pros and cons for both investors and residents looking for new living arrangements:

Pros:

• Broader tenant market: Mixed-use properties can attract a wide range of tenants including residential, commercial and retail. Having multiple asset classes under one complex could help mitigate risks associated with vacancies.
• Lower risk due to demand: Due to the nature of mixed-use properties, investors often benefit from consistent demand. Residential tenants value the convenience of nearby amenities, while commercial and retail tenants benefit from the foot traffic generated by residents and visitors.
• Sustainability: Mixed-use developments can promote sustainability by minimizing commute distances and encouraging energy-efficient building practices.

Cons:

• Higher complexity: Mixed-use properties can be complex due to regulatory compliance requirements, potentially leading to increased construction costs and longer development timelines.
• Tougher to manage: Balancing the needs of multiple tenants, some which are businesses and some residents, addressing maintenance problems and resolving disputes can make it challenging to manage a mixed-use property.
• Financing requirements: Some mortgage lenders may perceive mixed-use developments as riskier because of zoning and regulations, complex valuation and market volatility.

In summary

Investing in a mixed-use property can offer a distinctive blend of advantages and considerations that may appeal to prospective real estate investors. It’s important for homeowners to consider a few factors before buying another home such as financial readiness, maintenance and upkeep, market conditions and future plans.

It’s recommended to carefully evaluate these factors to ensure your decision aligns with your financial capabilities and long-term goals. When shopping for a home, partnering with a real estate agent and home lending advisor can help you save time, gain more insight into the local market and increase your chances of finding the right investment property.