Investor’s Guide to Mixed-Use Developments

Published: 05-05-2022  Category: Investing

When most people think of real estate investing, they think of single-use properties such as apartments, single businesses, and industrial properties. However, there are many non-single-use properties that can also be an opportunity for investors.

Mixed-use developments are properties that have more than one type of use. These types of properties can provide a steady stream of income, particularly for commercial real estate investors.

Mixed-use developments are growing in popularity, especially for repurposing older buildings like shopping malls.

These properties combine residential housing with commercial uses such as retail, restaurants, and business offices.

These properties also give investors a high ROI, as the two use cases can be maximized and leveraged.

Learn how mixed-use developments are beneficial for commercial real estate investors.

Examples of Mixed-Use Developments

Mixed-use developments provide a wide variety of options for investors. Some common examples of mixed-use developments include these types of features in the same building:

  • Apartments;
  • Gyms;
  • Restaurants;
  • Retail spaces;
  • Bars;
  • Health care facilities;
  • Religious spaces.

Many larger commercial mixed-use developments have both residential and commercial components.

Some real estate investors prefer to purchase these types of properties, as they have the potential to be more profitable.

Shopping centers are a common type of mixed-use development.

While this kind of property is attractive because of its high retail space, investors can also purchase apartments and commercial spaces and lease them out for additional income.

How Zoning Affects Mixed-Use Developments

One of the most important aspects of mixed-use development is zoning.

Before an investor can purchase a property like this, they must first check the zoning of the land. Some areas are zoned for both commercial and residential zones, while other areas are zoned for only one.

If the zoning is only for residential use, the investor may struggle to find commercial investments.

This means the property they choose to invest in may only produce income through rentals, which could be less profitable for the investor.

Investors can also check the historical zoning of the land to see if it is more suitable for commercial use or if it can be rezoned.

This information can help them determine whether they should purchase the property or not.

The Rise of Single-Use Zoning

The popularity of mixed-use developments has increased significantly over the past few decades. The reason for this increase is single-use zoning.

Single-use zoning restricts the use of properties that can be built in that area.

Many neighborhoods are zoned for residential use, meaning nearly every property is only for residential living.

This is great for residents, as it allows them to buy a home in neighborhoods surrounded by other homes.

However, it is not as great for investors, as they become limited in their development and investment options.

Today’s Demand for Mixed-Use Developments

The success of mixed-use developments hinges on two factors. The first is whether or not people want them, while the second is how profitable they are.

The popularity of these developments is directly affected by the demand for them.

Many commercial developers are turning to mixed-use developments because consumers are driving the demand for these properties.

Consumers are looking for more convenient, sustainable, and robust options. They want to live close to places where they can shop, work, and receive health care.

This demand for mixed-use properties means investors can make money from them. If there is interest in a mixed-use development, it is likely that the demand will outpace the supply. As a result, the prices for these properties may increase.

Location for Mixed-Use Developments

While a mixed-use development can be built on any piece of land, it is most commonly found in areas with a large number of people handy for mass transportation such as markets, airports, and transit centers.

Mixed-use developments are typically multi-tenant buildings that provide a combination of commercial space and residential units.

These developments are a great way to capitalize on the many benefits of mixed-use properties while diversifying your portfolio.

Building Mixed-Use Developments vs. Upgrading an Existing Building

Upgrading an existing building can be one of the easiest ways to add mixed-use space without having to pay for land and construction costs.

If a building already has a mix of commercial and residential units, it can be modified to include additional commercial space at a lower cost than developing the land from scratch.

This is because the existing building already has infrastructure in place such as utilities, plumbing, and wiring.

If the building has a good layout, it can be modified to include several residential units and a few commercial spaces.

Upgrading an existing building is also often less costly than building from scratch since the costs of construction, land acquisition, and construction materials can be significantly lower than for new development.

It also saves time by not having to find space for a new project from scratch.

Investing in Mixed-Use Developments: Profitable or Perilous?

The widespread popularity of mixed-use properties means that there are a large number of potential renters. This makes it easier to attract new leasors and renters and increase your income at the same time.

At the same time, these properties are often located in highly populated areas. This means that there are plenty of potential customers and that they’re likely to spend money there.

Mixed-use properties also tend to increase in value, which means that they can be profitable investments.

However, unlike single-use properties, mixed-use properties can be more challenging to sell every vacant space.

This can also be difficult for investors because it can be difficult to find tenants for all of the available space in a commercial mixed-use property. This can lead to lower rental rates and a lower profit, as well as higher operational costs.

Tread Cautiously When Choosing Mixed-Use

Commercial mixed-use properties are popular choices for developers and investors. These are familiar spaces that provide a combination of commercial and residential spaces.

They can appeal to a wide range of customers and are often located in popular areas.

Mixed-use developments are growing in popularity, particularly for repurposing older buildings like shopping malls.

These properties combine residential housing with commercial uses such as retail, restaurants, and business offices. While these properties have the potential to be profitable, investors must be cautious.

There are a few things to keep in mind before investing in these types of properties. First, make sure the zoning allows for commercial use.

Rezoning a property can be costly and, in some cases, impossible.

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