When you consider buying a mixed-use property, its important to consider key factors that help determine the value of the property. It’s well known that mixed-use properties add vitality to a neighborhood, providing ease of access and after-hours activity. Check out these five important factors.
The hallmark of a good mixed-use property is efficient space utilization. Vertical design is a popular motif, as it consumes less land and allows denser packing of tenants. Vertical design helps control costs such as utilities, parking, maintenance and landscape when you compare it to horizontal design. A good project can anchor a neighborhood, reduce car traffic, and promote better energy efficiency and sustainability.
You need to know whether the local zoning rules encourage or discourage new multi-use development that will compete with the property you buy. On the one hand, barriers to competition can support higher rents. However, you must also consider the positive effects of higher population density in terms of gentrification and demand for amenities. In the long run, additional properties lift all boats.
Local governments frequently hook up with real estate investors and developers to help improve run-down neighborhoods pockmarked with dilapidated or abandoned buildings. Often, you can buy a derelict building from the municipality for a token amount. These might include warehouses and loft buildings ready for mixed-use repurposing. New York City’s Soho neighborhood is a prime example. Forty years ago, the city rezoned the area and subsidized redevelopment. Today, it is a thriving, high-rent district with cutting-edge art galleries and gourmet restaurants.
Renovating a single-use building to multi-use can enhance its value. Converting ground floor apartments to retail spaces completely changes the property’s vibe, enhances its value and reduces vacancy rates. You also might be able to boost rents by at least 10% after completing the rehab. You can then sell the property or keep it for rental income.
Run-down properties are usually poorly managed. You can swoop in, snap up a mixed-use property, rehab it and introduce a professional level of management. This type of project often has a great risk/reward tradeoff that will produce attractive results. You also can reconfigure a multi-use property. For example, suppose your city has a weak office market but a strong retail one. You might buy an office/residential mixed-use building and replace the office component with retail stores.