Many people build a mixed-use property with a shop when starting a business, but only a small minority design it and plan financing with the future possibility of renting out the commercial portion in mind. A mixed-use property can also become an income-producing real estate asset that generates stable rental income when managed properly. This article organizes practical ways to use this type of property from the perspective of investment and rental management.
What Are the Benefits of Building a Mixed-Use Property?
A mixed-use property is a practical form of real estate that can reduce housing costs and business costs at the same time. The five main benefits are as follows.
No Need to Pay Store Rent
The biggest advantage of a mixed-use property is that there is no need to pay rent for the store space. Renting a storefront usually requires deposits, security money, key money, and monthly rent, but owner occupancy can significantly reduce fixed costs even during difficult periods for the business.
Access to a Low-Interest Home Loan
Depending on the lender, a home loan may apply to the residential portion, making financing available at a lower interest rate than a business loan. However, if the store area is too large, the home loan may not be available, so it is important to compare conditions across multiple financial institutions.
Construction Costs Can Be Recorded as Expenses and Depreciation
Construction costs for the store portion can be recorded each year as depreciation expenses. In addition, the interest portion of the home loan may also be recorded in your tax return, which can create tax-saving benefits.
Eligibility for the Home Loan Tax Deduction
Depending on the proportion of the residential area, the special housing loan deduction may apply. If the requirements are met, such as a repayment term of at least 10 years, an income tax refund may also be possible.
Reductions in Fixed Asset Tax and City Planning Tax
If municipal requirements are met, reductions in fixed asset tax and city planning tax may be available.
Can a Mixed-Use Property Be Rented Out?
If you close the store business or relocate, it is possible to lease the commercial portion to a third party.Rental income can reduce the burden of repaying the home loan and allow the property to function as an income-producing real estate asset.
Key Points Investors Should Watch When Renting It Out
The Home Loan Applies Only to the Residential Portion
Because the commercial portion cannot be financed with a home loan, the loan must be split between the residential portion and the store portion. If the store area becomes too large, there are cases where the entire amount must be covered by a business loan, which affects monthly cash flow. It is important to consider the area allocation from the design stage.
Risk of Difficulty Finding Tenants
Compared with standard residential property, demand for mixed-use property is limited, which can lead to longer vacancy periods. Choose a real estate company with strong experience in buying, selling, and leasing mixed-use properties, and use land-use plan comparison sites as well to assess appropriate rent levels and marketability.
Noise and Privacy Issues
In a structure where the store and residence are integrated, sound is more likely to travel between the two spaces. Depending on the tenant lifestyle, this can develop into disputes, so it is important to consider soundproofing specifications and tenant selection carefully.
Related Reading
- What Is “Leasing Operations” in Rental Management? Strategies for Reducing Vacancies and Maximizing Returns
- Rethinking Conventional Rental Management: Three Differentiation Strategies to Maximize Returns
- How to Choose a Property Management Company: Seven Points Owners Should Prioritize
Frequently Asked Questions (FAQ)
Q. Can a home loan be used for the store portion of a mixed-use property?
A. No. A home loan does not apply to the store portion. A business loan is required for that area. The applicable scope of the home loan depends on the floor-area ratio of the residential portion.
Q. Do I need to file a tax return for rental income from the store portion?
A. Yes. Rental income from the store portion must be reported as real estate income. Properly recording expenses such as depreciation, repair costs, and loan interest can provide tax-saving benefits.
Q. I have heard that it is hard to find tenants for a mixed-use property. Is that true?
A. Yes. Because demand is more limited than for standard residential property, vacancy risk tends to be higher. The keys are choosing a real estate company with strong transaction experience, setting appropriate rent, and improving the property’s appeal.
Q. Can I rent out the residential portion while continuing to use only the store myself?
A. It is possible, but if you are using a home loan, you will need to report it to the financial institution and obtain approval. Renting out the residential portion without permission may violate the loan agreement.
