Got experience with mixed use in smaller towns?

Question

Hey! Anyone out there have experience buying mixed use properties in smaller towns? I'm specifically interested in "main street" properties with a downstairs retail space, upstairs apartment(s).

If you know of anyone with this sort of experience, I'd REALLY appreciate the connection. I've got a couple of soft factor questions I'm not sure how to analyze and would love to speak to a few of you more experienced types!

Sticky Rammel · Answer

I've been investing in some mixed use in very small towns for past 5-10 years. populations of 1000 - 1500, 8000, 16000 etc. Curious how it went 3 years later, Dan? Still investing in them, etc.

Dan McDermott · Answer

Thanks for the fantastic response, Frank! You definitely raise a bunch of points that make a lot of sense. One of the biggest pitfalls is the age of the buildings I'm looking at.

Kevin, I'll reach out via message right now. Thanks for chiming in too!

Kevin Mirise · Answer

We have a little experience there. Walkable neighborhoods and mixed use properties are our preferred sweet spot. Happy to try to be a resource for you, if we can.

Frank Chin · Answer

No one answered this for several days, so let me give it a try.

My dad owned a mixed use property in the outer boroughs of NY City for over fifty years. It's two stores downstairs, a large apartment upstairs, originally 2 apartments, and four garages. It was a great investment as he put $10K down on a $25K investment in 1963, paid off the $15K mortgage in 1980, retired, and live off the rental incomes. He lived upstairs. It sold for $1.2 million when he passed in 2015. A building with 6 condos was built in it's place, each condo sold for $550K, or $3.3 million.

My experience with such properties was I looked over a number of them, including smaller towns, on  main streets, and nearby main roads. My other project years back was searching for active businesses to buy, at one time laundromats, many located downstairs in mixed use properties.

My big dilemma in looking at it from a real estate investment in small towns are many of them were vacant, for over a year. My dad considered a six month to one year vacancy between tenants normal. At the time I looked, 20 or so years ago, the problem with smaller down towns is the proliferation of nearby strip malls, where the stores are surrounded by a large parking lots, and for laundromats, attract more customers as they can park easily, walk to adjacent stores for shopping, snacks, and browse newspaper and magazine racks, which explains why they do better, there's more customers. People drive 10 to 15 minutes more, and have a better experience.

Also there are traffic and parking requirements. One town require so many parking spaces available for so much seating for restaurants that the owner couldn't meet. We only learned this meeting with the towns assistant commissioner of planning who was a co-worker of my wife who worked in city planning for a while. We were planning to buy the property. The town granted the restaurant a temporary exemption based on the fact the business creates jobs, which would be reviewed with new owners or landlords.

Another issue is mixed use is structures from another era and it's use had been grandfathered. My dad's mixed use property was grandfathered as it was built in 1890, before zoning laws went into effect here in the 1920's. He wanted to make renovations, depending on the extent, was told he might lose the grandfathering. I patronized a Chinese Restaurant located on the main street in Dunnellon NJ, had a major fire, and could not be rebuilt the as before, i.e. with the apartment upstairs. Problem was it's a common perk for Chinese restaurants to provide lower paid staff with room and board, and without the upstairs apartment, renting an apartment in nearby towns for staff is a problem with rooming house regulations beside a major expense. They did not reopen for quite a while.

That's the reason why I made no mixed use investments in small towns, too many societal changes, business issues, zoning regulations that can trip you up.

The other issue major is that some businesses are incompatible with residential use. A restaurant downstairs with odor, and noise till 3:00am is unsuitable for residential tenants. He rented the stores for office use, like a travel agency, and the other to a video store, when a barber shop of many years closed up. The other big issue here is the commercial insurance for a restaurant tenant is several times that of an office tenant.