How to Build Wealth Through Mixed-Use Financing
Have you ever seen an apartment block with a corner shop attached to it? That’s what a mixed-use building is like! Mixed-use buildings are used for both residential and commercial purposes. The bottom floor is typically used to run a small business such as a convenience store, while the rest of the floors are occupied by residents. This allows the owner to earn two rental incomes—one from the residents and one from the commercial tenants. In other words, mixed-use buildings are fantastic for building wealth!
Unfortunately, mixed-use buildings tend to be expensive because they’re costlier to build than single-use buildings, and their earning potential is higher. Therefore, it’s common for people to resort to using mixed-use financing to buy these types of buildings. But what are the steps worth taking if you want to build wealth through mixed-use financing?
If you’re eager to find out, read on! Here’s a guide on how to build wealth through mixed-use financing.
1. Create a Shortlist of Mixed-Use Buildings
The first step to building wealth through mixed-use financing is to create a shortlist of mixed-use buildings. We recommend reaching out to the previous owners of the buildings you’re interested in to ask them how much rental income they were earning. It’s also worth researching how much the buildings have appreciated over the last few years. This will give you an idea of each building’s ROI and help shortlist to the most profitable mixed-use buildings.
It’s also worth asking what type of businesses occupied the commercial portions of the mixed-use buildings on your shortlist. For instance, if the commercial portion of the mixed-use building you want to purchase is retrofitted with a commercial exhaust system, chances are it’s meant for food businesses. Knowing this in advance will help you advertise the space properly and find suitable commercial tenants.
2. Talk to a mortgage Lender About Mixed-Use Financing Terms
Now that you’ve got a shortlist of mixed-use buildings and their prices, it’s time to speak to a mortgage lender about mixed-use financing. They’ll let you know what terms you qualify for based on factors like your credit report. If you’ve got a strong credit score, you’ll get better terms on your loan and build more wealth through mixed-use financing.
We recommend asking the licensed mortgage lender how substantial the premiums will be on the mixed-use financing you’re after. It’s also worth discovering how long the loan will last and how much is required as a down payment. These are known as the loan terms—and they’ll help you calculate how much rent to charge to build your wealth through mixed-use financing.
3. Calculate How Much Rent to Charge to Cover Your Premiums
Once the mortgage broker tells you what kind of mixed-use financing terms you qualify for, it’s time to calculate how much rent to charge. If your rental income exceeds your premiums, you’ll be well on your way to building your wealth through mixed-use financing!
For instance, suppose you’re interested in a mixed-use building that costs $850,000. You apply for mixed-use financing, and the mortgage broker agrees to give you a 10-year loan with a 5% down payment and 10% interest. If you do the math, you’ll realize that your down payment on this loan is $42,500, and you’ll owe $88,825 per year for ten years ($80,750 per year in loan payments plus $8,075 per year in premiums).
In simpler words, if you agree to these terms, you’ll have to charge at least $88,825 per year in rent to cover your payments. Anything above that is profit that’ll contribute to your total wealth!
4. Devise a Ratio Between Commercial and Residential Rental Income
So, you’ve created a shortlist of mixed-use buildings and spoken to a licensed mortgage lender about mixed-use financing. You’ve also crunched the numbers to determine how much rent to charge to cover your premiums. The only thing left to do now is to find tenants willing to meet your rent demands!
Remember—both commercial and residential tenants occupy mixed-use buildings, so it’s worth devising a rental income ratio split between these parties. The average rent for a ‘good spot’ in a popular shopping area is $25 per square foot, while the rent per square foot in the most expensive apartments in the country is just under $3! In other words, you’ll earn most of your rental income from your commercial tenants—but the exact ratio between commercial and residential rent depends on various factors.
One of the main factors that’ll affect your rental income ratio is the maximum residential capacity of the mixed-use building you’re purchasing. For example, suppose you require $120,000 in rent each month to cover your mixed-use financing premiums. You know that $70,000 will come from the commercial tenants, leaving you with $50,000 to earn from residential tenants.
If you take out mixed-use financing to buy a building with 50 apartment units, you’ll have to charge each unit $1000 a month to cover your costs. In contrast, if you buy a mixed-use building with 80 apartment units and charge $1000 a month, you could charge your commercial tenants less and still cover your costs!
5. Don’t Forget to Account for Non-Monetary Factors
It’s tempting to think that building wealth through mixed-use financing solely involves looking at monetary factors. But did you know there are a ton of non-monetary factors to consider as well?
For instance, it’s important to find out what type of commercial tenants occupied the building previously so you can advertise your space properly. It’s also worth asking yourself whether the building’s residents will generate demand for the commercial tenant or whether the building requires renovations. The answers to these questions will help you build wealth through mixed-use financing as quickly as possible.
No matter what type of mixed-use building you’re interested in, it’s vital to consult a reputable mortgage lender if you want to get favorable terms on Mixed-Use Financing Ft Lauderdale. That’s where Atlantic Home Capital comes in!
We help clients build their wealth by providing the best terms possible on mixed-use financing. We also offer FHA loans for first-time home-buyers and jumbo non-conforming mortgage loans for those interested in purchasing prime real estate.
So, are you ready to build your wealth through mixed-use financing? If so, contact us today and our team of expert mortgage consultants will help you!
