Are there special rules around a mixed commercial and residential property?

By Greg Bell

Are you considering buying a mixed-use property? Not all of them are the same; for example, you could buy a property assessed as a mixed residential and commercial, mixed industrial and residential, or mixed rural and residential.

What’s most important to know is that there are some specific rules around buying mixed-use properties, and different tax rules as well. Do your research before you buy to make sure you will be able to use the property as hoped for, and not suffer significant financial hardship in doing so.

Getting a mixed use property loan

A mixed commercial and residential property you seek to purchase will ultimately be defined by the lender when it comes to loan approval. The amount you can borrow will be impacted by whether or not – in their view – the property is likely to be used more commercially than residentially. Typical borrowing limits fall within these parameters:

Primarily residential

Many mixed-use properties started as a normal house that was then used commercially. If it can still be used as a home, and is in an area where zoning allows the property to be converted back for residential use, then you may be able to borrow up to 90% of the property value.

Residential with an attached office

Real estate that has a mixed purpose does not always fall under commercial lending: If the property is a home and only has a small frontage or an office used for a business, such as a professional services endeavor, a residential loan with a lower deposit and lower rate of interest may be an option. Residential and rural mixed-use may also qualify for residential rates, even if the land is used commercially. Mixed-use zoning may enable you to borrow slightly more if the property can be used 100% as a residential home.

Commercial with attached residence

Many older commercial buildings have residences attached to them. If the property has a commercial front but also an attached residence, you have several options.

If you rent out the attached residence, you can likely borrow up to 80% of the property value with a commercial loan. The bank would rather you lease out both sections as it strengthens the likelihood that you will be able to continue to afford your mortgage if one of the sides is vacant.

If you live in the attached residence, you can likely borrow up to 75% of the property value (although doing so will require a special type of commercial loan). This is seen as slightly higher risk, because while you won’t be paying to live somewhere else, the income from the property will be lower with only the commercial side being leased out.

If you use the property solely for your business, you can likely borrow up to 75% of the property value, and the strength of your business financials will be considered. Again, this is higher risk because you won’t have income coming in from a lease, but will be dependent on the viability of your own business.

The bank will assess your ability to meet their criteria in regards to affordability and asset position. Your personal income will be considered, and if there is a tenant in place, the length of lease and terms will be taken into account. The loan itself is likely to be priced using the commercial risk matrix, which can mean a much larger down payment and possibly a higher interest rate.

Considering a mixed use property as your next investment? Whether you are seeking a property that is primarily for commercial use, an investment property designed primarily for residential use, or a true mixed use property to live and work out of, contact Ray White Surfers Paradise to let us help you move forward.

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