When investing in property, one must know the pros and cons of the type of property. You should make sure you know exactly what you are getting into before you decide. It depends on your goals and budget. Which means that what is best for other may not be best for you. When thinking about purchasing mixed use properties, you should know the difficulties that come along with it. If one day you decide to sell it, what potential problems can arise? Find out all that and more in this guide.
First, let’s discuss the definition of a mixed-use property. Then, we can move onto the complex matters.
Which Properties are Mixed-Use?
A mixed-use property, as the name suggests, is a building or buildings that are used for many purposes. For example, commercial shops with above flats, or residential units and offices, etc. However, large property developments with many units are also called mixed use properties. For the sake of simplicity, this guide covers single units that you see in towns, cities, and rural areas. A commercial property with residential flats above is a common example of a multi-storey building.
In case you own a mixed-use building outright, then you are the freeholder of the property. As a result, you will earn extra money. You earn by leasing out the residential and commercial units to tenants. Indeed, a steady stream of income is welcomed by all property owners. However, some owners may want to sell. This is because of all the work involved in maintaining a mixed-use property. For example, paying for repairs.
Furthermore, bad tenants can cause you stress. Which is a valid reason to want to sell the property.
There are plenty of reasons for deciding to sell your mixed-use property. For example, raising funds for financial problems or retirement plans. Make sure you know all your options when selling your property. Weigh out the pros and cons of each situation before going down this road.
Features of a Mixed-Use Property that Help it Sell.
You can’t predict certain aspects of the property selling process. For example, the average sale price. Property market conditions have an impact on the sale of each property. Unfortunately, you cannot avoid this as there is not a lot you can do about it.
However, there are specific features of mixed use properties that make increase their appeal to prospect buyers. Which in turns increasing the chances of making a sale. You should know these factors when selling your building. This way you know the selling points when talking to a person who is interested in purchasing your property.
Profit Maker: When selling a mixed-use property, make sure to focus on its feature of making plenty of money. The future property owner will receive rent payments from residential or commercial tenants. You must show proof that your property has generated a substantial income consistently. This can convince the person to make an offer.
Excellent Location: Having a property that is in a popular area can attract buyers. For example, if it is in a busy city centre. The buyer may like where it is situated, as they are planning to live in the residential unit of the building. Or perhaps they want to expand the building by adding more units in a high-demand area. There is great potential in such an endeavour. Therefore, they will decide to place an offer. You should know all the selling points of mixed use properties.
Potential Difficulties When Selling Mixed Use Properties
Surely, there are benefits to owning a mixed-use property. However, it is possible that potential buyers also see certain drawbacks in purchasing a mixed-use property. It is important to learn what those disadvantages possibly are. Suppose a person shows an interest in making an offer on your property. It is best that you understand the concerns they might have. Therefore, consider the following possible problems when selling your property:
Negligible Income: Often, freeholders find it difficult to maintain their mixed use properties. This is because they are expensive. It is possible that payments from office, commercial, or residential may not generate much of a profit. If a potential buyer discovers that your property does not generate enough money, then they will change their mind.
Different Uses: Another potential problem is that the potential buyer is not looking to use the property for the same purpose. For example, they want a ground floor shop that has offices above. Whereas you are selling a property with retail and residential units.
If a Mixed-Use Property Has Sitting Tenants
When it comes to mixed use properties with sitting tenants, it is sometimes a pro and sometimes a con. What are sitting tenants? Well, it is a person who is living in the residential portion of your mixed-use building and paying rent monthly. Legally, they can live in that area for however long the tenancy agreement states. They signed this agreement when they moved into your building. You need to tell the potential buyers that you have sitting tenants presently.
In this situation, you can see if your tenants are willing to move out. This is possible if the rental agreement is about to expire. Another option is to give your tenants a formal notice, which states that they must leave the property. However, this is a complex process. Not to mention, it is slow.
An alternative option is to seek buyers who will purchase the property and take over the current rental agreement. This is the agreement that you have with your sitting tenants. If you are looking for the least disruptive method, then this is ideal. In this scenario, the tenants can continue to live in their area under the rental agreement. The only difference is that they will pay their rent to the new property owner.
Usually, it is easier to sell a vacant mixed-use property. The reason behind this is that the future owner has more choice. For example, they can choose which tenants to approve and what rent to charge. You can still a sell a property with sitting tenants. However, you must consider the methods which are ideal for locating a buyer for this kind of building.
Do You Need to Pay Capital Gains Tax on the Sale of a Mixed-Use Property?
It is ideal to set a budget when planning to sell your mixed-use property. This budget should include costs such as commission that you may need to pay to an auctioneer or estate agent. Additionally, you should consider Capital Gains Tax.
Capital Gains Tax applies when you sell a valuable tangible asset. For example, art, cars, property, etc. It applies to the amount of property you make in comparison to the price you initially paid for the property. It is not evaluated based on the price at which it sells.
You should reach out to a tax specialist. They will guide you as to which options you can use to avoid paying CGT or at least reducing it. Suppose you do not make a profit on the sale of your mixed-use property. Perhaps you break even or maybe face a loss. In that case, you do not need to pay Capital Gains Tax. Otherwise, you must pay CGT on the sale of mixed use properties.
Methods to Sell Mixed Use Properties
When it comes to selling your mixed-use property, you need to make an important choice. You must select the best possible option from the four common methods.
Each one of these methods has their own advantages and disadvantages. Some of them are ideal for those who wish to sell their property quickly. Others involve paying commission.
To figure out which way you should sell your property, you should write down your main goals. This includes your preferred timeline, how much you are willing to pay in fees, and your goals sale price. Consider the following four methods and their pros and cons, before selecting the one that best suits your needs:
Through an Estate Agent
If you choose to sell your mixed-use property with the help of an estate agent, then it is less of a hassle. This is because they will handle most of the work for you. This includes crafting a listing that features pictures of the interior and exterior of your property. Alongside these photographs, they will also describe the property and advertise this online. Also, they will place this advert in local newspapers. It is also their responsibility to arrange viewings for potential buyers.
In terms of how long it takes to sell through this option, it is not a great option. You will have to wait for months or perhaps for over a year. Yes, it can take that long to get a serious offer. Not to mention that the buyer can withdraw the offer before the exchange of contracts. Which means starting all over again.
It is important to note that the estate agent may never have sold a mixed-use property before. Perhaps they only specialise in residential properties. This means that they do not know how to market a mixed-use property. They will find it difficult to attract potential buyers. Therefore, it is best to ask the estate agent about their experience with selling mixed use properties.
Finding a Quick Buyer
If you are looking to sell your mixed-use property quickly, then you can find a quick buyer. Some companies have sufficient financial resources to buy property right away. They can buy any type of leasehold or freehold property. The process only takes a few short weeks. This is because they don’t have to wait for a mortgage to get approved to purchase the property. Thus, the process of exchanging contracts and paying sellers the proceeds is rapid.
This approach is beneficial as quick buyers are willing to make competitive offers on any property. They do not care about its condition, location, shape, size, age, or type. Even if your property has structural issues, they are willing to purchase it.
Furthermore, you do not need to pay any commission. Anyone who wishes to keep their expenses low can take this route.
Putting it up for Auction
You also have the option to sell mixed use properties at an auction. This includes selecting a reserve price. This is the lowest price you agree to sell your property at. You must make sure to choose a price that will generate a profit even when you deduct the auctioneer’s fees. If not, then you will end up breaking even or facing a loss.
In case you don’t get any bids, then it remains unsold. Then, you must try to sell it again. As a result, this adds many more weeks or months to the selling timeline. Therefore, this is not a quick option. You may want to consider other options.
Please note that auctioneers charge commission. It is a percentage of the sale price, and they deduct it immediately from the sale proceeds. Thus, it adds to your costs. You should ask companies if they are willing to negotiate a reduced commission rate.
Surely, this is not the quickest way to sell your mixed-use property. There is usually weeks or months’ worth of wait for you placing the property for sale and the auction event. Once your property sells, there are 28 days for the buyer to finalise the purchase. This includes signing legal papers.
Without Any Help
You can also sell your mixed-use property without any help. What does that mean? Well, it means you will do everything yourself. This includes making and advertising the listing. Also, you must organise viewings and get offers from buyers. Undoubtedly, this is a lot of work. It requires a lot of time and effort. You cannot deal with it only in your spare time.
Out of all the four methods, this is by far the slowest one. You may have to wait for more than a year before you can get a buyer for your property. Therefore, only pursue this option if you have sold a mixed-use property before. Or if you know someone who has experience in this matter and can help you. For example, a family member or friend.
The benefit of this option is that you do not have to pay any commission to an estate agent or auctioneer. Although, you still must deal with advertising costs and other expenses. Thus, the advantages are not that significant.
To conclude, a mixed-use property is a building that you use for various purposes. For example, an office or shop with residential flats above. There are advantages of owning a mixed-use property. It generates a good amount of money. However, there are also drawbacks. A lot of work goes into maintaining such a property. Not to mention that if you ever decide to sell it, you will face potential issues, such as buyers wanting to use it for different purposes. Therefore, it is best to do your research when thinking about investing in a mixed-use property.