If you’re a property investor wanting the best of both worlds, investing in mixed-use property could be your answer.
Mixed-use property provides the option of investing in different commercial and residential sectors simultaneously. As the population grows and space in high density urban areas reduces, mixed-use properties are becoming more common.
In this article, we cover:
What is mixed-use property?
Mixed-use properties are those that are zoned for more than one purpose.
A mixed-use property can be a combination of commercial property types, or commercial and residential. For example, a property could be a blend of office spaces, retail stores, hospitality establishments and residential.
Is mixed-use commercial property a good investment decision?
Determining whether a mixed-use property is a good investment decision should always be considered on a case-by-case basis.
- Diversifying portfolio and minimising risk
Using one property to enter different commercial and residential markets is a solid way to diversify your portfolio without spreading yourself too thin. When done correctly, portfolio diversification can result in risk minimisation as you’re not dedicating all investments to one basket.
- Different tenant markets
Tenant supply and demand is key to investment success. While demand may be lower in one market, it could be surging in the next. Mixed-use investment properties can benefit from this; if one market is unpredictable, the other can make-up for its weaknesses.
- Added convenience
When planned out appropriately, mixed-use properties can create a convenient community for tenants. This can often be a drawcard when attracting high-quality tenants to occupy the property.
- Further complexities
Setting up a mixed-use property can be more complex than singular use. For example, the site where the property is built must be zoned for mixed use. Building regulations can also change between residential and commercial properties.
- Upfront costs
There’s no doubting that investing in property can be a costly exercise, especially in the beginning. There can be additional upfront costs associated to mixed-use property. Therefore, it’s important to analyse your financial position and factor in all costs, from pre-purchase inspections, deposits, finance, to ongoing expenses such as legal fees into your investment strategy.
- Appropriate financing options
Finding a loan for a mixed-use property isn’t necessarily a negative but it’s a key consideration as mixed-use property loans differ from loans used for a singular property type.
Lenders may consider the loan as commercial or residential, depending on how the property will be set up. Each loan will have different features and require different levels of security and serviceability, so it’s essential to shop around and be aware of alternative offerings.
Depreciation for mixed-use properties
Depreciation is the natural wear and tear of a property and its assets over time. Investors of income-producing properties, whether they be residential, commercial or mixed-use, can claim depreciation as a tax deduction each year.
Mixed-use property depreciation is unique. Certain legislative and industry-specific requirements must be followed.
For example, the same asset in two separate commercial industries can depreciate across different periods of time. If the mixed-use property had retail shop space and restaurants, the carpet would depreciate across eight years in the retail section and five years in the restaurants.
Depreciation for mixed-use residential and commercial properties
Legislative requirements become even more complex when the mixed-use property blends residential and commercial, as depreciation rules differ significantly.
The first and most significant is that both commercial tenants and owners can claim depreciation. This means the owner claims depreciation on the building’s structure and assets they own while the tenant can claim depreciation on their fit-out. But on the residential side, only the owner can claim depreciation.
Capital works is a deduction for the property’s structure and any fixed assets like gutters and windows. These deductions are available on the original structure of a residential property where construction commenced after 15 September 1987, but this eligibility date changes to 20 July 1982 for commercial properties and 21 August 1979 for traveller accommodation.
Plant and equipment assets are easily removable or mechanical in nature. Common examples include furniture, lights, window coverings and air-conditioning units.
Legislation introduced in 2017 means residential investors can’t claim previously-used plant and equipment assets for second-hand properties (where contracts were exchanged after 7:30pm on 9 May 2017). However, this change doesn’t impact commercial properties and previously-used assets can still be claimed.
The complexities of depreciation can be a lot to wrap your head around, and this is why it’s always best to consult with a tax depreciation specialist. For over twenty years, BMT Tax Depreciation has completed comprehensive schedules for all types of properties and applied all legislative requirements to ensure compliance is maintained.
To learn more about depreciation for mixed-use properties and how to claim the maximum deductions, Request a Quote or contact BMT on 1300 728 726.