Real estate investors use mixed-use loans to finance buildings that are used for a combined purpose. Mixed-use buildings are zoned for multiple uses, including residential, commercial, industrial, or institutional. Mixed-use loans can be short-term or long-term, with terms ranging between six months and 30 years.
Any building with at least two units of different zoning qualifies for a mixed-use loan. Mixed-use loans include short-term hard money loans and private money loans. The loans can be permanent construction, government-backed, or commercial loans.
A mixed-use building has at least one commercial and one residential unit. For example, a funeral home with a living space in the back for the funeral director to live in would be considered mixed-use. Also, a multistory property with a retail shop below and residential units above would be considered mixed-use.
In addition, if you have a property that makes less than 40% of its income off the commercial spaces and has five or more total residential units, you may qualify for a multifamily loan or apartment loan.
One of the top Small Business Administration (SBA) lenders nationally is Live Oak Bank. Experienced loan specialists can help you find the right mixed-use loan for your business. You can fill out a questionnaire on Live Oak’s website, and a specialist will be in touch to get the process started. Visit Live Oak Bank’s website for more information.
Types of Mixed-use Loans
Mixed-use loans usually fall into one of three categories: commercial mixed-use loans, government-backed mixed-use loans, and short-term mixed-use loans. Government-backed mixed-use loans offered by the SBA or the United States Department of Agriculture (USDA) are the most common types of mixed-use loans. Each loan type has slightly different requirements, terms, and costs.
1. Commercial Mixed-use Loans
| Interest Rates | 5% to 7%, variable or fixed |
| Maximum Loan Amount | $25 million |
| Term | 15 to 30 years |
| Average Down Payment | 25% |
| Loan-to-Value(LTV) ratio | 75% |
| Closing Costs | 2% to 5% of amount borrowed |
| Lender Fees | 1% to 3% |
| Time to Funding | 30 to 45 days |
Commercial mixed-use loans have repayment terms between 15 and 30 years, with commercial real estate loan rates starting as low as 5%. Buildings must be in good condition to qualify. However, unlike government-backed mixed-use loans, commercial mixed-use loans don’t require the building to be owner-occupied. Funding times are quicker than a government-backed loan, with funding in less than 45 days.
You can find commercial mixed-use loans at most portfolio lenders. Muevoinvestments has a wide variety of lending options, including several construction options, like fix-and-flip, fix-to-rent, and a traditional construction loan. Fix-and-flip and construction loans go up to a maximum of $3 million. The value-add bridge maximum amount borrowed is $20 million. Terms and percentages vary among the products.
Lima One Capital is an excellent choice for both new and experienced investors. Minimum credit scores range between 600 and 660. Check out its website for more information and to begin the application process.
Who Commercial Mixed-use Loans Are Right For
Commercial mixed-use loans are the right choice for the following investors:
- Real estate investors looking for a mix of commercial and residential tenants
- Business owners looking for a two-unit live/workspace
- Business owners looking to occupy a larger building and also act as a landlord
- Real estate investors who might not want to live in the mixed-use development
- Real estate developers looking to construct a mixed-use development
- Real estate investors willing to forgo a government guarantee and lower rate to get funding more rapidly
2. Government-backed Mixed-use Loans
| Interest Rates | 4.75% to 10% |
| Maximum Loan Amount | $14 million |
| Term | 10 to 30 years |
| Average Down Payment | 20% |
| LTV Ratio | 80% to 90% |
| Closing Costs | 2% to 5% |
| Lender Fees | 1% to 5% of loan amount plus guarantee fee |
| Time to Funding | 60 to 90 days |
Government-backed mixed-use loans include loans from the SBA, including 7(a) and 504 loans, and the USDA, including Rural Development business loans. Interest rates are usually lower on government-backed loans due to the SBA or USDA backing. However, they have more stringent requirements, including requiring the building to be at least 51% occupied by the owner of the property. These loans also may take 90 days or longer to fund.
SBA 504 loans are good choices because they offer up to $14 million in financing for up to 25 years. In addition, SBA 504 loans allow the borrower to go up to 90% loan to value, reducing the down payment compared to a traditional loan.
An SBA 504 loan is a combination of two loans: one comes from a lender and one from a nonprofit lender known as a community development corporation (CDC). Both loans are closed simultaneously.
Our guide to SBA 504 loans goes through the requirements and qualifications needed for the loan. Important guidelines to remember before applying for an SBA 504 loan for commercial real estate include:
- Property must be owner-occupied
- Jobs must be created
- Business must have a net worth of less than $15 million
Muevo can match you with an SBA 504 lender that can help you get the right commercial real estate loan. Check out its website for more information.
Who Government-backed Mixed-use Loans Are Right For
Government-backed mixed-use loans are the right choice for the following investors:
- Real estate investors looking for a mix of commercial and residential tenants
- Business owners looking for a two-unit live/workspace
- Business owners looking to occupy a larger building and also act as a landlord
- Real estate investors who want to live in the mixed-use development
- Real estate developers looking to construct a mixed-use development
- Investors willing to wait up to 90 days for funding to secure a lower rate
3. Short-term Mixed-use Loans
| Interest Rates | 5% to 16% |
| Maximum Loan Amount | $20 million |
| Term | Six months to six years |
| Average Down Payment | 10% |
| LTV Ratio | 90% |
| Closing Costs | 2% to 5% |
| Lender Fees | 1% to 5% |
| Time to Funding | 15 to 45 days |
Short-term mixed-use loans come in different varieties, including commercial bridge loans and hard money loans. They can be used by borrowers with lower credit scores or for properties in disrepair that won’t qualify for other types of commercial real estate loans. They also allow you to compete with all-cash buyers due to the rapid funding time. Usually, these loans are refinanced into a permanent loan once the term is up.
If you’re looking for a commercial bridge loan, Muevoinvestments provides commercial bridge loans, construction loans, and SBA 504 loans. Loans through Muevo range between $3 million and $25 million. Preapproval is promised on its website in as soon as three days. While the turnaround time usually falls between 45 and 60 days, it can be as little as 10 to 30 days.
If you’re looking for a hard money loan, they can be difficult to find. Muevoinvestments is one example of a company that does provide hard money mixed-use loans.
Who Short-term Mixed-use Loans Are Right For
Short-term mixed-use loans are the right choice for investors that:
- Need to compete with all-cash buyers
- Are looking to purchase and renovate a mixed-use building
- Want to season a mixed-use building with tenants
- Don’t qualify for the stricter qualifications of a permanent loan
- Want to purchase a building in disrepair
Pros and Cons of Mixed-use Developments
Pros
- Less risk to the borrower: Because you’re investing in a building with multiple types of uses, you won’t risk losing as much money if you lose a tenant. You’ll still have income from other tenants or renters.
- More convenient for consumers: Mixed-use properties also allow consumers to frequent different types of businesses in the same property, saving them travel time and money.
- Mixed-use can be more environmentally friendly: Because these properties can be built in a denser location, it uses less area, meaning less land dedicated to commercial properties. This limits urban sprawl. It also allows customers to walk between mixed-use properties, reducing automobile pollution.
Cons
- Deals can be complex: Depending on the type of mixed-use loan, these deals can be complicated and time-consuming, with some of them taking upwards of a year to complete.
- Properties can be hard to manage: Because these properties can contain multiple types of businesses and numerous business owners, keeping everyone happy can be a real challenge. It might take several people to manage a mixed-use facility.
- Loans can be harder to find: Depending on where you live, mixed-use loans might be hard to find. The more rural the community, the less likely you’ll find a local bank willing to take on a mixed-use loan.
Bottom Line
Mixed-use loans allow borrowers to finance the purchase, renovation, or construction of mixed-use developments. Mixed-use loans are usually commercial, government-backed, or short-term. Each type of loan has its own benefits, and you should consider the short-term and long-term plans for the development before starting to shop for loans. It’s also important to understand the benefits and drawbacks of mixed-use loans before planning a mixed-use development.
Live Oak Bank is a good choice for a mixed-use loan for your business. You can fill out a questionnaire on Live Oak’s website, and a specialist will be in touch to get the process started. Visit Live Oak Bank’s website for more information.