10 Things to Know When Buying Mixed-Use Property

Mixed-use developments require a different financing approach than residential property alone.

Bentleigh East sits along Centre Road and nearby arterials where you'll find two-storey buildings with retail or office space below and residential units above. These properties appeal to investors looking for dual income streams, but lenders assess them through a commercial lens regardless of the residential component. The structure you choose, the deposit you'll need, and the documentation required all differ from a standard home loan.

Why Lenders Treat Mixed-Use as Commercial Property

A property with any commercial component, even a single shopfront beneath residential units, is classified as commercial for lending purposes. This classification applies whether the commercial space represents 10% or 90% of the building's total area. Lenders view the property through a risk framework that considers tenant mix, lease terms, vacancy rates, and income stability. Your loan application will be assessed based on the property's ability to generate income, not solely on your personal income or borrowing capacity.

Consider a buyer looking at a mixed-use building on Centre Road with two shops at ground level and three apartments above. One shop is leased to a medical practice on a three-year term, the other to a cafe on a rolling 12-month agreement. The apartments are tenanted at market rates. The lender will assess rental income from all five tenancies, apply a discount to reflect vacancy risk, and require a commercial valuation that factors in both the retail and residential markets. The loan amount approved depends on the valuation and the net rental income after allowing for periods when spaces might sit vacant.

Deposit Requirements and LVR Limits

Most lenders will finance up to 70% of a mixed-use property's value, meaning you'll need at least a 30% deposit plus costs. Some lenders cap this at 65%, particularly if the commercial component exceeds half the building's lettable area or if tenancy leases are short-term. Unlike residential lending where lenders mortgage insurance can sometimes reduce deposit requirements, commercial property finance does not offer this option.

If the property valuation comes in below the purchase price, the shortfall affects how much you can borrow. A mixed-use property purchased for $1.4 million that values at $1.3 million would require a deposit based on the lower figure. At 70% LVR, the loan amount would be capped at $910,000, leaving you to cover the remaining $490,000 plus settlement costs.

Interest Rates and Loan Structure for Mixed-Use Finance

Commercial property loans carry higher interest rates than residential mortgages. Rates vary based on the property type, tenancy profile, and your borrowing strength, but expect to pay more than you would on a standard investment loan. Lenders typically offer variable rates with the option to fix for one to five years, though fixed terms are less common in commercial property finance than in residential lending.

Loan terms usually range from three to five years, even if the loan is interest-only or amortising over a longer period such as 20 or 25 years. At the end of the term, the loan requires refinancing or renegotiation. Flexible repayment options can include interest-only periods, which reduce cash flow pressure during the early years of ownership, but the principal still needs to be addressed at some point.

Valuation and How Mixed-Use Properties Are Assessed

A commercial valuation considers both the rental income generated and comparable sales in the area. The valuer will analyse lease terms, tenant quality, outgoings, and the condition of the building. Bentleigh East's mixed-use properties near Centre Road or McKinnon Road benefit from proximity to Bentleigh East Village, local schools, and the train station, which support tenant demand for both commercial and residential spaces.

The valuer applies a capitalisation rate to the net rental income to determine the property's investment value, then compares this figure against recent sales of similar buildings. If comparable sales are limited, or if the property has unusual features such as outdated fit-outs or non-standard layouts, the valuation may come in lower than expected. This affects how much a lender will advance and whether the deal remains viable.

Lease Terms and Tenant Mix Impact Serviceability

Lenders assess the rental income from all tenancies and apply a serviceability buffer to ensure the property can cover loan repayments even if one or more tenancies become vacant. A building with long-term leases to established tenants is viewed more favourably than one with month-to-month agreements or vacancies. In Bentleigh East, ground-floor retail tenanted by medical, allied health, or professional services typically offers more stable income than hospitality, which can be subject to higher turnover.

If a tenancy is vacant at the time of purchase, lenders will either exclude that income entirely or apply a conservative estimate based on comparable properties in the area. A building with two of five tenancies vacant will face a lower borrowing capacity than one fully leased, even if the purchase price is the same.

Documentation and What Lenders Require

Lenders will request a detailed rental schedule showing current leases, lease expiry dates, rent reviews, and any options to renew. You'll also need to provide outgoings statements covering council rates, water, insurance, body corporate fees if applicable, and maintenance costs. Your accountant may need to prepare a cash flow projection showing expected income and expenses over the loan term.

In our experience, buyers who provide a clear breakdown of tenancy details and realistic income projections early in the application process move through assessment more efficiently than those who submit incomplete information. Lenders want confidence that the property will generate sufficient income to service the debt without relying entirely on your personal income.

GST, Tax, and Structuring Considerations

Purchasing a mixed-use property can trigger Goods and Services Tax depending on whether the sale is classified as a going concern and whether the seller is registered for GST. If GST applies, you may need to account for this in your funding structure or claim input tax credits if you're registered. Your accountant and solicitor should review the contract of sale before you exchange to clarify any GST obligations.

Ownership structure also matters. Some buyers hold commercial property loans in a trust or company structure rather than in personal names, depending on asset protection goals and tax planning. Lenders assess different structures in different ways, and some may charge higher rates or require additional guarantees if the borrowing entity is a company or trust.

Zoning and Council Regulations in Bentleigh East

Mixed-use properties in Bentleigh East typically sit within a Commercial 1 Zone or Mixed Use Zone under the Glen Eira Planning Scheme, which permits both retail and residential use. If you're considering changes to the building such as converting commercial space to residential or adding additional units, you'll need to confirm what's permissible under the current zoning and whether a planning permit is required.

Lenders want assurance that the property is being used in accordance with its zoning and that any future development plans are achievable within the planning framework. A property with unauthorised use or unapproved modifications can be difficult to finance and may require rectification before settlement.

How Settlement and Drawdown Work

Commercial property settlements follow the same conveyancing process as residential, but lenders may require additional conditions to be met before releasing funds. These can include final valuations, confirmation that leases have been assigned to the new owner, evidence that insurances are in place, and verification that all council and statutory requirements have been satisfied.

If the property requires immediate work such as repairs or fit-outs to attract tenants, you may need to arrange separate funding or negotiate a progressive drawdown arrangement with your lender. Commercial finance structures can be tailored to suit different scenarios, but this needs to be discussed before you commit to a purchase.

When to Speak with a Broker About Mixed-Use Finance

Talking to a broker before you make an offer allows you to understand what's achievable and whether the property you're considering will meet lender criteria. We regularly see buyers who fall in love with a building only to discover that the tenancy mix, lease terms, or valuation don't align with what lenders require. Starting the conversation early means you can make an informed offer and structure your finance in a way that supports both the purchase and your longer-term goals.

If you're looking at mixed-use property in Bentleigh East or nearby areas, call one of our team or book an appointment at a time that works for you. We'll walk through the numbers, lender options, and what you'll need to put the funding in place.

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