Seeking Input on a Mixed Use Development

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Hi Bigger Pockets Members! 

I posted a little over a year ago with an intro and an idea about a mixed use property. I received some great advice and now I'm back with some updates and in need of more guidance. Here is my post from a year ago: https://www.biggerpockets.com/forums/55/topics/181...

A brief synopsis of my situation: I am a martial arts school owner. 9 months ago we purchased a property on the square of my small town (30k ppl, bedroom community). So far, it has been working out really well! I had a slight concern that our membership wouldn't be thrilled about a step down in our physical building (1300sqft pier and beam), but it seems to not have been much of an issue.

Future Plans: Real estate is not my profession, but I do have plans of becoming financially independent so I have an interest in investing wisely and also finding ways to maximize profits from my business. In my mind, a mixed use facility, 2 stories of businesses on bottom and apartments on top would be the thing to do because, it would allow us to expand the size of our school in a new construction building and use the rent from other tenants to offset our mortgage. On the left of my property is a mixed use facility where the owner told me a tenant is moving out and the new tenant is moving in on the same day. To my right is a mixed use facility that is brand new and supposedly has already preleased the 6 apartments above it. 

My Questions to You: 

1.) Is mixed use a decent idea? According to wikipedia: Mixed use development is often seen as too risky by many developers and lending institutions because economic success requires that the many different uses all remain in business. Most development throughout the mid to late 20th century in the United States was single-use, so many development and finance professionals see this as the safer and more acceptable means to provide construction and earn a profit. Christopher B. Leinberger notes that there are 19 standard real-estate product types that can obtain easy financing through real estate investment trusts. Each type, such as the office park and the strip mall, is designed for low-density, single-use zoning. Another issue is that short-term discounted cash flow has become the standard way to measure the success of income-generating development, resulting in "disposable" suburban designs that make money in the short run but are not as successful in the medium to long term as walkable, mixed-use environments.

2.) I know it is different depending on the area, but can anyone in guesstimate build costs for new commercial in central Texas? 

3.) If I want a 2500sqft martial arts school, is it excessive to build a 10,000sqft building? I'm thinking 5,000sqft retail and 5,000sqft apartments above. Would it make more sense to add 1,200sqft onto the old pier and beam based on building costs? This could only raise our mortgage and not give us the opportunity to offset our mortgage with rental income.

Rental rates in my area for 1bdrm apartments are around $1.5/ft and commercial rates are $1.5-2/ft +NNN.

4.) I would just like any general advice on managing this type of property you might have. Horror stories, successes, if I'm too green to do it, etc. I'd rather have you shoot it to me straight and let me draw my own conclusions.

Thank you in advance, 

Will