Small Mixed-Use Commercial Opinions

[Mike Trzaska]

I've been actively looking for my first rental property in the Cleveland area for the past few months, primarily I was focusing my search on duplexes, tris, and quads. I've recently been looking into small mixed-use commercial, typically buildings with 2-6 residential units and a couple storefronts.

In the same area where I have been looking for residential properties (and have been outbid on 5 offers) I am seeing small mixed-use buildings with 3-4 residential units and a store front for similar prices as triplexes in the same area. 

Looking at the income and expense numbers the mixed used properties would cash flow nicely. However, the cap rates I have seen in sales data for comparable properties are around 12%, where multi-family cap rates in the same area are around 8%. To me this small mixed used buildings look very attractive, but I am apprehensive about getting enough appreciation to cash myself and a potential investor out with a refinance in 1-3 years.

I'm looking for some guidance from those that have experience in these type of properties on the below:

-What are the drawbacks of these types of investments?

-Why such a big discrepancies in cap rate between these buildings and residential in the same area?

-Are these properties typically just a cash flow play or is there appreciation to be had in a good market?

-BONUS: Some of the properties have a bar on the ground floor, what should I consider before being a landlord to a bar?

Thanks in advance.