The San Fernando Valley of Los Angeles is noted as being one of the most business-friendly areas of the region. The Valley, as locals call it, encompasses over 260 square miles of real estate, much of that being zoned for commercial purposes. If you have interest in buying into this area’s available real estate, such as a warehouse property, you have many options at your disposal. The process begins by conducting your own search for a warehouse for sale near you or in your ideal San Fernando Valley location.
Buying a Los Angeles warehouse in the San Fernando Valley is easier when you understand how to buy a commercial building. It also helps to know how real estate agencies determine the selling price of these properties. Below, we examine the processes of buying and valuation to make your warehouse real estate purchase seamless.
What to Expect When Buying a Los Angeles Warehouse in the San Fernando Valley
Simply conducting an online search for “warehouse for sale near me” will show you the vast number of properties available in your region. This selection of warehouses for sale proves particularly fertile in the San Fernando Valley of Los Angeles. So, what is the process of buying one of these warehouses for sale in the Valley?
Step 1: Find the Ideal Location
When buying real estate in a particular area, it is important to understand that local market. You can conduct your own research or work with an experienced real estate agent who specializes in the region, one focused on commercial properties. When looking for warehouses for sale, aspects of the market to consider include:
- Healthy local economy
- Positive growth projections
- High vehicle and pedestrian traffic
- Space for future development
Step 2: Assemble Your Professional Support
Because there are so many intricacies to buying a “warehouse for sale near me,” you will need specific types of market professionals by your side. These pros include a commercial real estate agent or broker, property appraiser, escrow officer and lawyer. If you find yourself engaged in a wide variety of activities beyond the search for a warehouse for sale, you might consider designating a project manager for your search, too.
Step 3: Evaluate Multiple Warehouses for Sale Before Buying
As a general rule, you should review and analyze multiple warehouses for sale before deciding upon one. Even if you fall in love with the first property you see, comparing other available warehouses in the market will help you discover potential benefits and drawbacks for each one. You may find that your original choice falls into second or third place after this side-by-side comparison.
Step 4: Make Your Offer
Your commercial broker will help you review the warehouses for sale toward a viable offer on your ideal choice. This step typically involves payment of a percentage up front, called an earnest payment.
Step 5: Conduct Due Diligence
It is important to take a thorough look at the financial statements of the warehouse for sale. Review their land title, expenses, survey, restrictions, covenants and other aspects of their books. If you plan to rent out space after your purchase, examine the rent rolls, too.
Step 6: Arrange Financing
Most banks expect a 20 to 30 percent down payment on warehouses for sale, just as they do for other commercial properties. Before lending you the money for your purchase, your bank will consider the debt service coverage ratios (DSCRs), including your ability to repay the loan. Currently during the pandemic, some commercials banks are getting more conservative and requesting 40% or more down for your loan.
Step 7: Close on the Warehouse for Sale
Funding escrow is the first step in closing on your warehouse in the San Fernando Valley of Los Angeles. Your escrow agent ensures the necessary funding is available before closing. You should also involve your commercial real estate lawyer at this point in buying a warehouse for sale. You will need to approve the title report and sign the documents for a deed transfer and funds disbursement to take place.
Valuation of a Warehouse for Sale
Valuation of a warehouse for sale in the San Fernando Valley works differently than valuation of a home, apartment or condo. There are more complexities involved in commercial real estate, than for residential. Below is a brief explanation of the four key types of commercial property valuation. These types include:
- Sales comparison approach
- Cost approach
- Income approach
- Gross rent multiplier approach
Sales Comparison Approach
Also called the market approach, sales comparison works well for both residential and commercial properties. The method involves comparing similar properties in the same area, called comps. It also examines recent sales data. Through a side-by-side look at property benefits and amenities, it is possible to arrive at a fair market price. The biggest hurdle in using this method for a warehouse for sale comes down to the low availability of comps in some markets.
Cost Approach to Valuation of a Warehouse for Sale
The cost approach to valuation of warehouses for sale bases the selling price on what it would cost to reconstruct the property from the ground up. This method uses land cost, required materials, labor and other calculations according to the scenario of existing structure replacement. The cost approach assumes value is equal to reconstruction costs.
Income Approach
Most commercial real estate valuation takes place using the income approach. This appraisal method utilizes the property’s expected income generation toward pricing. To use this technique, you must understand the warehouse’s net operating income (NOI) and capitalization rate, also called the cap rate.
Gross Rent Multiplier Approach
The gross rent multiplier (GRM) method for valuation is a simple technique. This appraisal divides the price of the property by its gross income. If you need a quick method for determining property value, this is one to consider.
Finding the Right Warehouse for Sale Near Me
With this brief overview of the valuation process and what to expect when buying a warehouse in the San Fernando Valley of Los Angeles, you are ready to start your search. Just remember to examine each property carefully and consider your options in the market before making a final buying decision. No matter what, you have plenty of properties in the region to choose from, along with many opportunities for return on your investment.