This guide to buying commerical real estate in Lynchburg, Virginia is not intended to be a complete list of all things relevant to the purchase of Lynchburg real estate and should not be deemed a substitute for professional advice from a Lynchburg commercial real estate agent. You should conduct your own due diligence into all aspects of a real estate purchase and depending on your situation, you should get assistance from experts, including a licensed real estate broker, a property inspector, title/escrow company, attorney, and/or financial advisor.
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What is Lynchburg Commercial Real Estate?
Commercial real estate can be any real estate other than a single-family home. The term generally applies to office buildings, apartment complexes, retail properties, warehouses, educational buildings, and manufacturing facilities. Commercial real estate may already feature an operating business on the property, such as a gas station or restaurant. Commercial real estate may also be unused space, such as a vacant lot or mini-mall.
Determine Your Commercial Real Estate Goals
Buying commercial real estate in Lynchburg can be a wise investment. Most people start buying commercial real estate for one of the following reasons: a specific business use, extra rental income, or to build equity.
Commercial Real Estate for Specific Business Use
Some people buy commercial real estate with a specific use in mind. They might want to open a store, restaurant, or bar and need a place to put it. Buying property can provide particular benefits over renting, including building equity, and the ability to manage the space without restrictions from a property owner.
Commercial Real Estate for Extra rental Income
People who buy lynchburg commercial property are also often looking for some extra income. Whether they are interested in buying a duplex, an apartment complex, or a mini-mall, renting out their commercial real estate space can be a great way to earn some extra money. In a growing market, where real estate prices are rising, someone else is helping the owner build equity. If the owner rents out half of their duplex, renters are helping pay the mortgage and build equity for the owner. Prospective owners should understand the economics and personal finance issues surrounding commercial real estate.
Commercial Real Estate for Building Equity
Equity is the value of the owner’s share in a property. When you finance a large-scale commercial real estate purchase, you are borrowing the money from a bank and paying the bank back slowly, over time. With each dollar the owner pays back, that much of their equity is growing. Think of it as the ultimate piggy bank, where every dollar you put in gives you a little more of the property. And if the commercial property appreciates in value, that single dollar can end up being worth more than a dollar. As the value of commercial real estate property increases over time, so does the owner’s equity.
Plan Commercial Real Estate Investments
No matter what kind of Lynchburg commercial real estate property you buy, real estate appreciation is usually a slow process. The prospective owner will need to create a solid business plan and account for any potential problems. Before a buyer can decide what kind of commercial real estate property they want to buy, it is important to take a few key things into account.
Financing Commercial Real Estate
Before securing financing, it is important to know exactly what the buyer can afford and how much risk they are willing to accept. They need to determine whether the rental rates can support the expenses of the property. Theses expenses may include, but are not limited, to mortgage loan payments, property taxes, property insurance premiums, building repairs, and building maintenance. The owner may find that they have other expenses, including realtor fees or fees associated with advertising available property space.
Assessing Their Skill Set
Buyers must assess their skill set. For example, if they are able to do building repairs and maintenance, they might be more willing to consider buying a building in poor condition. They may need to hire someone to handle accounting and financing, however. Likewise, if they can do accounting and financing work, they might need to hire a contractor or superintendent to repair and maintain their new property. Buyers must think about what their particular skill set brings to the commercial real estate investment. Any duties that must be performed, but which they cannot do, will be an additional cost, because they will need to pay someone else to perform those duties or fix their mistakes if they are unable to fulfill those duties properly.
Time Commitment
How much time are they willing, or able to devote to a commercial real estate investment? If they plan to pursue a full-time career in addition to investing in commercial real estate, they may want to limit their day-to-day responsibilities in relation to their investment property. For example, even though they are able to afford to buy a 10-unit apartment building, they may not have the time to properly manage the property. Day-to-day tasks might involve collecting rent payments, documenting and performing building repairs, resolving disputes among tenants, property maintenance, and so on. If they cannot perform those tasks while working another full-time job, and they do not want to pay someone to do it for them, they might want to consider a less time-consuming commercial investment property; a duplex housing unit, for example. On the other hand, if they are considering commercial real estate as an alternative career, they might find it advantageous to invest in a large commercial property such as an apartment complex or mini-mall.
Risk Tolerance
Buyers must also consider their tolerance for risk. Some types of commercial real estate properties have the potential to deliver better financial returns than other types of real estate. Generally speaking, the risk level of an investment increases as its potential for financial gain rises. Therefore, a buyer must decide how much risk they are willing to accept before they invest in commercial real estate. If you are investing in commercial real estate to supplement their retirement income, they will likely want to invest in low-risk properties. Conversely, if buyers are young and looking for maximum financial return, they might want to consider investment properties with higher levels of risk, because they have time on their side to earn back potential losses. A low-risk investment property, for example, might include buying a new duplex housing unit in an established, desirable area and renting one half while the buyer lives in the other half. A riskier commercial real estate property might involve investing in a new mini-mall on the outskirts of a growing town with the expectation that the area will continue to develop and rental prices for commercial properties will go up substantially.
Remember that the value of commercial real estate property is often averaged over a large area, but that each market is unique in its size and scope. Buyers should spend some time walking around the neighborhood. What is the rent of other similar commercial real estate properties in the area? Is there a difference in commercial rental prices depending on what side of the street the property is located on? What types of commercial properties are most valued in the area? A buyer might not want to invest in an apartment complex on the edge of an industrial area, but an out-of-business machine shop down the street might generate high rents from businesses that want to be near their business partners.
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