Whether you have decided to build your own dental, medical, optometric, or veterinary practice, or you are looking to expand or relocate your existing practice, you have some important decisions to make. Do you want to lease or buy space for your practice? If you decide to buy commercial space, do you want to buy a building that will house only your own practice, or buy a larger commercial building for your space and become a landlord to other businesses in the building?
Some factors to consider that may help you with this decision-making process include:
As with almost every life decision, there are pros and cons to think about for each option.
Leasing commercial office space has far fewer upfront costs than purchasing it. Generally, the property can be leased with only a security deposit equal to about one to two months of the lease value. This frees up cash you can use for developing your practice, like investing in equipment, paying competitive wages to your team, marketing your practice, and other business expenses.
You should be able to negotiate with the landlord an allowance for making modifications to the space that will meet the needs of your specific professional practice. This is often termed “Tenant Improvement Allowances.” This term must be made a part of your written lease agreement. Do not expect this to happen based only on a handshake with the landlord.
The location of your practice is a critical factor in determining its success. This is as true for an optometrist, physician, or veterinarian as it is for a dentist. There may not be good options for purchasing a building in a desirable location that will generate enough traffic for you to build a successful practice.
Leasing may be better for predicting the success of your practice than buying space in a less profitable location. You may have increased revenue due to an ideal leased location, which makes leasing a better financial option.
Leasing gives you more flexibility if you decide in the future that you need to relocate. There may be good reasons for you to need or want to move your practice. This is a much easier process if you either wait for your lease to expire or negotiate an early release with your landlord than if you need to sell your commercial space or building before relocating.
Although not as advantageous as purchasing when it comes to your taxes, leasing does have some tax benefits. You can deduct your lease payment, property insurance, utilities, and maintenance.
Remember that after years of practice in the same leased location means you will not benefit from any appreciation in the value of the property, your landlord will.
There are significant advantages to owning both your practice and the commercial space where it is located. Some advantages are:
There are risks with any investment. Consider:
There are advantages and disadvantages to owning your own commercial building with several business suites. You use one suite for your own professional practice and lease the others to other practices or businesses. As with all other options, there are pros and cons to doing this.
Pros: You are in control of the inside and outside of the premises. You decide how the landscaping is done and what signs are put up.
You control who the other tenants are and can lease suites to those who may have businesses that enhance your own. For example, if you are a pediatric dentist, you may want to lease space to a pediatrician. If you are a veterinarian, you may want to lease space to a pet supply store.
You are building equity that you can use for your retirement. You may want to sell the building and cash out your equity. You may want to keep the building, rent your space to another professional practice, and collect rent from the new tenant as well as other tenants who are already leasing from you.
Cons: Your increased landlord duties will take away from the time and energy you could be devoting to maintaining and building your own practice. You will have to:
It is a good idea to keep your business of owning a commercial building separate from your professional practice business. Your practice should lease space from your commercial building business. This maximizes the value of each business and separates the responsibilities and liabilities between the two.
Due diligence is needed to inspect the property and consider every aspect of buying and owning the particular property. All current lease agreements need to be evaluated. Financial statements must be reviewed. The property should be inspected by a professional for any renovations or repairs that are needed.
Check to be sure any previous improvements were properly permitted and met all federal, state, and local guidelines.
Any commercial real estate purchase must not be made without conducting comprehensive financial research as part of the due diligence process. This includes a realistic evaluation of expenses:
Do not overextend yourself. Evaluate the risks before assuming too much debt. What if an unexpected expense comes up? There may be a water leak, problems with electrical wiring, roof repair costs. Do you have reserves to cover these costs? What if there is a building vacancy? Can you survive financially for the time it may take to get a new tenant?
It is highly recommended that you do not try to do this on your own. Whether you decide to search for space to lease or buy commercial real estate, at Dental & Medical Legal Counsel, we can assist you with every stage of your leasing or purchasing process.
Contact us to schedule a complimentary consultation with Ali Oromchian to see how we can help and what services we can provide to make sure you purchase the building correctly. We specialize in providing strategic legal services for dentists, optometrists, veterinarians, and other doctors.
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