Finding the right medical practice space is an essential step for any Dentist or Physician starting their own practice; once it has been found, the question then becomes ‘should I buy or lease the space?’ There is no right or wrong answer, either way, it completely depends on your specific needs, the local market conditions, and other important factors such as length of stay and individual risk. Here are the pros and cons of buying or leasing space to help you make the best decision for you and your practice.
BUYING OR LEASING SPACE? THE PROS
Both buying and leasing come with their own advantages and benefits that should be taken into account and compared. These are:
THE PROS OF BUYING
- It’s not ‘wasted money’ – eventually you will pay off a mortgage whereas lease payments are forever.
- Fixed costs – your commercial mortgage rate is fixed unlike in commercial leases, where base rental fees often increase annually.
- Your equity will typically increase over time – building and the land value can both increase as well as appreciated value (depending on location).
- More tax benefits – as an owner, you are eligible for additional tax breaks such as mortgage interest, property taxes etc.
- No landlord hassles – you own your property so have complete control over all decisions.
- Potential for additional income – if you’re not using all of your space, you could rent it out.
- Positions you better for retirement – owning a commercial space that appreciates in value over time could fund your rental income or bring you a big sum of money if you choose to sell.
THE PROS OF LEASING
- Fewer upfront expenses – there are no down payments or closing costs and the landlord will provide the money required to build out your space.
- Cost stability and predictability – it is easier to forecast and make a budget plan when you know that you can avoid many unforeseen capital costs such as structural repairs or the replacement of mechanical systems etc.
- Tax benefits – all office space expenses such as rent and office supplies are tax deductibles.
- Ownership structure – if you have multiple partners, leasing is an easier option when it comes to keeping the ownership structure the same. If only one partner has the finances to buy, this would lead to the other partner/s to have to pay you as ‘owner’ for the rent which could lead to tension and conflict further down the line.
- Potential for better location and market options – there are often more opportunities for leasing than buying, so you may find a premier or strategic locale for lease that is great for business or one that you might never be able to afford to purchase.
- More flexibility – if your practice needs to expand or downsize a few years down the line, you can do so without much trouble.
- You can focus on your business – owning office space can be challenging and stressful, especially when unexpected problems or costs arise. Leasing allows you to worry less and focus on moving your practice forward.
BUYING OR LEASING SPACE? THE CONS
You can’t make an informed decision about what is best for you and your medical practice if you don’t consider the disadvantage of buying or leasing space. These are:
THE CONS OF BUYING
- Significant upfront costs – the build-out, the down payment, and closing costs could be a heavy financial burden on a new practice.
- Lack of flexibility – many ownership opportunities are in secondary properties and not on the busier streets so you may have to sacrifice on location strength or visibility.
- Could hinder growth – if you plan to expand in the next 5-10 years, buying your office space could make expansion difficult. Many practices also have to change location or remodel to stay relevant to patients, so owning can make remaining competitive in your market difficult.
- Could benefit your competitor – if you are vacating an existing location that is well-established, you may be leaving a great opportunity for a competitor to move in..
- Ownership issues – owning your space comes with a lot of responsibility and challenges, especially when things go wrong. You will have to fix, repair, and replace everything which isn’t easy.
THE CONS OF LEASING
- No equity – although you receive tax benefits, no equity is being built when you lease a property.
- Subject to rent increases – it can be very difficult to budget for the long-term when your office space is vulnerable to variable costs.
ARE YOU THINKING OF BUYING OR LEASING SPACE FOR YOUR MEDICAL PRACTICE?
Need help with your decision? We can help you with your business planning, including creating a cash flow and profit strategy to ensure that whatever decision you make is a success. Just contact me via email@example.com and I’d be keen to help.