Dental Office Space: Leasing vs Buying

  • 1 year ago
  • 1

Dental-Office-Space-Leasing-vs-Buying

In medical real estate, the most common question is whether to buy or lease dental office space. Choosing ownership over an association with a medical space is a big decision. You have decided to become a business owner. What should you do now? Should you buy property or rent space? To help ensure you make the right decision, we bring you the article to help you decide whether you should lease or purchase dental office space.

This article covers everything you need to know about leasing and buying a medical space, including its advantages and disadvantages.

Advantages of Buying Dental Office Space

There are many “pros” to buying a dental office space.

1. Allows More Flexibility

You have a lot of freedom to use that area in any way you see fit when you own the property. Moreover, you have control and management over it. You have rights over both the interior and exterior of the building, including signs and landscaping. Investing in effective signage can attract visitors’ attention and make it easier for people to find your office. As a result, your patient base grows.

2. You Have Decision Power 

Choosing your tenants is another great advantage of buying real estate. Therefore, you can hire from companies with a similar patient base rather than staying next door to competitors. For example, as a pediatric dentist, you could rent space for a children’s martial arts school, therapist or toy store.

3. You are Building Equity

You are building equity, which is one of the main benefits of real estate ownership. This equity usually increases in value over time when one buys such a property. This allows you to borrow money against the property if necessary. Additionally, you can create an additional source of income by using the rent you receive from other tenants to help pay off the property loan. If you’re lucky enough to buy a property in a booming neighborhood or during a market downturn, it will be worth more when you decide to sell it.

Factors to Consider When Buying Medical Office Building

4. No Unnecessary Expenses

Another advantage of buying dental office space is that, unlike residential real estate, you don’t have to pay any taxes on your property as the landlord of a commercial property. Often, the lessee is responsible for paying all property costs, including real estate taxes.

5. Save On Taxes

Tax breaks are also to be estimated. If you own real estate for your medical business, you can write off the interest, depreciation, and other costs associated with your property. Remember that only the interest portion of your mortgage payment is deductible, not any other mortgage-related fees such as origination or closing fees.

Read More: Commercial Leases Vs Residential Leases

Disadvantages of Buying Dental Office Space

There are many “cons” to buying a dental office space.

1. Not Easy to Relocate

If you own any type of real estate, it’s more difficult to pick it up and move to another location. If your neighborhood is declining in population, your renters move, or you need a bigger or smaller space, it’s easier to rent than to buy. Additionally, the property value may decrease due to changes in the market, taxation, interest rates, and location.

2. Huge Financial Investment

Be prepared to invest more money when buying real estate and dental practice. It is important to understand whether you are fit to make this type of commitment. You may need more funds to invest in your office, such as purchasing new dental equipment, further marketing initiatives, hiring new staff, or expanding your practice because you will have to pay a large amount with your purchase. Money will have to be arranged in quantity.

3. Require Extra Capital for Improvements

The money required to make real estate modifications is another drawback of owning the medical office building where your dental office is located. When renting space in your lease, you can negotiate for the landlord to make necessary upgrades. However, those funds come directly from you since you are the landlord.

4. Being More Active

Be sure you know your obligations and responsibilities before purchasing a larger structure and renting additional units to other tenants. While some tasks, such as collecting rent, advertising available space, and maintaining the building, may seem simple, it is important to note that being a landlord involves much more than these simple tasks.

5. Dealing with Multiple Leases

Make sure you are aware of the time commitment. You can’t be an absentee landlord if you want to maximize your return on investment. With commercial real estate, you not only have to deal with various leases but also make annual payments for the maintenance of the area, which is usually the responsibility of your tenants. Standard maintenance issues and concerns about public safety are other factors.

Important Tips For Buying Medical Office Space

Before investing in real estate for your dental business, consider the advantages and disadvantages of owning a facility. Selecting the right team is one of the most important factors regarding this important investment. Most advisors will advise you to maintain your real estate and dental practice as separate legal entities. When drawing up your lease, be sure to consult with your accountant and real estate expert.

Read More: Single vs. Double vs. Triple Net Leases

Just like buying medical real estate, there are several pros and cons to leasing, as well.

Advantages of Leasing Dental Office Space

There are many “pros” of leasing a dental office space.

1. More Freedom

Leasing gives you more freedom to choose the location where you want to start or relocate your practice. Although you give up a lot of the flexibility that comes with home ownership, renting lets you move into a property in a popular area that you might not be able to afford otherwise. This gives you, the medical professional, retail or office, the visibility that you may not be able to afford otherwise. Leasing medical space allows you to change the location of your practice if the rental price becomes too high or the environment deteriorates over time.

2. Tenant Improvement Package

Landlords will allow you to “buy out your tenancy” using what is known as a tenant improvement package, depending on the length of your lease. Tenants will receive funds from these packages to help them complete their space. As a result, you’ll be able to use that money for marketing, purchasing inventory, or hiring employees. If there is a vacancy in the current location, the landlord may allow you to expand your practice into an adjacent space or leave the space if you only need part of the space.

3. No Extra Duties/Jobs

You don’t have to worry about managing the property, which is one of the main advantages of leasing. Either the landlord manages the property directly or hires a third party. In addition to regular building maintenance such as HVAC, plumbing, roofing, elevators, window cleaning, and parking lot repairs, these services include landscaping, snow removal, janitorial, and snow removal services. The management company is responsible for repairs if something goes wrong with your area. It frees you from the need to fix ceiling tiles, stop water leaks, or change lightbulbs.

4. Less Expensive

Another thing to keep in mind while starting the practice is that cash is king. Leasing a dental space is not only much less expensive than buying one, but it also greatly reduces your overall business risk. You can free up this working capital to invest in more marketing, equipment, and an ideal location for your clinic. The initial cost of leasing real estate is one-sixth of buying it.

5. Tax Benefits

While there are tax benefits to buying a property, there are many benefits to taking it on lease. Lease payments, property taxes, insurance, utilities, and maintenance are all deductible expenses. Similarly, you can write off the entire lease agreement payment when you buy the asset and vice versa.

Disadvantages of Leasing Dental Office Space

There are many “cons” of leasing a dental office space.

1. Increasing Rent

When you rent a commercial medical space, you are personally guaranteed by the terms of the lease you signed. Ensure the annual rent increases are at market rates when you negotiate your lease. Rent will continue to increase over time. You, the businessperson, may feel more pressured to increase your monthly output to cover the rent payments.

2. Relocation Affects Medical Practice

Eventually, you may realize that you cannot stay in that location indefinitely and may need to relocate. Your practice is flourishing and growing, which can be an exciting reason for moving, but it can also be detrimental to your company. In addition to running the risk of losing a lot of patients and perhaps staff members because they decide not to move, there is also the possibility that the equipment will break when moved.

 Benefits Of Investing In Commercial Real Estate

3. You are Not Authorize to make Improvements

You cannot adjust and improve when you are in a place that is not yours. Depending on your lease and landlord, it may only sometimes be possible to modify your room to suit your needs.

4. You are Not a Decision Maker

If you choose to lease and give up your ability to make decisions, you are at the mercy of the landlord, property manager, and commercial leasing agency. You expect the landlord to be flexible, but if a large/national tenant in the building is given priority, your needs may fall into the second or third category. Furthermore, if you do not have exclusive use of the property, the landlord may use it for a competing or undesirable purpose without consulting you.

5. Not Building Equity

The major drawback of leasing is that you are not creating equity for yourself and are instead contributing to someone else’s mortgage. After paying rent at the same place for 30 years, many retired doctors lamented that they could have owned twice or thrice as much property.

6. Less Tax Benefits

The tax benefits of owning commercial real estate are not available to you. If you own commercial real estate, you can reduce your tax burden by depreciating the property over some time. Owners of commercial real estate have 39 years to depreciate their assets.

If you want to increase commercial property’s value, make thoughtful upgrades and renovations, reduce your spending, and increase your marketing.

Important Tips For Leasing Medical Office Space

Keep in mind that, as with other business-related matters, many leases are negotiable. It is advised to quickly assess the demands of your company and be aware of your costs, lease options, and termination terms. Before signing, be sure to research your leasehold upgrades and market values. More importantly, wait to sign anything right away. Talk to your attorney first.

Join The Discussion

Compare listings

Compare