Whether establishing a new dental practice or taking steps to expand your practice, as a business owner, you face difficult choices. One crucial decision is whether to invest in commercial real estate (CRE) or to lease space. Before you decide, weigh the pros and cons of a lease vs. buy, take steps to learn the current CRE climate, and surround yourself with experts who can smooth your path.
First Step: To Lease or Buy?
A lease might appeal to you if future space requirements are uncertain, or you require cash for equipment and marketing. The upside of leasing is that it typically doesn’t require a large down payment, leaving you with cash available to focus on running your practice. Plus, you don’t have property ownership and maintenance responsibilities.
Lease arrangements have one major drawback: You aren’t investing in your future. As property values increase, your landlord — not you — benefits from the property’s investment. The landlord also might limit improvements you can make to the space. Retrofitting existing space for a dental practice could cost $150,000 or more. And, once you invest in improvements, consider that this is the space that you don’t own. If you outgrow the space, you will start over in a new location, losing your initial investment in the process.
If your goals are longer term, and you wish to use your property as an asset toward future retirement, consider buying. Purchasing property sometimes requires an up-front investment, but can often be mitigated by a lender who specializes in dental financing.
For new construction or purchased CRE, your loan can be amortized over 25 years, in some cases resulting in monthly payments similar to a 10-year lease agreement. Owning your property and building gives you a blank slate. You can develop and modify space as your office changes and grows. Or, you can allocate space to lease to other tenants, which generates a new revenue stream. Another benefit is that owning CRE property comes with multiple tax benefits.
Steps two and three will be highlighted in a follow up article.
JP Blevins joined the Live Oak Bank team in early 2011 and initially spent much of his time educating young professionals about financing and how to best maintain and grow their business. Assisting healthcare professionals in achieving the “American Dream” of ownership, JP is a Loan Officer and General Manager working exclusively with the dental and medical community nationwide.
JP can be reached by phone at 910.796.1674, or email firstname.lastname@example.org