Doctors and Dentists Pay Too Much in Rent
First of all let’s be honest, rent is always too high. It’s overhead you inevitably have to take on and factor in to your profit/loss at the end of the year whether you’re leasing or owning real estate. Therefore it’s taking away from your bottom line. As a healthcare professional it’s important to understand that for your business in particular, it is probably the most necessary of all evils. So the question is not necessarily “how do I pay as little rent as possible”, but is more along the lines of “what is a fair market deal?”
There are two common ways that rent can get absolutely out of hand. If you purchased a practice and inherited the lease or have been leasing for a period of 10+ years, you probably know what I’m talking about. In most markets, leases carry with them an annual escalator. So every year your rent goes up. There are multiple reasons for this. Just a few of which being inflation, increases in taxes, increases in the landlord’s cost of operating the building, but the main reason is simple profit. It’s the benefit of owning real estate and why people get into the business. Can you blame them?
The reason these are the two most common reasons for the rent getting too high is because healthcare professionals invest an exorbitant amount of money into their real estate. This leads to making long-term commitments to both get a better deal from the landlord as well as to ensure they have a place to practice long term. Nothing should be scarier than having to uproot 5 years after starting a practice and then borrowing another several hundred thousand dollars from the bank to open the new location. This is also why most start-ups will take more space than they need at first, plumbing one or two exam rooms or operators, and then equipping them once they’ve grown into them.
The other situation is if you’re buying a practice. The practice is either in a space owned by the seller or the seller was leasing from his or her landlord. In either case, you’re probably buying a practice that has been around for at the very least 5 years, in which case the rent has increased to a point where it’s almost definitely above the current market rate were you to start from scratch. There’s a certain point where it makes sense to pay a premium for the convenience of the practice, this being the fact that they already have a built out office with an established patient base, equipment, and IT all in place where all you have to do is open the doors and start practicing. This doesn’t change the fact that the rent is $1,000/month more than what it should be. The premium you pay should be factored into the cost of the practice, not on the lease. The market is what it is, and long term if the numbers are the same or a little more to start cold nearby, it could make more sense than inheriting a bad lease.