Is a Medical Office Building Your Best Location Option?
When considering the best location for your medical or dental practice, the option to be in a medical office building is one consideration. Next is the decision to either own or lease. There are advantages and disadvantages to investing in your own medical office building.
Every investment has a degree of risks and rewards. Real estate has the benefit of leverage‐investing only a portion of the property cost and borrowing the remainder (today, lenders require about 30 percent cash). Medical real estate, if properly located and structured, has an additional advantage. As part of an economic environment with the proximity of inpatient, outpatient, diagnostic and other ancillary services, a synergy is created that enhances the value of what would otherwise have been a stand‐alone investment. Some of the advantages of medical office building ownership are:
- Leveraged ownership with third‐party real estate lenders
- Appreciation in value and gradual retirement of debt
- Relatively secure tenancy over time
- Ability to achieve full occupancy in a relatively short period of time
- Mid‐teen cash‐on‐cash return
- Commonality of purpose and business strategy with developers, physician owners and hospital
- Cash flow partially sheltered by depreciation during the early years
- If the ownership or partial ownership in the building is held by a medical practice, it can be used as an effective recruiting tool
- Refinancing and/or buy‐in by new physicians can create liquidity for retiring physicians
As with all real estate, there can also be potential disadvantages in medical office building investments:
- Exposure to loan guarantees (if not assumed by the developer)
- Lack of liquidity, if no exit mechanism has been planned into the investment
There are many issues and criteria to consider when choosing a new location. Even the best practitioners fail because of poor choice. That’s the reason many medical practitioners seek the professional guidance of medical real estate representatives. When you work with people who specialize in locating the very best real estate opportunities, whether buying or leasing, you are avoiding the complexities that go with lack of understanding of the industry. With focus entirely within the medical community, a medical real estate representative will do all the work to ensure you make the right choices.
Take the time to do your homework and the results will offer huge potential.