Maybe It’s Time to Own Your Office Space
Making the decision to own or lease office space for your medical or dental practice will come up sooner or later. Are you better off owning or is leasing your best option? Here are some important considerations to digest before you make the final decision.
Upfront Cost: You are not usually required as much upfront money when you lease as when you buy. A lease most often requires the first month’s rent, a security deposit, and any extra amount over the allowance to build out your office space. When you purchase you have to pay for an appraisal, building inspections, loan fees, all the improvement dollars and more.
Fluctuating Cost: When you buy a building you have a fair idea of what your costs are going to be each year. But are you prepared for the refinance charges depending on your loan term? If you lease you’re subject to market status when your lease term expires. Some leases also have a clause allowing an annual increase tied to changes in the economic climate.
Business Growth: You may find a building that’s the perfect size right now, but what happens when your practice grows over the next few years? Outgrowing your office space doesn’t have to be a crisis. You can always lease out the building at a profit and move into a larger office space for your own practice.
The Investment: When you buy your own building, you become a real estate investor. If you’re in an area of rising land values, eventually you could sell at a profit. But if you own a building with more space than your practice needs, you’ll probably end up leasing to others, becoming a landlord. It can all be profitable or not if the market turns sour, but either way it’s more work than simply leasing office space.
Taxes: Medical practices can deduct the full amount they pay in rent. If you’re an owner of rental property can write off repairs immediately, but improvements to commercial real estate have to be deducted over many years. Depreciation on commercial buildings is also deductible spread out over many years.
The Decision: Generally speaking, leasing appeals to medical practices that don’t want to make the large upfront investment required with a purchase. You may not be really sure how much space you’ll ultimately need and would rather not have the responsibilities of owning a piece of commercial property. Buying is going to make more sense if your practice is established, you want to be in one location for several years, and you are backed by the financial resources to take on a major real estate investment.