Your office space is a major financial investment regardless of whether you lease or purchase it. Making the choice between leasing and buying can be difficult when searching for office space or evaluating your current location. Each option has pros and cons. The best decision for your business is largely dependent on your needs and expectations for the future.
You are paying for the real estate either way. Owning simply allows you to create your own equity instead of paying to build someone else’s. For your primary location, owning makes the most sense if you can. Leasing leads to loss of control over the rental rate and lease terms. In some cases, ownership can provide opportunities for cash flow such as renting out space to other tenants.
However, ownership is not all roses and daisies. As an owner, you are responsible for structural costs such as repairing the roof or HVAC system, problems that could require putting out substantial cash. Secondary or satellite locations and younger practices in the growth phases are also good candidates for leasing. Leasing is a lower risk way to spend a few years building up patient flow or saving for a down payment.
Cash flow is a very important part of the purchasing equation. When buying an existing building, most banks only finance 80% and require a 20% down payment. Depending on the location of the office and the real estate market, this may involve a substantial amount of money.
On the other hand, ground-up construction typically offers 100% financing, but the interest rate is more expensive and usually comes with a SBA (Small Business Administration) fee in order to obtain this government-backed loan.
There are a lot of options out there for financing business structures. Banks and other lenders are getting creative, especially for building ground up. For business partnerships, owning the building together as part of a building LLC allows the owners to share the financial burden.
There is no one size fits all answer. If you are considering buying real estate for your practice, have a professional run the numbers to determine affordability. Your business and financial consultant can assess cash flow, depreciation, and interest expenses to make sure it is financially advantageous for you and your business.
Still have questions on your personal scenario? Get an expert on your side to answer all the tough financial questions related to your dental practice and personal needs. Contact our team and let us help you make an informed decision.
At LenDRgroup Consulting, we care about your practice’s long-term success. Whether you need practice financing or business consulting, we are able to craft a customized plan to fit the unique needs of not only your practice, but also your career. We bring a lending platform of 300+ dental and healthcare-specific lenders, and we built this network with the purpose of helping dentists, veterinarians, and physicians. We strive to help you reach your dreams of practice ownership while eliminating the obstacles associated with practice financing.
To date, we have helped hundreds of medical professionals expand and grow their practices. LenDRgroup Consulting recognizes and understands the needs of your business and can help you avoid costly mistakes. So, let’s get started. Contact us today to schedule a one-on-one consultation.