Often doctors and physicians wonder whether renting or owning a medical office space will be a better choice. To own a medical office can vary from a multi-tenant building to an office condo. The decision to rent or own is a business decision strictly and rests on a couple of factors which must be taken into consideration. Consider the below-mentioned elements prior to taking the decision.
Pointers to Consider
Upfront Cash Outlay
While renting a medical office space typically you do not require in putting that much cash as in the case of buying. When you rent, for instance, all you require is in signing a check to pay the rent for the first month, the security deposit along with tenant improvement dollars if any above the allowance provided by the landlord. At the time of purchasing an office space for your medical needs, you will require paying for building inspections, loan fees, appraisals, down payment and improvement costs.
Room for Growth
If you rent a space and wish to grow it later, you will have the flexibility of moving within the building or taking adjacent space when it is available. Should you purchase a building which is the right size exactly while in a few years your practice grows what will you do? However, it is not ideal you could rent the space and shift to a bigger one or open another office. To grow out of the space which you own will be more inconvenient compared to growing the same when on rent. So, while choosing a medical office space consider both your current and future needs. To know more, click here.
Variable Vs. Fixed Costs
When you buy a medical building automatically you will have better control of costs as well as have a fair idea regarding your costs every year particularly when there is a fixed rate on loan. Resting on the terms of the loan you must be ready for refinancing charges. In case of rent when it is time for renewing the subject for paying market rent rates it can increase resting on the market that you are in. Here you will not possess any control over the market conditions while the tax will go up.
Appreciation
When you buy a medical office space it will turn you into an investor of the commercial real estate. Should you be in a location that is highly appreciating, you can, later on, sell your office at a good profit. Should you occupy just a part of the building that you own and give the remaining space on rent, you turn into a landlord. It can either be an endeavor that is profitable or lose money, but either way to buy medical office space and owning it will be more work compared to what you think.
Location
In most cases, the finest locations have been bought already indicating that should you desire in being in a specific location the only choice at your disposal will be to rent. In fact, on the other side maybe there will be no space available for rent in the desired location hence leaving you with two choices on hand- building a new one or buying an existing one.
Taxes
You need to consider the taxes while purchasing medical office space. Discuss with your CPA regarding your needs. While renting you can subtract the total sum you give in rent. But when you buy an office, you are capable of writing off maintenance and repairs right away however depreciation and improvements to the office will be deducted over a period of 39 years. You will also be capable of deducting property taxes and loan interest. Many practices additionally buy the medical space based under an entity then this entity will rent back space to your practice. When this is done, it will offer you higher flexibility to write off the expenses. Have a word with the attorney and CPA regarding this.
ROI
Prior to buying a medical office space you need to know the practice’s profitability. Should you receive a 20% return, you must compare this with the prospective ROI you may receive from owning a business real estate. Though some doctors and physicians made smart choices and bought a location with good returns while others may not be this lucky. When you over-leverage or overpay for the property, do not maintain the same, or the market conditions dictate it of not being a desirable location you are likely to be disappointed. The fact is you will make money during the purchase hence conduct your research and run the different numbers.
Consult with the Lender
Make your lender involved early on in order to have an idea of the terms and rates for financing.
Run the Numbers
Take the help of your accountant or CPA for creating tax benefits and financial projections for renting vs. purchasing. Ensure to include for both all of the pocket costs such as security deposits, taxes, debt service, down payments, improvement costs and more.
Considering overall it is always better to rent a medical office space if you are not financially sound for a huge upfront investment required to buy, not sure regarding the total space that you need currently or during the future and the responsibility of owning one. On the other hand, if you are established, wish to remain in the same location and are financially sound then buying a medical office space will make sense. Remember this is a vital business decision so it is essential in running the numbers for finding the best course. Buying is not everyone’s cup of tea. Do not listen to others as no two people’s situation will be the same. The best step will be to conduct your own homework, collect information and ask different questions which will guide you in making an informed decision. For best results take the help of other doctors because you can greatly benefit from their experience.
