Overcoming Obstacles to Owning Your Dental Practice Real Estate
What are the primary reasons dentists undertaking start-ups opt to LEASE their space rather than OWN it? The two most common reasons I hear are:
1. Availability of Suitable Property: Prices don't align, and there's limited supply.
2. Difficulty Financing: Affording the downpayment (10-20%) or concerns about taking on more debt.
So, how do you tackle these obstacles? Firstly, you need to determine if owning your real estate is worth the effort. If the numbers make sense, I wholeheartedly believe that every practice owner benefits from property ownership. Long-term financial benefits and the control that comes with ownership outweigh the drawbacks of leasing. Negotiating leases can feel restricting, especially when you're faced with conceding to landlords or relocating.
Commercial leases differ from residential leases; tenants often shoulder property maintenance and repair costs. If you're investing significant amounts into building out a space and subsequently maintaining it, why not benefit from tax advantages, appreciation, and equity growth as a property owner?
Here's a brief guide to overcoming these common hurdles:
Availability: Expand your options. Consider vacant commercial properties like former bank branches. These spaces, ranging from 2000-4000 square feet, can be converted into dental offices within your build-out budget. Additionally, look at expanding your budget; new medical condos, office spaces, or retail units sitting on the market for a while might be priced lower, yet hold value relative to their cost. Buying below market value instantly creates equity, making financing easier.
Difficulty Financing: Owner-occupied real estate reduces down payment requirements. Some lenders ask for 10-15%, while others may loan the full purchase amount. Alternatively, consider a capital partner solely for the real estate. This collaborative approach allows ownership and control from the start, benefiting both parties.
Debt can be daunting, but if your income from assets exceeds debt payments, it's very manageable. The perspective on debt varies, but if you trust your success as a practice owner, extend that trust to owning your real estate!
—Dr. Reed Faldet