The Benefits of Owning your Dental Office
Owning your dental practice real estate offers exceptional investment benefits, allowing you, as a practice owner, to strategically boost your long-term net worth in several ways:
1. Appreciation
2. Equity Creation through Loan Paydown
3. Tax Benefits via Depreciation and Passive Income Conversion
While the advantages of appreciation and equity creation are commonly understood, the substantial tax benefits often go unnoticed.
When you own your dental practice real estate, paying yourself rent becomes possible. This transforms your "active income" as a dentist into "passive income" in the form of rent. Why is this advantageous? Because "passive income" enjoys more favorable tax treatment. Converting more "active income" into "passive income" enables the use of "passive losses" to offset that income. For instance, if you pay yourself $100,000 in rent yearly from your real estate ownership, that translates to $100,000 in passive income. Any "passive losses" from depreciation on your practice real estate or other investment real estate (like rental properties or syndications) can be employed to counterbalance this $100,000 of passive income. Essentially, you can shelter $100,000 of income for as long as your practice pays you rent. This continues even after selling your practice and can serve as a valuable retirement income source, potentially enabling early retirement.
In my case, I have two practice locations, each leased from my real estate holding company at approximately $20/square foot NNN for 5000 square feet, with annual 2% rent increases. This equates to about $100,000 of rent per location annually or a total of $200,000 per year (rates may vary based on your location). Currently, I incur no income tax on this rent due to sufficient "passive losses" offsetting it via a cost segregation study.
Imagine being able to shelter $100-200,000 of income annually! What could you accomplish with those tax savings? Personally, I prefer reinvesting it in other passive income sources, establishing a snowball effect.
I acknowledge that purchasing real estate might not always seem viable. High price points or perceived capital inadequacies might pose challenges. However, overlooked solutions to these problems often exist, necessitating some contemplation and resourcefulness.
Should you seek guidance on owning your practice real estate, I'm here to assist. Whether it's sharing experiences, providing resources, or offering insights, I'm more than willing to help! Owning your practice real estate can present an exceptional, low-risk entry into the realm of real estate investment.
— Dr. Reed Faldet