Should You Own or Lease Your Medical Office?
Is it better to own or to lease, a debate as fierce as whether you should put pineapple on pizza or not. Unlike the Pineapple Pizza Debate, we believe there is a right answer. At Ashton Gray, after years of guiding businesses through all kinds of major real estate decisions, we strongly encourage the majority of medical practitioners to own their own medical office real estate.
When starting a business or even simply moving locations you should plan on building a successful practice. That may sound obvious but if you’re willing to believe in yourself and bet on your own success then you’ve already completed the first major hurdle of starting a successful practice. We see plenty of doctors plan for failure by setting up operations to merely survive the short term. It’s common for a successful medical practice to be in business at a single location for decades. So, why are medical practitioners afraid to lay the foundation for a more profitable and scalable business by owning their practice’s real estate from its inception?
Owning vs Leasing a Medical Office
There’s a common misconception that leasing is less risky than owning. This is simply not true, a lease is a liability – a bill that must be paid off. If your medical practice is on the verge of going out of business your lease will still need to be paid. But If you own your own office and your medical practice needs an influx of funds to stay afloat you would have the medical office to leverage as an asset to pay off other financial obligations.
Owning your own office also diversifies your assets. You’re no longer just relying on your medical practice to succeed, you’re appreciating real estate can become another source of income when you rent extra space to other businesses or eventually sell the space. It’s also one of the best hedges against inflation, an increasingly relevant issue in 2021.
On the opposite end of the spectrum, rather than doctors worried their practice may fail we see doctors who are hesitant to own because they fear they may expand too quickly. Some medical practices believe if they own their medical space they’ll be tied down to that particular building or location.
At Ashton Gray, we’re proponents of B.I.G – build, invest, and grow. If your business outgrows your current medical office then it’s an opportunity to add another asset to your real estate portfolio. This additional property can then be used as leverage to fund your expanding business and cement your future.
There’s a reason in the business world, Mcdonald’s is considered a real estate business. They’re not making the big bucks selling french fries, they’re doing it via real estate. Unlike other franchise businesses, McDonald’s owns their franchises’ real estate and collects rent from those franchises. McDonald’s also reaps the massive tax benefits of owning commercial real estate, such as depreciation deductions, tax credits, and non-mortgage tax deductions. You don’t have to own a massive fast-food empire to benefit from these tax breaks either.
Speaking of rent, it shouldn’t go without mentioning that owning your own medical office is an investment in your business. Renting, on the other hand, is an investment in someone else’s business, which would you rather do?
Building Your Own Medical Office
Owning your own medical office not only allows you to build financial security but also allows you to create the business you want. This includes creating the space best suited to the needs of your patients. A well-designed office building can have measurable positive effects on a patient’s health. It also has ramifications for the business side, you’ll want your medical office to project the same amount of care and attention to detail as the services you offer. If a building isn’t up to modern standards, a patient could lose faith in the practice’s ability to do their job or believe they would be better assisted elsewhere.
This applies to potential employees as well. As the medical field’s labor shortage continues, companies need to get creative to remain competitive at attracting top talent. A modern medical office with modern accommodations or an attractive location can be a huge tool in the hiring process.
Okay, Should I Ever Lease Then?
9 out of 10 times owning your own medical office is the option that’ll create more value for your business in the long term. If you’re planning on running a successful business then owning just makes more sense. So when is the right time to lease?
When rent rates are low or the property market is down, then leasing might make sense. Even then we advise that you partner with a professional that can help you negotiate the lowest possible rate. In addition, we urge that you create an exit strategy for your lease, so you’re not spending too much time throwing away business equity in the form of rent.
The best time to buy or build real estate was 20 years ago, the next best time is today. If you’re interested in partnering with an experienced real estate company that has helped medical practices of all sizes build and own the medical office they always envisioned, we’d love to chat.