Should you buy or lease your dental practice space?

Colin Carr, the founder and CEO or Carr Realty — specializing in dental practice space — outlines the pros and cons or leasing versus buying property for your dental practice.

Since the introduction of the GI Bill after WWII, homeownership has been viewed as part of the American dream and has enjoyed record highs. This same wisdom can be applied to owning the ground or space your dental practice is tied to. As the owner you may take advantage of such benefits as paying down the loan principal, building equity, receiving loan interest (if purchased by a limited liability company or similar entity and leased to your practice), property tax deductions, and more.

There are factors to take into consideration such as the stage of your career, your ideal practice location, and the quality of building you can afford. If many of the items below can be checked off, then owning may be the obvious choice for your practice.

Here are a few questions to ask yourself when choosing between leasing and owning:

  • Am I able to qualify for the loan to own my own space?
  • Is this where I will want to be located in 15 or 20 years?
  • Should I lease a smaller space for 5 or 10 years and then purchase and develop my own space when I am ready?
  • Are the carrying costs of ownership more than leasing?
  • Would my practice be more profitable if I received a large tenant improvement allowance, free rent and a build-out period?
  • What is my exit strategy? What if I need to get out in a year due to an emergency or want to retire in 20 years?
  • Are there viable purchase options where I want to be?
  • Will my practice struggle if I choose my own space or build in an inferior area verses leasing in a more desirable location?

What about future space?

Determining the amount of space you will need in the future is as much science as it is a guessing game. To put it another way, there is a ditch on both sides of this question. End up being too conservative will land you in a space that will you will outgrow and that will choke your profitability. The reduction in patient revenue may end up costing you ten times the expenses that could have been allocated to a larger space.

Also to be taken into consideration is that the smaller your practice and revenue is, the lower the value of your practice. This is an important consideration when planning your future exit strategy. With DSO growth being so explosive, there is a possibility you will one day transition to a DSO. If that becomes the case, most DSOs are not interested in four chair offices.

On the other side of the same coin, if you go too big, you will end up paying for a lot of expensive storage space.

Leasing vs. Buying

If leasing, moving and buildout costs are the two main reasons why long-term leases can present the best opportunity. The largest benefit is that they eliminate the uncertainty of “deciding as you go” in a short-term lease. To help guide you to the option that is best for your individual practice, it is best to consult with experts who will help you accurately predict the amount of space that you need.

The main consideration in this instance is making sure you obtain enough space for growth, but just enough for you to reasonably grow into during the term of your lease. This is another clear example of “one size does not fit all,” especially when it comes to dental practice space. If you anticipate that your space will need to grow in the near future, leasing may be the best option for you while considering a purchase and build-out when you are more certain of the size you will be content with for the long-term.

Owning may be the best decision for your practice needs. There are scenarios where the numbers prove that purchasing a space or paying for a brand-new buildout could cost significantly less than leasing. Even when it is more, the equity of the building, the finishes, the location and many more factors can make it the highest and best use of your money, whether it be with cash or through financing.

Or, in the end, buying may be the completely wrong decision for your practice.

Engage Dental Real Estate Experts

Just as you are an expert in all things oral health, you should rely on dental oriented real estate professionals to assist you in determining the benefits of buying vs. leasing, help you plan for the amount of space you will need for both today and tomorrow, as well as help you find that ideal practice location to help you grow for years to come. This is never a decision or process where you should be flying blind.