When it comes to Leasing vs. Buying Medical Office Space, there are pros and cons to both options. It can be difficult to decide which is the best option for your business. In this blog post, we will discuss the pros and cons of both leasing and buying medical office space so that you can make the best choice for your business!
When it comes to medical office space, there are two main options: leasing and buying. Many factors affect the decision-making process for each option, including location, length of lease, and cost.
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Pros of Buying Medical Office Space
Buying medical office space is a smart move if you have a solid plan in place. You should also have the financial resources to purchase the property, as well as the time and patience required to find a suitable location.
Here are some reasons why it’s worth buying medical office space:
Freedom and control
This is especially true if you own medical practice, or if you are an independent contractor that works from home. You can work from anywhere and make your schedule, so long as there is good internet access in your location.
If you want to be able to take time off whenever needed, it’s important to have a place where you can go and still earn money. In addition, If you are self-employed or an independent contractor, having a medical real estate space gives you this freedom. This way, if you need time off for vacation or personal reasons, you don’t have to worry about losing income because you have another source of income coming in.
Lastly, you also have control over what happens at your location. You can decorate it any way you please as long as it meets code requirements, and this allows more flexibility when it comes to making decisions about how things should look and feel in the space.
Financial gain: build your wealth
The skyrocketing demand for medical office space has created a shortage of property in many parts of the country. This has led to increased prices for medical office space and other commercial real estate properties. If you are lucky enough to find a good deal on medical office space, you can make a fortune by buying and selling it later at a higher price. The high demand for medical office space makes it a lucrative investment opportunity for many people.
Additionally, the space can be used for other purposes if the need arises. For example, if your practice grows and you need more room for your patients, the extra space can be rented out to another business.
Other financial benefits of owning your medical practice include:
Tax Advantages
In addition to being able to deduct various expenses as a business, you may be able to deduct more than other types of businesses because you’re self-employed. You can deduct your health insurance premiums, self-employment taxes, and any regular expenses that you have as a business owner. In addition, you can also write off items like home office expenses and travel costs related to business travel.
Cons of Buying Medical Office Space
When you’re considering a move to a new location, it’s important to understand the pros and cons of your option. Buying medical office space or renting can have its benefits, but there are also disadvantages of each.
Here are some considerations for buying medical office space:
Lack of flexibility and cash flow
One of the main disadvantages of buying medical office building is that it can tie up a lot of your cash. This can be a problem if you need the money for other purposes, such as expanding your business or investing in new equipment. In addition, if you have to move for any reason, it can be difficult to sell the property quickly.
It can also tie up a lot of your cash flow. In addition to the purchase price, you’ll also have to pay for things like renovations, furniture, and other start-up costs. This can be a big financial burden for a new business or one that’s just starting to grow.
Protection and due diligence
When you buy medical office space, you’re also responsible for protecting the property from things like fires, theft, and vandalism. This means that you’ll need to have insurance in place to cover the cost of repairs or replacement if something happens to the property. In addition, you’ll also need to do your due diligence to make sure that the property is up to code and that there are no outstanding liens or judgments against it.
If you’re buying an existing medical practice, you’ll need to do your due diligence to make sure that the previous owner didn’t leave any unfinished business. This includes checking for things like unpaid bills, outstanding lawsuits, or other problems that could come back to haunt you.
Opportunity cost
One of the biggest disadvantages of buying medical office space is the opportunity cost.
Opportunity cost is the amount of money you give up by choosing one alternative over another. So, when you buy a medical office space, you are giving up the opportunity to invest your money somewhere else.
For example, if you have $500,000 to invest, you could buy a medical office for $250,000 and use the other $250,000 to invest in stocks, bonds, or other types of investment.
However, if you choose to invest the entire $500,000 in the medical office, you’re missing out on the potential return from investing in other opportunities. This is a big risk that you need to consider before making any decisions.
Pros of Leasing Medical Office Space
If you’re looking to open a new medical office, or expand your current one, you may be wondering whether to lease or buy. There are several benefits to leasing medical office space that may make it a better option for your business.
Score a prime location
If you lease, then you have more control over where your office goes. You can choose a location that has high foot traffic and plenty of parking. You can also choose to be close to other businesses and services that will cater to your patients, like pharmacies, dentists, and clinics.
If you buy an office building, then you may not be able to get this kind of exposure for your business. The location could be in a less desirable area or one that does not have as much traffic as it needs for success.
Flexibility
Medical practices, dental offices, and other healthcare providers are constantly growing and changing. This means that you may not be able to predict future growth and the need for office space. The ability to expand when you need it is crucial to your success.
Leasing medical office space allows you to grow with your practice needs. If a client comes in with their family, or if your current patient list grows significantly, you can simply move into another suite in the same building or find another location that better fits your needs. This can save time and money by avoiding the cost of purchasing additional property or equipment while still providing the flexibility needed to run a successful practice.
Frees up your working capital
When you buy a medical office space, you have to pay the entire purchase price upfront. This can put a strain on your working capital, which is the money that you use to run your business day-to-day.
Leasing allows you to free up your working capital so that you can use it for other things, like hiring staff, buying equipment, or marketing your business.
Rent is usually the biggest expense for healthcare providers, so freeing up your working capital can make a big difference in your bottom line.
Other financial benefits:
No equity
You don’t need to put any money down when you lease medical office space. This can be a big advantage if you don’t have a lot of equity or if you’re trying to conserve your capital.
Leasing also allows you to try out a location before committing to it long-term. This can be helpful if you’re not sure if a certain area is right for your business.
If you do decide to purchase medical office space, you can use the money that you would’ve used for a down payment to invest in other things, like marketing or new lease medical office equipment.
Lack of stability
Leasing medical office space gives you the flexibility to move if your practice outgrows its current location. However, this can also be a disadvantage if you’re looking for stability and security.
If you lease, you’ll have to renew your lease every few years, which means that your rent could go up. You may also have to move if your landlord decides to sell the property or if they need the space for another tenant.
Buying a medical office gives you the stability and security of owning your own property. You won’t have to worry about renewing your lease or being forced to move.
Of course, this comes with the risk that you could be stuck with a property that you can’t sell or that doesn’t fit your needs anymore.
Limited control over maintenance, renovations, and improvements
When you lease medical office space, you usually don’t have much control over maintenance, renovations, or improvements. This can be a downside if you want to make changes to the property to better suit your needs.
For example, if you want to add a new entrance or exit to the building, you’ll likely need to get permission from your landlord. And, if you want to make any changes to the exterior of the property, like painting or signage, you’ll also need approval.
If you own your medical office space, you have a lot more control over maintenance, renovations, and improvements. You can make changes to the property without having to get permission from anyone.
Discover a Simpler Way to Bill
Leasing medical offices are often located in a building with other medical providers, and some of them may be billed through the same insurance company. This means that you can create a practice with multiple providers and share the billing responsibilities, which can make your life easier.
Availability
If you’re looking for a medical office space to lease, you may be able to find a short-term lease. This can be a good option if you’re not ready to commit to a long-term lease or if you’re not sure how long you’ll need the space.
Short-term leases are often more expensive than long-term leases, but they can give you the flexibility to expand or move your practice as needed.
Now that you know the pros and cons of leasing vs. buying medical office space, you can make the best decision for your practice.
Concessions
When you lease medical office space, your landlord may offer concessions, like free rent for a certain period. This can be a great way to save money when you’re first starting.
However, it’s important to read the fine print before signing a lease. Some landlords will require that you sign a long-term lease in order to get concessions, which could tie you into the property for longer than you intended.
It’s also important to ask about other fees, like CAM (common area maintenance) charges, that could be added to your rent.
When you’re considering leasing medical office space, be sure to ask about any concessions that may be available.
The Cons of Leasing a Medical Building
Leasing a medical building is a smart financial move for many medical practices and other businesses that need space. However, there are some disadvantages to leasing that you should consider before making your decision.
The Cons of Leasing a Medical Building
Prices Likely to Going Up
Some medical professionals may have no choice but to lease, but this isn’t always the best choice. The rent goes up over time, usually once a year. In addition to the rent, the costs of building out space can be very high.
Not Good Enough Spaces
Because they have limited funds, some medical professionals may have to settle for spaces that aren’t great for growth. Each market is different, but one market may not have any large facilities that rent for low prices. In these situations, medical professionals will have to plan a lease length that takes into account their near future.
The Building is Old
Leasing may also be a bad idea if the building doesn’t have good bones. If it’s an old building, it may not have been well-maintained and could require a lot of work to bring it up to code. This can be very expensive and time-consuming.
Before you decide to lease medical office space, be sure to weigh the pros and cons.
Here are some additional headers and content covering the pros and cons of leasing versus buying medical office space:
Key Factors When Evaluating Medical Office Leases
When considering a medical office lease, pay close attention to term length, rent increases, responsibility for maintenance/repairs, and termination policies. Consult an attorney to negotiate favorable terms.
Understanding the True Costs of Your Lease Commitment
Look beyond base rent when assessing the costs of a medical office lease. Factor in common area fees, insurance obligations, property taxes, and any landlord pass-through charges. Confirm total occupancy costs before signing.
Buying Existing Medical Practices: Valuation Considerations
When acquiring an existing medical practice, properly valuing the purchase involves more than just the office space itself. Carefully assess the value of patient records, equipment, staff, and goodwill built up with referral sources.
Ensuring You Pay a Fair Price for a Practice
Seek professional guidance from attorneys and valuation consultants when buying a medical practice. They can help objectively assess all tangible and intangible assets to determine fair market value and negotiation parameters.
Evaluating Medical Equipment Leasing Alternatives
Compare costs and cash flow implications across financing options like equipment leases, loans, or buying outright. Weigh flexibility, obsolescence risks, and options at lease end prior to committing.
Modeling the Pros and Cons of Different Approaches
Create detailed cost models for medical equipment under different finance scenarios. Compare out-of-pocket costs, monthly payments, and risks to determine the optimal approach for acquiring needed equipment.
Leasing vs. Buying Medical Office Space FAQs
Is medical office space a good investment
It can be, but it’s important to do your research before you invest. You’ll need to consider the location, the condition of the property, and the potential for growth in the area.
Why would a hospital choose to lease capital property rather than purchase
There are several reasons why a hospital might choose to lease rather than purchase the property. It may be more cost-effective, or the hospital may not have the capital to make a purchase.
Conclusion
There are a few key considerations to think about when deciding whether to lease or buy medical office space. These include financial gain, flexibility, lack of control, and opportunity cost. Ultimately, the decision comes down to what makes the most sense for your specific situation.
If you have any questions about medical office leasing or buying medical office space, you can schedule a free consultation with me!
