Finding the right medical office space is a different process for every practice. Some choose to lease, some choose to buy. There is no right or wrong answer in either direction, it really boils down to your specific needs and comparing the pros and cons accordingly. With that said, it may be helpful to ask yourself a few questions and make a list of your comparisons. Let’s talk leasing first.
Why You Should Think About Leasing Your Practice Office Space
Here is a brief list of benefits to consider before making your decision.
Fewer Upfront Expenses (Liquidity)
When you lease office space, your landlord will provide most or all of the monies required to build out your space. You don’t have to front that money yourself, plus, you don’t have to come up with additional upfront capital that is typically required for down payment and closing costs. Take away? With a lease, real estate can be much cheaper.
There are some perks to leasing your office space when tax season rolls around each year as well. You are able to write off a majority of your office space expenses, such as office supplies even the rent you pay for the office space. Keep in mind you can’t write off everything and don’t go overboard! But there are some healthy deductions that will be good for your bottom line.
Purchasing your space can be tricky if you have multiple partners. This is especially true if there is a great disparity in ages. If all of your partners fail to participate in the purchase, then the ones who opt out may suffer from negative feelings when they have to pay rent to you as “owner” or “landlord.” See what we mean? Tricky.
Cost Stability and Predictability
Fortunately, when you choose to lease it makes it easier to forecast and plan out your budget. Depending on your lease, you could be exposed to minor capital expenditures, but for the most part, when you lease a commercial property you can avoid many unforeseen capital costs. Unforeseen costs could include things like structural repairs, replacement of mechanical systems, and even roof and parking lot replacements or repairs.
Location and Market Options
When you lease, it could allow you and your practice to upgrade your location. You might find a premier or strategic locale that is great for business, but that you might never be able to afford a purchase. In most DC area markets, there are more opportunities for leasing than buying, all based on density, expense, and availability.
A nice thing about leasing is that if your practice needs to expand or downsize as time goes on, you can do so without much trouble. Needs change all the time, and what works for your practice today may not work three years from now.
If you’ve ever owned a home, then you know that owning your office space can be challenging. Often, the challenges are unexpected. By leasing, you can focus your attention on running and growing your practice, and worry less about things that could slow down your forward momentum.
Why Leasing May Not Be the Best Route
This is self-explanatory. You’re not really investing when you’re leasing property, so there is no equity being built. However, you still, as noted above, can receive tax benefits.
Variable Costs – Subject to Rent Increases
Though it is typically easier to budget for the long-term, there will inevitably be base rent increases each year that you will have to expect and factor into your budget when leasing office space.
Why You Should Think About Buying Your Practice Office Space
Obviously, unlike leasing, if the right opportunity presents itself for purchase, this can be a great avenue for the practice from an equity/investment standpoint. In most cases, property values in the DC Metro area have historically been shown to appreciate over time.
While you still get tax benefits with leasing, there are some additional tax breaks you can get as an owner of commercial office space. Typically, things like mortgage interest, property taxes, and more can be deducted.
Additional Rental Income
One nice benefit to owning your office is that you may have unused space that you could rent out to get additional rental income.
When you lock in your commercial mortgage rate, it can give your practice control over your monthly rent outlay. This eliminates the annual increase of your base rental fees often found in commercial leases.
Think long-term! Owning commercial space and having it appreciate in value over time, allows you to sell it later at a tidy profit, or fund your retirement through rental income.
Why Purchasing May Not Be the Best Route
Lack of Flexibility
If your practice is young and fast-growing, and you intend to expand in the next 5-10 years, buying your office space could put the breaks on expansion plans. However, if you’re practice is more established, or you are a smaller firm that has reached its peak in growth, opting to buy could be well worth the investment.
Unlike leasing, owning your own property requires a significant amount of cash up front. You’ll have to have enough for a down payment, as well as your closing costs and the build-out. For medical practices, this could be a heavy financial burden.
Management of Property
When you own your own office building, it’s a lot of responsibility to take on. Especially when it comes to the challenges you can’t predict: Things like a leaky roof, or an elevator that stops working, or, the price of losing tenants and having to find replacements. These problems can be deal-breakers, so it’s important to weigh your options carefully before making a decision.
If you’re struggling to decide on your next step and find yourself unable to see the forest through the trees, call Gittleson Zuppas at 301-961-1941 to help untangle the complexities and compare and choose the best option.