When it comes to running a doctor’s office, you can either lease or purchase commercial property to practice from. Which option is better? Much of this depends on your own situation, comfort level and future plans. Yet another consideration is that leasable space is much more plentiful while retail properties for sale are not.
Doctors can dream of purchasing land or constructing their own building. The main reason that dream cannot, or does not, come to be is this: approximately 98% of all suitable commercial space is for lease, not for sale. Yes, it’s that simple. Many good locations for a practice such as office towers and strip plazas are already owned by a landlord who does not want to sell you the property, but rather wants you as a long-term, rent-paying tenant (and doctors, typically, are very desirable, steady tenants who can remain in the same property for 20 – 30 years – and beyond when the practice is sold).
Now, if you are in the enviable position to consider purchasing a site, there are several opportunities in which you may be able to purchase property: a business condo where you occupy the one unit, a strata title unit, small strip plazas or centres where you’re now a landlord to other tenants as well, or standalone buildings on a small piece of land. Major factors that impact this decision for the average doctor tenant are the long-term commitment of purchasing a building and the ability to obtain the financing. Before you buy or lease commercial property, however, here are just a few of the pros and cons for each process for you to carefully consider:
Pro 1: It is better to pay a mortgage than a lease because eventually you will pay off the mortgage whereas lease payments are forever. More often than not, the monthly mortgage payment is also very close to the monthly rent payment.
Pro 2: Your equity in your property will typically increase over time. The building and the land value can both increase. Obviously, appreciated value will vary from location to location and city to city.
Pro 3: You don’t have landlord hassles; you feel in control and can open and close your practice when you want. Yes, ownership is empowering and it feels great (most of the time).
Con 1: You might have to sacrifice on location strength or visibility. Many of the ownership opportunities are in secondary properties and not on the busier streets.
Con 2: You would have to move out or away from your current space giving up a well-established location that another doctor might lease. Landlords almost always try to replace one industry tenant with another so the possible competition should be a potential concern to you. If you are vacating an existing location, you may be leaving a great opportunity for a competitor to move into your practice location.
Con 3: You may have to become a handyman or deal with various ownership issues like Heating, Ventilation and Air Conditioning (HVAC) units, building maintenance, grass cutting, snow removal, etc. that otherwise a landlord would have taken care of for you.
We remember a doctor who hired The Lease Coach to negotiate his lease renewal. He was in a typical strip plaza – located across from a grocery store. We successfully achieved a $4.00/square foot rent reduction; however, the doctor explained that he would prefer to own his own property. We scoured the prime retail areas; however, there were not any suitable buildings for sale, but we found him a parcel of land on a busy street and recommended the doctor build his building as big as possible (within the city’s restrictions to allow for green space and parking around the building). While the doctor did not need the extra space himself, we explained that another tenant could lease it (supplying additional income) and facilitated a deal with an Optometrist to lease alongside. When we met this doctor again, he genuinely thanked us for our recommendation. His investment had worked out very well and he knew he could keep the building long after he retired and sold his practice.
As a final note, when making the decision to purchase or lease, don’t decide to purchase simply for the sake of owning real estate. Consider purchasing a space or property only if you would be prepared to lease that same location anyway – if your wouldn’t lease it, why buy it?
For a complimentary copy of our CD, Leasing Do’s & Don’ts for Commercial Tenants, please email [email protected].
Dale Willerton and Jeff Grandfield – The Lease Coach are Commercial Lease Consultants who work exclusively for tenants. Dale and Jeff are professional speakers and co-authors of Negotiating Commercial Leases & Renewals For Dummies (Wiley, 2013). Got a leasing question? Need help with your new lease or renewal? Call 1-800-738-9202, e-mail [email protected] or visit www.TheLeaseCoach.com.