Q: If I am buying a dental practice, should I also buy the practice real estate?
A: All things being equal, buy the building. But, you’re usually not benefitting as much financially by purchasing the facility as you think you are. Most lease versus buy analysis come out pretty close. That being said, you are buying control over your space AND you’re buying a forced savings plan in real estate investment.
Almost every client asks me if they should purchase the building as well as their practice. Each specific building is unique enough that there is no blanket answer here. This is a decision you need to make. However, I can be your springboard to bounce concerns off and give you some financial advice.
Instead of asking me to sell you on the idea of buying, sell me on it instead. If you can’t adequately do that, then you have your answer!
Be careful of potential pitfalls of purchasing. The biggest pitfall is financial. If the total building costs are over 10% of collections, you’re looking at a castle. Don’t buy a castle or you can be in over your head with facility costs that exceed your ability.
I warn against the reverse of that as well. Don’t trap yourself and limit your potential by going too small or you’ll find that your growth is significantly limited because the facility is limited.
If you’re looking to be a single provider and you want to purchase the facility, look for a space that’s somewhere between 4-6 ops.
The choice is yours. At the end of the day, I want you to be set up for success. So if that means that you decide not to purchase the building, I strongly recommend making sure to include in the letter of intent that you have the option to buy the facility at some point. This will at least give you the option later if you change your mind after a few years.