When you decide to retire from your medical career, whatwill you have to show for it? You’ll surely own some niceassets, but how will retirement treat you? Consider strengtheningyour retirement situation and gaining peace of mind bypurchasing office space now.
New physicians concern themselves with finding affordableoffice space in a good area. The office is only seen as a place to seepatients. When a physician succeedsin starting a practice, findingpatients and collecting payments,moving requires courageand thorough planning. A physicianworries about moving to anew location when their practiceis profitable and includes riskingthe loss of patients and staff. Butthe reason to do so is compellingbecause physicians do not buildsubstantial long–term equity bymaking rent payments.
Owning versus Leasing There are benefits to bothleasing and owning depending onyour situation. “New practitioners may be tempted to leasetheir office space to avoid going deeper into debt after medicalschool while established practitioners may choose leasingdue to location issues, unknown growth, property managementresponsibilities, or perceived financial constraints,” says SarahPowell, CPA and Partner, Lowrey, Zaccagni & Powell. “While allof these factors need to be considered when deciding to buy orlease a building, there are numerous benefits to buying a building.”Benefits include tax savings, appreciation of the propertyand cost segregation. “In simplest terms, cost segregation allowsthe owner to recover certain building costs over 15, sevenor even five years, rather than the entire cost of the buildingless the land being recovered over 39 years,” continues Powell.This technique provides an accelerated depreciation expense,reducing your taxable income during the early stages of ownership.Another important benefit is the long–term stability thatownership brings. There is always a risk that your landlord canopt not to renew your lease or perhaps significantly increaseyour rent at renewal.
Ways to Buy Real Estate Many options exist for buying commercial real estate in SanAntonio, including buying an existing facility, professional condoor building from scratch. While the end result is the same,each of these processes has unique challenges and advantages.When purchasing an existing building you should know the ageof the property, how it was used previously, and what improvementsare needed to make the space functional.
More steps and costs are associated with building your ownfacility, such as land acquisition, architectural design, permitting,contracting and interest carry through construction. Thesuccess of your location will rely heavily on its surroundingsand ease of access; so if you are the first to build in your area,work with an experienced broker to know what is planned inthe near future.
“We are starting to see a fairly new trend in the office marketsegment of San Antonio that has long been maturing inplaces like California, Las Vegas, Phoenix and Florida,” statesDoug Swanson, Bakke Swanson Real Estate Services. “It is theoffice condo, which is starting to take off primarily in the medicalindustry. Doctors are lookingfor ways to grow the asset columnof their balance sheet and reducetheir expenses. By purchasing anoffice condo you have the advantagesof owning and leasing space.You will build equity in your officespace, while having the convenienceof common areas not normallyseen in stand alone facilities.”
Financing your Location When considering a real estatepurchase you ultimately will ask,“what do I look for in financing?”Surprisingly, interest rate is one ofthe least important factors. The terms of the financing you securewill ultimately have a greater impact on the success of yourpractice. When pursuing financing, consider these issues:
- The required equity injection
- The length of amortization
- The proposed fees and rate structure
- The lender’s experience in heath care financing
- The lender’s ability to handle all of your banking needs
Have a well thought out plan in writing when meeting withpotential banks. Your plan should show that you have a completeunderstanding of how the new location will affect yourbusiness, including benefits and any potential downsides. Alsoprovide proforma financial statements outlining anticipatedrevenue and expense changes, while mitigating any negativessuch as decreased visibility or increased costs. If you are planningon leasing any space in your building, be sure to include estimatedlease income, as well as costs even if they will be passedon to tenants. Finally, show how the property will be owned. Inmost cases, the real estate is owned by a separate entity fromthe practice. Your banker will need all of this information tomake a qualified decision.
The ultimate choice to purchase space for your practiceis yours. When making the decision, seek sound advice fromtrusted sources such as an accountant, attorney, or banker. Ifdone diligently, the choices you make now can enhance yourfuture success.
