Lease Versus Purchase

By Todd Perman

With the low interest rates and the uncertainty in the stock markets, many physicians are choosing real estate to diversify their investments. One of the most predictable and simple investment opportunities may be the office space used by your practice. From office condominiums to free-standing buildings there are more choices in the metro Atlanta medical markets than ever before. There are pros and cons to consider based on your own practice and your personal investment strategies.

The purchase option has given many physicians the ability to sell their practice and have residual real estate income. The real estate provides the physician a stable place to practice for years, and retirement income in the future.

On the other hand, the leasing offers flexibility in your location and size with little initial cash contribution. Depending on your situation, you may want multiple locations to practice several days a week and attract a different patient population. Leasing allows you to do this with minimal expense.

Consider all the factors before you buy or sign your next lease or lease renewal. You might start by making a list of the pros and cons and then do a side by side lease vs. purchase financial analysis for your particular best choices.

Positive Aspects:

Purchase Lease
Building equity Low cash requirement
Control occupancy cost No long term commitment
Tax savings Easy to re-locate
Can’t be forced to move
Future Rental Income

Negative Aspects:

Purchase Lease
Cash investment required No equity or wealth building
Some management responsibilities Possible increasing rents
Must sell or lease space to move practice Could be forced to re-locate

For a financial comparison, consider the effect on your practice. Will the large medical building lease bring more referrals or increase your census? Will the free parking and signage possible with ownership attract more patients? How might each location increase or decrease your patient volume? With the time frame in mind, do the math. First compare any moving costs and all the occupancy costs of each choice over a ten year period. Then you are ready for a side by side financial comparison.

On the purchase options, compute the negatives like the lost benefits of the cash outlay and any management cost or time. Then compute the positives aspects of appreciation, loan principal reduction and tax benefits. Your lease vs. purchase decision is much easier when you can see the bottom line of each choice.

For example, the principal reduction and appreciation of the property over a typical medical lease time period can easily tip scales in favor of purchase. We have helped many of our clients to secure 100% financing of the purchase of their office space including capital for equipment. If you decide to relocate, the property can be leased to another practice for income. A client recently commented upon the sale of his office space: “I originally only bought the space to have a place for my practice and to eliminate rent increases… I never expected 15 years later to profit $1,300,000.”

An experienced commercial real estate broker who understands the medical business can help you negotiate as many choices as possible and help you “do-the-math” so you are the ultimate winner of the lease vs. purchase battle.

We hope this information has given you a clearer idea of the real estate investment options open to you. If you have any further questions or would like to discuss strategies that will help you reach your financial goals, let us take you there! Contact us a (404) 477-2044 or email info@MyHREA.com.

Todd Perman is a principal with Healthcare Real Estate Advisors, a division of Lynx Real Estate, Incorporated.  For more information contact them at 404-477-2044, or www.PhysiciansAdvocate.com.
This entry was posted in Lifestyle, Money Management, Physicians, Practice Management and tagged , , . Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *