- Discover the advantages and disadvantages of leasing, building or buying as a doctor or other healthcare professional
- There are important financial considerations as well as added responsibilities of operating as a landlord in the medical field
- Being aware of the risks, extra costs, and other industry requirements may help you determine the right strategy for your healthcare small business
Doctors and real estate professionals may consider becoming property owners as they progress through their careers, and doing so can make strategic sense. However, there are additional responsibilities, such as specialized insurance requirements, compliance with healthcare-specific regulations, and significant capital demands.
According to CBRE Group, Inc. (CBRE), a reduced inflation rate and the potential for lower interest rates could help the US healthcare real estate market in 2025.[1] Amid demographic shifts, technological advancements, and new medical-services delivery models, there could be tailwinds in this slice of the property market.
It begs the question: Should you lease, build or buy? We’ll wrap things up with an overview of the factors you should weigh with this important business decision.
Pros of Owning Your Practice’s Building
1. Greater Control Over Your Office
Being your own business landlord means you can tailor your space to your desires, ensuring that it meets the specific needs of your patients. The freedom to bypass a property manager’s requirements can reduce headaches and increase customer or patient satisfaction and wellness outcomes.
2. Building Equity and Possible Appreciation
Like being a homeowner, accumulating equity rather than paying high rents could make sense if you plan to stay put for several years. Depending on the real estate market and healthcare industry trends, owning a property might result in significant appreciation. One day, when you look to exit your practice, selling the property may lead to a liquidity event that can help you retire more easily.
3. Tax Benefits Unique to Medical Professionals
You may be able to deduct certain items related to owning and managing the property where you practice. There could be added benefits for a healthcare facility, such as depreciation. Setting up a separate legal entity could help harness such benefits. Sitting down with a CPA or tax expert may help uncover all the possible upsides.
4. Rental or Leasing Income
Compared to being a tenant, you can rent out unused space to fellow healthcare professionals, such as specialists, laboratories, or pharmacies, thereby generating income to reinvest in your medical practice. You might even garner referrals to your practice at the same time.
Cons of Owning Your Practice’s Building
1. Capital Requirements
While there are many possible benefits, a significant capital commitment is one of the hurdles to being a property owner. You should have a cash flow plan to meet all financial obligations, including, a down payment, closing costs, a mortgage, taxes, and insurance.
Healthcare entrepreneurs, specifically, should prepare for expenses for permanent installations – purchasing diagnostic equipment or outfitting surgical rooms may be costly. For instance, a radiologist may face high expenses for procuring, installing, and upgrading X-ray and MRI machines.
2. Insurance & Healthcare Property Licensing
Along with the usual market-related risks of owning a property, there may be additional insurance requirements if you’re a medical professional. Property coverage extends beyond bricks and mortar; insurance options for clinics, rehab facilities, or assisted living centers (depending on your practice type) must be analyzed to determine appropriate coverage.
State regulations might also make licensing procurement and accreditation time-consuming and costly. As a result, you could find it advantageous to hire a compliance specialist so you can focus on helping patients. Furthermore, understand and comply with accessibility standards issued under the Americans with Disabilities Act (ADA).
3. Reduced Mobility
Renting or leasing allows owners to be flexible and nimble. You can execute on relocation opportunities based on healthcare market conditions and prevailing demand trends and technologies. The downside is that as a property owner, you may feel locked in by ownership and face prohibitive costs and illiquidity with your building.
4. Management Responsibilities
Along with the financial obligations of managing a healthcare facility, there are physical demands. If you choose to rent or lease out space, the onus would be on you to make or arrange for repairs and handle issues with a problematic tenant. Leasing could be the right fit if you have less need for specialization and would benefit from lower upfront costs. Furthermore, leasing can provide more flexibility due to their limited terms.
Lease vs Build vs Buy: Which is Best for You?
Perhaps you are still unsure whether buying is the ideal decision for your practice. We can widen the view by analyzing the leasing and building paths. The aim is to help you meet your business needs and long-term financial goals.
Leasing offers flexibility and lower upfront costs, which may be ideal for a growing business that may need more space in the future. It could also be the preferred option if you don’t want to deal with property maintenance. The price you pay is sometimes dictated by market conditions; a weak commercial real estate market may lead to more favorable lease terms. Over time, though, it's possible that accumulated rent payments could make leasing more expensive than owning.
Building, on the other hand, provides maximum customization potential. If your practice has many unique needs that traditional facilities can’t meet, then having a say in the construction process could make sense. Be prepared to invest significant time, effort, and a large upfront payment, however. You must also be well-versed in zoning regulations and have confidence that you can find qualified contractors.
Talk to a PNC Specialist Today
There are many factors to consider when determining whether owning your practice’s building is the optimal strategy, and you might feel unprepared. PNC Bank is here to help with your financing needs.
We provide small business resources and guidance to help entrepreneurs, including healthcare professionals, grow while understanding risks. With the right knowledge and assistance, you can take the next step in maximizing your practice’s potential.
