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5 Financial Benefits of Owning Your Medical Practice

Updated: Nov 1, 2023

Running your own medical practice requires you to write a check each month for your team and your office space. Likely, your rent is probably your second highest cost right next to your payroll. Let’s look at the benefits of owning your own office to help optimize this expense.

First, you’ll want to do some research. Looking at the potential benefits and risks along with your current financial position is a good place to start. Just like any business decision, there is no answer that fits everyone. It’s always best to get expert advice where you can. Now, let’s look at the benefits of owning your own building.

Increase Your Net Worth

Paying a mortgage on your property means that you pay yourself instead of paying rent to someone else. This enables you to have a new revenue stream without taking on extra overheads. Especially in today’s environment, you might even find that a mortgage is a cheaper option vs. rent.

Tax Savings

Usually, you will form an LLC for your practice. The practice entity can pay the LLC for rent and operating expenses by writing this off and saving on taxes. Additionally, holding the property also writes off many other expenses that reduce tax liability from the LLC. This might include expenses like mortgage interest, property taxes, repairs, maintenance, cleaning fees, landscaping, etc. The LLC can also be used to depreciate the building and other major improvements to further reduce the tax liability.

Retirement/Exit Strategy

You can increase your retirement potential by leveraging ownership of your healthcare office. When you own your own medical practice building, you can sell it and cash out on that sale. You can sign a long-term lease with a buyer, enabling you to receive additional cash flow long after you’ve sold the practice. You can even lease out the space to another tenant other than a buyer, then sell further down the line. If you are just renting, when you close shop you simply stop paying the rent but then you have no asset to work with.

Offset Your Income

If you generate losses, you can offset your income for tax purposes. These losses are typically only acceptable up to $25,000 and under the provision that you have participated significantly in the management decisions of the property. If you have opted into the LLC option, this likely wouldn’t apply to the wages you made as a doctor in your practice.

Take Advantage of Cost Segregation

Cost segregation is used as a tax tool to increase cash flow by speeding up depreciation. When you buy a property, you buy all the items inside the property, not just the property itself. The items inside have a much faster depreciating time so you can write off these items much quicker than the property itself. This will also postpone your federal income tax liability to later years, allowing for a more favorable cash flow in earlier years of your property owning.

When faced with the question of whether to own your own medical office building, it is essential to seek guidance from professionals who specialize in healthcare real estate. An expert brokerage, such as HFS, can provide invaluable support and expertise throughout the decision-making process. Our deep market knowledge, valuable resources, and powerful insights can help you navigate the complexities of healthcare real estate and maximize the value of your investment.

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