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As a Dentist, Should I Own or Rent?

Any dentist looking into commercial real estate to open a new office should have the mentality of being "pro-real estate." Instead of being afraid of financing, market conditions, and property management, remember that if you are comfortable owning a home or rental property, you will most likely be successful in owning your office real estate.

Most dentists tend to stay in a location for over ten years and in some cases, over 20 years. That being said, owning your real estate allows you to control your monthly rent, build equity, and take advantage of tax benefits.

If the PITI (principal, interest, taxes, insurance) is less than, similar, or even slightly higher (10% maximum) than a lease base rent plus common area maintenance (CAM), then it is worthwhile to think about practice real estate ownership when purchasing your practice. Regardless of whether the space you’re looking at is a condo in a medical building, a retail strip center, or a stand-alone building, ownership of the space can be a real advantage to you.

Rental rates tend to rise over a 10- or 20-year period and can reach a point where you might need to consider moving the practice. Building ownership costs tend to be mitigated from large increases over time, except for taxes and insurance. If you buy a practice as a long-term fit, then owning the real estate can help your occupancy costs stay under control for the dental practice.

Dentists purchasing commercial real estate commonly create an LLC to own the real estate separately from the dental practice. The dental practice then pays rent to the building LLC. In this scenario, the dentist might own the building jointly with a spouse or family trust. In any structure, the entity that owns the real estate enjoys interest, depreciation expense deductions, and can build equity as the principal is reduced monthly for however long the practice operates. If you purchase commercial dental office real estate today and sell the building 20 years from now, you can expect a decent rate of return on your investment.

An excellent place to start is by reaching out to the healthcare real estate broker. They will help you search properties, research demographics, and will possess the best chance of finding you a location specifically for your field of dentistry. From there, both buying and leasing options can be offered for your review. Making your dental practice purchase at the right time is paramount. When a dental practice owner has control of their real estate long-term, the result often tends to be positive. With all the various new debts dentists have today, one way to help keep costs under control is to own the dental real estate practice. Contact a healthcare real estate agent to help determine the best options and opportunities for your practice.

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