One of the most difficult decisions you face when operating your dental practice is choosing between buying or leasing your practice space. There are pros and cons to both options, and you must weigh them up front with care. Here are some factors to consider when deciding whether to buy or lease your office.
Buying a building usually requires you to make a down payment as a certain percentage of the purchase price. This can be a considerable outlay, especially for a small business. Leasing typically requires you to pay the equivalent of one to two months’ rent upfront. It allows you to free up working capital that you can use to grow your business.
When you purchase practice space, you acquire an asset, which builds equity and appreciates in value over time. You can also borrow against your property if the need arises. When you lease practice space, you do not build equity and, as a result, cannot borrow against your property.
Leasing practice space comes with the volatility of variable overhead costs, which can make it difficult for you to make long-term financial projections and decisions. Depending on the terms of your mortgage, buying practice space can provide you with greater cost certainty. Once you have paid off your mortgage, your practice space will be yours to sell or keep.
Leasing gives you the flexibility to move once your fixed-term tenancy ends. This is advantageous if you’re unable to forecast your space needs or you only plan to stay in an area for a short period of time. When you buy, you have less flexibility and may incur significant relocation costs. Selling a building can be difficult, especially a dental office.
Buying practice space requires you to take responsibility for property management. You must also ensure that you can afford maintenance checks, repairs and renovations. When you’re leasing, your landlord takes responsibility for property management issues. This means you can focus time and effort on running your business. This is not always the case. You should discuss items like maintenance, upkeep, etc. with the leasing company. This will typically change based on where you’re renting.
Choosing between buying and leasing practice space can be a challenge, as there are many factors to consider. Careful evaluation of the pros and cons will help you to decide on the best option for you. Discussing your situation with a BWTP CPA can take much of the headache and difficulty out of making financial decisions. We know what it takes to be a successful dentist and are here to help you every step of the way.