Should You Buy or Lease a Dental Office?
Dentists opening or expanding a practice have an important real estate decision to make: should they purchase the building or lease their dental office space? Both options can work, but each has different financial and operational implications.
For dentists considering dental practice financing, comparing the long-term costs and benefits of buying versus leasing can help determine which approach makes the most sense for the practice.
Leasing a Dental Office
Leasing can allow a dentist to establish a practice without purchasing commercial real estate.
Instead of committing capital to a building, the dentist makes regular lease payments under an agreement with the property owner.
This can provide flexibility, particularly for newer dentists who are still determining the long-term needs of their practice.
Advantages of Leasing
A lease can require less upfront capital than purchasing a building.
Depending on the lease, the property owner may also remain responsible for certain building expenses, maintenance, or repairs.
Leasing can also make it easier for a dentist to relocate or expand if the practice’s needs change.
Potential Disadvantages of Leasing
Lease payments do not create ownership equity in the property.
The dentist may also have less control over the building and could eventually face higher rent when the lease is renewed.
Lease terms therefore deserve careful consideration before signing a long-term agreement.
Buying a Dental Office
Purchasing commercial real estate allows the dentist to own the property where the practice operates.
Instead of making rent payments to a landlord, the practice or ownership entity makes payments toward the property’s financing if a commercial real estate loan is used.
Building Equity
One potential advantage of owning the property is building equity over time.
As the mortgage balance is reduced and the property potentially appreciates, the owner may build an additional business asset.
The actual outcome depends on the property’s value, financing terms, market conditions, and other factors.
Greater Control Over the Property
Owning the building can provide greater control over the physical space.
The dentist may have more flexibility regarding renovations, improvements, signage, expansion, and other property decisions, subject to applicable laws and restrictions.
Consider the Total Cost of Ownership
Buying a dental office involves more than the mortgage payment.
Owners may also be responsible for:
- Property taxes
- Property insurance
- Maintenance
- Repairs
- Utilities
- Capital improvements
These costs should be included when comparing ownership with leasing.
Location Can Influence the Decision
The location of a dental practice can have a major effect on patient accessibility and long-term growth.
If a dentist finds an ideal location and expects to remain there for many years, purchasing the property may be worth considering.
If the dentist expects the practice to change locations as it grows, leasing may provide greater flexibility.
Think About the Length of Time You Plan to Stay
The expected holding period is an important consideration.
A dentist planning to operate from the same location for many years may place greater value on property ownership.
A dentist who is uncertain about the practice’s future size or location may prefer the flexibility of a lease.
Buying Can Separate the Real Estate From the Practice
Some dentists choose to own the commercial property separately from the dental practice.
This can allow the real estate and operating business to be treated as separate assets, depending on the ownership and legal structure.
The appropriate structure should be discussed with qualified legal and tax professionals.
Renovation Costs Matter
Dental offices can require specialized build-outs for plumbing, electrical systems, imaging equipment, treatment rooms, sterilization areas, and other clinical requirements.
Whether leasing or buying, dentists should understand who is responsible for these improvements and how much they are expected to cost.
Financing Can Be Used for Real Estate
Dentists purchasing a building may have financing options specifically designed for commercial real estate.
Depending on the transaction, financing may potentially cover eligible real estate costs and other related expenses.
The appropriate financing structure depends on the property, borrower, transaction, and lender requirements.
There Is No Universal Answer
Buying is not automatically better than leasing, and leasing is not automatically better than buying.
The right decision can depend on the dentist’s available capital, expected length of occupancy, practice growth plans, property values, financing options, and long-term goals.
Final Thought
Dentists should carefully compare the financial and operational implications of buying versus leasing their office space. Leasing can provide flexibility and potentially lower upfront capital requirements, while buying can provide greater control and the opportunity to build real estate equity.
The decision should be based on the dentist’s long-term plans, the specific property, expected occupancy period, total costs, and available financing rather than simply comparing monthly rent with a mortgage payment.
