Should You Buy or Lease a Medical Office for an Internal Medicine Practice?
Physicians opening or expanding an internal medicine practice often need to decide whether to lease a medical office or purchase commercial real estate. Both options can provide advantages, and the better choice depends on the physician’s financial position, long-term plans, location, and practice needs.
The decision can also have a significant impact on the practice’s cash flow and long-term financial obligations.
For physicians considering internal medicine practice financing, evaluating the differences between buying and leasing can help determine which approach may make sense for the practice.
Here are five important factors to consider.
1. Leasing Can Require Less Upfront Capital
Leasing a medical office generally does not require the physician to purchase the property outright.
Instead, the practice typically makes recurring lease payments to the property owner.
This can allow a physician to preserve capital for other business needs, such as:
- Medical equipment
- Technology
- Employee payroll
- Marketing
- Working capital
- Practice improvements
However, the total cost of leasing should be evaluated over the entire expected period of occupancy rather than only looking at the initial cost.
2. Buying a Medical Office Can Build Equity
Purchasing commercial real estate gives the physician ownership of the property.
As the property is financed and the loan balance is reduced, the physician may build equity in the real estate.
The property may also potentially appreciate over time, although real estate values can fluctuate and appreciation is never guaranteed.
Owning the property can also provide the physician with greater control over the office space and future use of the property.
3. Location Is Important Whether You Buy or Lease
The location of an internal medicine practice can affect accessibility, patient convenience, staffing, and long-term growth.
Physicians should consider factors such as:
- Patient demographics
- Population growth
- Parking availability
- Accessibility
- Competition
- Nearby healthcare providers
- Proximity to hospitals
- Visibility and traffic
A lower-cost property may not necessarily be the best option if it is difficult for patients or employees to access.
4. Buying Provides More Control Over the Property
One potential advantage of owning a medical office is greater control over the property.
A physician-owner may have more flexibility regarding:
- Office renovations
- Layout changes
- Signage
- Future expansion
- Property improvements
- Long-term use of the building
A tenant may have restrictions based on the terms of the commercial lease.
Physicians considering a long-term location may therefore want to evaluate how much control they want over their office property.
5. Leasing Can Provide Greater Flexibility
Leasing can be attractive for physicians who are uncertain about their long-term location or expect their practice to change significantly.
A lease may make it easier to relocate or expand when the current space no longer meets the practice’s needs, depending on the lease terms.
This can be particularly relevant for newer practices that are still developing their patient base.
However, physicians should carefully review lease terms, renewal options, rent increases, improvement responsibilities, and other contractual provisions before signing.
What Costs Should Physicians Consider When Buying a Medical Office?
The purchase price is only one part of the cost of owning commercial real estate.
Physicians may also need to consider:
- Down payment
- Loan payments
- Property taxes
- Property insurance
- Maintenance
- Repairs
- Utilities
- Renovations
- Closing costs
These expenses should be included when comparing ownership with leasing.
What Costs Should Physicians Consider When Leasing?
A commercial lease may involve more than the advertised monthly rent.
Depending on the lease structure, the physician may also be responsible for expenses such as:
- Common area maintenance
- Property taxes
- Insurance
- Utilities
- Maintenance
- Tenant improvements
- Rent increases
Physicians should review the entire lease agreement and understand which expenses are the responsibility of the tenant.
Can Physicians Finance the Purchase of a Medical Office?
Qualified physicians may have potential financing options for purchasing commercial real estate for an internal medicine practice.
Depending on the property, borrower qualifications, lender requirements, and financing program, commercial real estate financing may potentially be used to purchase an eligible medical office.
Physicians should evaluate the real estate financing alongside the other capital requirements of the practice.
Should a New Internal Medicine Practice Buy or Lease?
There is no universal answer.
Leasing may be attractive for physicians who want to preserve capital and maintain flexibility while establishing a new practice.
Buying may be attractive for physicians who plan to remain in a particular location for the long term and want to build equity in commercial real estate.
The decision should take into account the physician’s available capital, expected practice growth, location, cash flow, and long-term goals.
Final Thought
Deciding whether to buy or lease a medical office is an important financial decision for an internal medicine practice.
Leasing can provide flexibility and may require less upfront capital, while purchasing commercial real estate can provide ownership, control, and the potential to build equity over time.
Physicians should compare the total costs and long-term implications of both options before making a decision.
Whether you’re starting an internal medicine practice, purchasing an existing practice, or expanding to a new location, evaluating your real estate needs early can help you make a more informed financial decision.
