Buying a Veterinary Practice With Real Estate
Buying a veterinary practice with real estate means acquiring both the hospital business and the building it operates in. Many retiring veterinarians own their facilities, and some prefer to sell both together rather than become a landlord.
Combined deals can give a buyer long-term control over the location, but they also add complexity to valuation, diligence and financing. This guide explains how these transactions tend to work. Real estate, tax and zoning rules vary by state and locality, and nothing here is legal, tax or accounting advice.
Why Sellers Offer the Building
Owners who hold their real estate often decide to sell it alongside the practice because they want a clean exit, do not want landlord responsibilities or want to simplify estate planning. Some sellers prefer to keep the building and lease it to the buyer, which creates a different set of decisions.
For buyers, the main question is whether owning or leasing makes more sense. Owning provides control and potential equity, while leasing preserves cash and flexibility.
Two Separate Assets, Two Valuations
A veterinary practice with real estate is really two assets:
- The practice: valued mainly on its cash flow, client base, team and equipment. Our article on how to value a veterinary practice covers these drivers.
- The real estate: valued by an appraiser based on the property, its condition, location and market rent.
Keeping the two values separate matters. If the practice has been paying the owner below-market rent, the practice’s profit may look stronger than it will under new ownership. Buyers should model a market rent payment to the property, even if they own both, to see the true earnings of the hospital.
Financing a Veterinary Practice With Real Estate
Combined deals can be financed in several ways, depending on the buyer, the property and lender review:
- A single SBA 7(a) loan: SBA 7(a) financing may cover the practice, the building, equipment and working capital in one loan, subject to program rules.
- SBA 7(a) plus SBA 504: some buyers use 7(a) for the practice and the SBA 504 program for the real estate.
- Conventional loans: banks may finance one or both pieces under their own underwriting standards.
- Seller financing: a seller may carry a note on part of the price. Lenders and programs may limit this, and seller notes are typically subordinate.
Real estate generally qualifies for longer repayment terms than goodwill or equipment, which can improve monthly cash flow on a blended loan. Eligibility and terms depend on the business, the buyer, use of proceeds, program rules and lender review, and every loan is subject to approval.
Real Estate Due Diligence
In addition to the usual practice diligence, buyers should review the building closely:
- Appraisal and title report
- Environmental assessment, which lenders usually require
- Building inspection covering roof, mechanical systems, plumbing and ventilation
- Zoning and permitted use for a veterinary hospital and any boarding
- Accessibility and code compliance
- Property taxes, insurance and any special assessments
- Survey and boundary issues
Deferred maintenance can be costly in older hospitals. Getting estimates for needed repairs or upgrades before closing can help with price negotiations and loan sizing.
Structuring Ownership
Many buyers place the real estate in a separate entity that leases the building to the practice. This can help separate liability and give flexibility to sell the practice and keep the building, or vice versa, later on. Lenders usually expect a written lease between the entities. Accountants and counsel should advise on the structure, including how the price is allocated between the practice and the property.
Option: Lease Now, Buy Later
If buying both at once is too much for your budget, you might negotiate a lease with an option to purchase the building later. This can let you focus your cash on the practice first. Our guide to veterinary clinic lease terms explains purchase options, renewal rights and assignment clauses.
Cash Flow Test
Lenders look at whether the hospital’s cash flow can cover all debt payments, including the practice loan and the real estate loan, while still paying the owner a reasonable salary. A combined deal that looks affordable on price may still be tight on cash flow. Running conservative projections and keeping working capital in reserve can reduce risk.
Negotiating Price and Terms
Because there are two assets, there are two sets of negotiation points. On the practice side, buyers focus on earnings, the seller’s transition period and restrictive covenants. On the real estate side, appraisal results, inspection findings and needed repairs can all support price adjustments.
Buyers should also negotiate how the closing will handle both assets at once. Separate purchase agreements, or a single agreement with clear schedules for each asset, may be used depending on counsel’s advice. Lenders typically want both pieces to close together when they are financed together.
Transition and Occupancy Planning
Once you own the building, you are responsible for it from the first day. Arrange property insurance, transfer utilities and service contracts, and identify any repairs that need prompt attention. Licenses and registrations tied to the facility or the prior owner should not be assumed to transfer, so confirm with counsel what must be updated.
When the Seller Keeps the Building
If the seller prefers to keep the property, negotiate a long lease with renewal options at reasonable terms, and seek a right of first refusal if the seller later decides to sell. Lenders financing the practice purchase typically want lease terms, including renewal options, that extend at least through the loan term.
Final Thoughts
Buying a veterinary practice with real estate can create long-term stability and equity, but it requires two valuations, extra diligence and a financing structure that the hospital’s cash flow can comfortably support. Planning both pieces together can help you avoid surprises at closing.
US Medical Funding helps veterinarians finance practice purchases, real estate and combined transactions. Learn more about our veterinary practice acquisition financing and our veterinary hospital real estate loan guide.
