Buying Real Estate for an Ophthalmology Practice: What Physicians Should Consider
Buying the building where an ophthalmology practice operates can be an important long-term decision. Instead of leasing office space, a physician may choose to purchase the commercial real estate and build equity in the property while operating the practice.
For physicians considering ophthalmology practice financing, it is important to evaluate the practice and the real estate as two related but distinct parts of the overall investment.
Why Buy the Building?
Owning the property can provide greater control over the practice’s location and facility.
A physician may also benefit from building equity in the property rather than making lease payments indefinitely. Depending on the circumstances, the real estate could become an additional long-term asset.
Practice and Property Are Different Investments
An ophthalmology practice is an operating business. The building is a real estate asset.
They can be purchased together, but their values, expenses, and financing considerations can be different.
A physician should understand the economics of both before deciding whether purchasing the property makes sense.
Location Is Especially Important
Medical practices depend heavily on accessibility.
When evaluating a property, consider patient demographics, visibility, parking, accessibility, competition, nearby healthcare providers, population growth, and the potential for future expansion.
A property that works well for the practice today should ideally continue to make sense several years from now.
How Much Space Does the Practice Need?
Buying too much space can result in unnecessary expenses.
On the other hand, purchasing a property that is too small can create problems if the practice grows.
Consider the number of examination rooms, procedure areas, physician offices, staff areas, storage, waiting-room capacity, and potential future expansion.
What About Other Tenants?
Some physicians purchase a larger commercial property and lease unused space to other businesses or healthcare providers.
This can potentially create additional rental income, but it also introduces responsibilities associated with being a landlord.
Tenant demand, leases, maintenance, vacancies, and property management should all be considered.
Evaluate the Property’s Condition
A building inspection can identify issues that may not be obvious during a showing.
Roofing, HVAC systems, plumbing, electrical systems, parking areas, accessibility, and other building components can create significant expenses if they require repair or replacement.
Consider Future Improvements
An ophthalmology practice may require specialized improvements to accommodate equipment, procedures, technology, and patient flow.
Before purchasing a property, estimate the cost of any renovations or modifications that will be necessary.
Property Expenses Don’t End With the Purchase
Ownership comes with ongoing expenses.
These may include:
- Property taxes
- Insurance
- Maintenance
- Repairs
- Utilities
- Property management
- Association or maintenance fees
These costs should be included when comparing ownership with leasing.
Buying Real Estate During a Practice Acquisition
A physician purchasing an established ophthalmology practice may have the opportunity to acquire both the business and the building.
This can simplify control over the location, but it also increases the size and complexity of the transaction.
The buyer should understand exactly how much capital is being allocated to the operating business versus the real estate.
Buying the Property Later
Purchasing the practice and real estate does not always have to happen at the same time.
In some situations, a physician may initially lease the facility and consider purchasing property later.
This can provide additional time to understand the practice’s financial performance and determine what type of facility will be appropriate long term.
Think About the Exit Strategy
Real estate ownership can remain valuable even if the physician eventually sells the practice.
Depending on the circumstances, the owner may be able to retain the property and lease it to the practice’s new owner or another tenant.
That possibility can make the real estate decision different from the decision to purchase the operating business.
Compare Ownership With Leasing
The right choice depends on the physician’s circumstances.
Buying may make sense for a physician who wants long-term control of the property, has sufficient capital, and expects to remain in the location for many years.
Leasing may provide greater flexibility for a physician who wants to preserve capital or is uncertain about the practice’s long-term location.
Don’t Base the Decision Only on the Monthly Payment
A lower monthly payment does not necessarily mean a better investment.
Physicians should consider the property’s purchase price, financing terms, taxes, insurance, maintenance, expected appreciation, opportunity cost of capital, and potential rental income.
Final Thought
Buying commercial real estate for an ophthalmology practice can provide long-term control and potentially create another valuable business asset.
However, the property should be evaluated separately from the practice itself. Location, size, condition, operating expenses, financing, future growth, and long-term plans should all be considered before purchasing.
For an ophthalmologist acquiring both a practice and its real estate, carefully evaluating the entire transaction can help determine whether property ownership is the right strategy.
