Dermatology Office Building Loan: Owning Your Real Estate
A dermatology office building loan helps a practice purchase, build or improve the property it operates from. For many dermatologists, owning the real estate can provide more control over the space, protection from rent increases and a long-term asset that may build equity over time.
Buying property is also a significant commitment that ties up capital and adds responsibilities. This guide explains how practice real estate financing generally works, the main loan options and what lenders may review. Program rules and lender requirements vary, and nothing here is legal, tax or financial advice or a commitment to lend.
Why Some Dermatologists Buy Their Building
Practice owners consider buying real estate for a variety of reasons:
- Control: the freedom to renovate, expand or add services such as a Mohs suite or cosmetic area
- Occupancy cost stability: loan payments may be more stable than rent that is subject to renewal negotiations
- Equity: principal payments may build ownership in the property over time
- Exit flexibility: when selling the practice, an owner may sell the building, lease it to the buyer or keep it as an investment
Whether buying makes sense depends on the market, the practice’s plans and the owner’s financial goals. Our article on lease vs buy dermatology office space walks through the trade-offs.
Types of Properties Dermatologists Finance
A dermatology office building loan may be used for:
- A freestanding medical office building
- A medical office condominium unit
- A mixed-use property where the practice occupies most of the space
- Ground-up construction of a new facility
- Purchase of the building the practice currently leases
Each type has different considerations for zoning, build-out, parking and resale value.
Dermatology practices also have specific space needs. Procedure rooms, a pathology or Mohs lab, cosmetic treatment rooms and patient recovery areas may require plumbing, ventilation and electrical capacity that a general office building lacks. Having an architect or contractor review a property before you commit can help you understand the true cost of making it work for your practice.
SBA 504 Loans for Practice Real Estate
The SBA 504 loan program is designed for long-term fixed assets such as owner-occupied real estate and major equipment. A typical structure involves a loan from a bank, a second loan from a certified development company and an equity contribution from the borrower.
SBA 504 financing may offer long-term, fixed-rate options on part of the financing. Program rules generally require the business to occupy a significant portion of the property, so buildings purchased mainly as rental investments would not usually qualify.
SBA 7(a) Loans for Real Estate
SBA 7(a) loans can also finance owner-occupied real estate and may allow a practice to combine the building with other needs, such as improvements, equipment or a practice acquisition, in one loan. This can be useful when a buyer is purchasing both a practice and its building at the same time.
For both SBA programs, eligibility and terms depend on the business, the borrower, use of proceeds, program rules and lender review, and every loan is subject to approval.
Conventional Commercial Real Estate Loans
Conventional real estate loans follow the lender’s own underwriting standards. They may involve less program paperwork than SBA loans and can suit established practices with strong financials and available equity. Terms, amortization and down payment requirements vary by lender and property.
What Lenders Review for a Dermatology Office Building Loan
Lenders typically evaluate both the practice and the property:
- Practice cash flow: whether the business can support the mortgage along with other obligations
- Appraisal: the property’s value as determined by an independent appraiser
- Environmental review: lenders may require an environmental assessment
- Borrower profile: credit history, liquidity and other real estate owned
- Occupancy: how much of the building the practice will use
- Construction plans: budgets, contracts and timelines for new construction or major renovations
Ownership Structure
Many physicians hold practice real estate in a separate entity that leases the building to the practice. This structure may offer liability, tax and estate planning benefits, and it can make it easier to sell the practice while keeping the property. Lenders generally review both entities, and owners are often asked to personally back the loan.
An accountant and attorney should advise on the right structure. If the building will be owned by some partners and not others, the lease terms and buy-sell provisions should be addressed carefully.
Planning Costs Beyond the Purchase Price
Owning a building brings expenses beyond the mortgage. Budget for:
- Property taxes and insurance
- Maintenance, repairs and eventual roof, mechanical and parking lot replacement
- Build-out to adapt the space for dermatology procedures
- Closing costs, appraisal, environmental review and legal fees
- Vacancy risk for any space leased to other tenants
Keeping adequate working capital after closing helps the practice absorb unexpected costs. For more ideas on using real estate as part of growth, see our article on expansion by acquiring real estate.
Estimating Payments
You can model potential payments with our SBA loan calculator. Estimates are for planning purposes only and do not represent an offer or approval. Comparing payments with your current rent, along with ownership costs, can help clarify whether buying fits your budget.
Final Thoughts
A dermatology office building loan can help a practice gain control of its space and build long-term equity, but it is a major financial decision. Comparing SBA 504, SBA 7(a) and conventional options, planning for ownership costs and structuring the property correctly can help you decide whether owning makes sense for your practice.
US Medical Funding helps dermatologists finance practice real estate, expansion and relocation. Learn more about our dermatology practice expansion financing.
