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I finally made partner

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  • I finally made partner

    I have finally made partner in my practice.  While the buy-in for partnership is nothing I have been offered a chance to purchase a share of our building.  What is the benefit of doing this and what are some of the pitfalls to be wary of.  FWIW...the cost of purchasing a share of the building is somewhere around 1 million.

  • #2
    First, congratulations on making partner! Just to clarify, are you saying you would have to pay $1M for purchasing one share? Sounds steep, but maybe it's on NY's East Side? How many shares are there?

    Assuming this is a million-dollar share:

    As with any investment, you should compare your potential long-term returns to the returns you could get investing your money elsewhere. I would ask for past results and an appraisal, for starters. Also, what is the calculation for selling your share or for your surviving spouse selling? As I'm sure you know, this is a highly illiquid asset and you would be the low man on the totem pole for any future decisions. How is money raised for improvements? From the partners or from debt that you would be totally liable on?

    With all due respect, being offered a million-dollar share might be a sucker's deal disguised as a privilege. Do all the due diligence possible and don't be afraid to ask questions - it's your money. Talk to your CPA and/or financial planner at length before committing to anything.
    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087


    • #3
      Congratulations. In the practices I have been involved with, there has always been a valuation of the hard asset to determine price of share. History of valuations are available.

      You need to generally be aware of how rents are determined. What other tenants if any are there. Reserves to deal with maintenance issues.

      You need to be aware of retiring or departing physicians. If your ages are not distributed evenly, especially, what are the rules for ownership? Can non practicing partners continue to own (if profitable). If one partner leaves, is there limits to when the next partner leaves. Can partners own more than one share? Remember you are responsible for cashing in the share. So if one guy retires and owns four shares you have to come up with possibly 4 mil. You don't want to be holding the bag.

      Ymmv. Every practice is different. Good luck.


      • #4
        To have a hope of analyzing the question, you need to know a lot.  The following are off the top of my head:

        • What are you buying a share of (LLC, S-Corp, etc.)?  Any other assets or liabilities?

        • Is there an shareholders agreement?  If so, get a copy and study it.

        • How many shares are there (i.e. what % of the building you would own) and what is the implied valuation of $1M for 1 share including the debt on the property?

        • How much debt / is there a mortgage on the building?

        • What are the drag along / tag along rights are (can a majority force you to sell and can you along with the majority if they decide to sell)?

        • What are your anti-dilution rights? How is valuation determined if a new share is sold?

        • What is the cap rate (i.e. what is the return on your investment from rent after costs)?

        • Is there a property manager?  What are the terms and how is he paid?

        Personally, I would rather own a REIT than an individual property if one wants to allocate assets to real estate.  REIT's give you broad asset diversification and a professional manager.  Vanguard REIT index fund is a good option.


        • #5

          Definitely do your research on this one.  Hire some help (attorney & CPA) too.  A million dollars is a lot of dollars.