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Purchasing office space vs. leasing office space

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  • Purchasing office space vs. leasing office space

    Hi all,

    Wondering if I can get some advice and perspective.

    I’m a 37 year old dental specialist.  I currently lease my office space for my practice. I have come across an opportunity to purchase an office condo within a professional building across the street from my current location.  The idea would be to purchase the suite, gut it, and build out a new practice in it.  This is appealing to me because it would allow me to fix my facility cost over the remainder of my career (20-25 years most likely), and I would have a paid off and appreciated (hopefully) asset at the end, which I could either sell with my practice or lease to the buyer of my practice when I retire.  It is a big upfront investment (about $750k to purchase the suite and build out a new practice), but my CPA ran the numbers (via NPV) and it all seems to pencil out versus continuing to lease over the same amount of time.

    Has anyone done this before and were glad they did?  It seems like a good financial move to own your own commercial space, but am I missing something or not thinking of something?  I would love as much input as possible.

     

    Thanks!

  • #2
    We lease our space.  The biggest issue would be flexibility, similar to a house.  If something happens to you or reimbursements or your practice, you'd be stuck with an illiquid asset.  If the numbers are a wash, I'd keep leasing.

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    • #3
      I have considered that as one of the potential negatives....it's difficult to predict the future and to factor in all these "unknowns".  What if my referral sources dry up over time, or I become disabled, or something else happens.  From a strictly numbers perspective it seems to pencil out.  I would be saving a little money every month (about $2k) purchasing the condo and building a new practice.  If I continue leasing at my current rate for another 20 years, it will cost me about $1.6 MM. That doesn't include the 3.5% rental increase per year that is built into the lease, or the cost of the lease when I would have to renegotiate it at current market rates after I exercise my remaining 5 year option in 2018.  Should a lease also be considered debt?  It would seem that once you sign, you are on the hook for that money regardless of what happens to reimbursements, your practice, or your personal life.   I understand what you are saying though and appreciate the response.  The easiest thing would be to just stay where I am.  Believe me, I'm not super excited about going through the process of moving and building out a new office.....my practice is running just fine as is.  I'm just trying to make the right financial decision long-term.

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