Purchasing office space vs. leasing office space

[Easdds]

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!

[jfoxcpacfp]

What do you mean by "pencil out"?

[Kamban]

jfoxcpacfp wrote:

What do you mean by “pencil out”?

Click to expand...

I took it to mean pan out.

[jfoxcpacfp]

Kamban wrote:

jfoxcpacfp wrote:

What do you mean by “pencil out”?

Click to expand…

I took it to mean pan out.

Click to expand...

Sorry to be so dense, but what does pan out mean, then? Does that imply that it is better or the same? One of my biggest faults is that I take things too literally, at least it is near the top of my husband's list.

[Kamban]

Sddds wrote:

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.

Click to expand...

In 2006 a place became available which was twice the sq footage of the place I was renting. After adding up purchase cost, renovation, annual upkeep costs and taxes, I determined that if I occupy the new property for 12 years I would match the amount I paid in rent on the old property. I would then own an office which will be twice as big in size. And this was assuming the rent in the old property remain the same ( which it would not).

I have 1 year left on the break even point.

[Kamban]

jfoxcpacfp wrote:

Kamban wrote:

jfoxcpacfp wrote:

What do you mean by “pencil out”?

Click to expand…

I took it to mean pan out.

Click to expand…

Sorry to be so dense, but what does pan out mean, then? Does that imply that it is better or the same? One of my biggest faults is that I take things too literally, at least it is near the top of my husband’s list.

Click to expand...

I don't know what pencil out means but pan out in my definition means that it will work out, will not be a loss - either break even or successful. But I am not sure if that is what is the correct definition.

[Easdds]

Hi guys,

By pencil out I meant it seems it would be advantageous. The CPA ran a Net Present Value in excel. My situation would be the opposite....the space I'm currently leasing is bigger than what I need and there is a fair amount of space that is unutilized. I'd be purchasing and building out a smaller space, which is what makes the idea work financially.

[jfoxcpacfp]

Sddds wrote:

By pencil out I meant it seems it would be advantageous. The CPA ran a Net Present Value in excel. My situation would be the opposite….the space I’m currently leasing is bigger than what I need and there is a fair amount of space that is unutilized. I’d be purchasing and building out a smaller space, which is what makes the idea work financially.

Click to expand...

Thanks for the clarification. In general, my bias is toward owning your property. More flexible, real estate tends to grow in value over the long term, can be passed along to family members at a stepped-up basis at your death so a good estate-planning tool, and you can control the rent, which is not subject to Medicare taxes. Tenants have no control over rent over the long term and your landlord could sell or pass along the property to heirs who would decide to change terms. In addition, any improvements to the property remain with the landlord. My answer would change if you weren't planning for a much shorter period (less than 5 years).

[mobilehomegurl]

If the space is an office condo, be sure to look into the maintenance fees (if any) which oftentimes go up. Condos tend to have monthly maintenance fees that are uncontrollable and can eat into your costs over time. Hope that helps!