Would you invest?

[lucas]

There is an opportunity to invest in a building with others in my radiology practice.  Aside from purchasing our first and only house, I have no other real estate investing experience.  It should be noted that pretty much nobody else in our group has much experience beyond this also.

The property is priced at $875K and was assessed at $1 mil.  It's about 10 years old and I checked out the building and to my novice eye, appears very structurally sound and is in an expanding area of town.  It has been evaluated and given the "thumbs up" by an engineer.  Here is the plan that has been hastily put together by one person in our practice.

1 - Hoping that one of our local hospitals will joint venture and put an MRI scanner and/or CT in it, although there have been no real discussions of how or when this would happen.  And that would be IF it did happen.

2 - Would like to have one of our interventionalists  do outpatient procedures here.  These also haven't been defined and we would have to invest in equipment for this.

3 - Rent out a small amount of the space to our practice for an office manager

4 - Rent out small top floor apartment

I myself imagine the space would likely require a fair amount (I'm guessing 50-150K) of capital to update to make it useable for all the above intentions.

To me it seems like not such a great idea, but again, I have negligible real estate experience.  Others who are interested say you need to take a leap of faith, although I think there should be more details hammered out and a more sound business plan in place.  Just wondering if some of the more financially savvy on here think I'm being reasonable or if this is actually how I should be expecting a real estate business opportunity to work.

Also, not everyone in the practice will be getting involved so we will have to form a separate company for this.  Which seems like even an even worse idea to me given the conflict of interest it will create.

I've voiced these concerns to many in the practice, but I seem to be one of the few concerned.  The others that aren't interested and don't seem overly concerned are probably going to be leaving the practice sooner than later. Am I a worry wart or the only sane one?

 

[The White Coat Investor]

Could be a good deal, but the devil is in the details, like how much rent the upper part can be rented for, how much the partnership will pay the separate company (and there should be a separate company) for rent for the interventionalist/business manager office and whether the joint venture actually works out.

The way you describe it, it could really be a bad deal too.

[Hatton]

Could you approach the hospital management to gauge their level of interest?  They could view you as a competitor and cause problems.

[Complete_newbie]

Lots of lack of info here. Leap of faith indeed.

Look at income.

BOE: how long would the loan term be? Commerical RE - 10 years, at 20% down and lets say 1 million after closing and upgrade, can you make payment of ~$8500? You comfortably can IF you have that IR business.

you can hire me for and I can consult .... /s

[CM]

I would not invest given the information at hand. This may or may not offer a reasonable return for the risk and work involved. At this point, you have no idea.

You and your fellow investors have a great deal of work/research to do before you can make an intelligent assessment. You definitely do not have to take a "leap of faith." Why would you? This isn't a lottery ticket.

I would begin by talking to the hospital if you intend a joint venture. Hatton is correct that your relationship with the hospital is critical. Are you competition or collaborators?

If improvements will be needed to the building, then who will draw up the plans and who will do the work? I'd talk to those professionals and obtain an estimate, then add at least 10% to the dollars and timeline.

You probably know other radiologists who have invested in similar ventures. You ought to talk with as many as you can to learn the pitfalls you haven't even considered, and to find out how much work and profit you might expect.

Draw up a business plan with expenses, timeline, and expected revenues. Consider present and future competitors and possible changes in reimbursement in future years.

This potential venture is close enough to your area of expertise that you can make an intelligent assessment of the risk and reward if you do the work. I can't imagine why you would throw money first, then decide if it was a good idea second.

[Zaphod]

Agree with others. Could be a good deal but as presented you really have zero details ironed out. It would be very different if you already had a contract with a hospital and a fully fleshed out plan for your business interests there.

[adventure]

lucas wrote:

It should be noted that pretty much nobody else in our group has much experience beyond this also.

Click to expand...

Is this something you want to learn about? Do you have time? It'll take some effort to learn it.

Is there parking?

[VagabondMD]

This results of this scenario could range from a huge financial success to an absolute disaster, in which not only do you lose more than you have invested in the project, but it tears your group apart and you lose your hospital contract. You are developing three new businesses at once, which each require careful planning and execution.

In my mind there are a few points that will swing the balance one way or the other:

1. Is the building really a wise purchase at that price? You don't know, and I certainly don't know, but if you can buy the building and sell it for a small loss (or even a gain) if the other plans do not work, there is little harm.

2. More critically, is the JV with the hospital a go or no-go? I have personal experience with this, and we have created a very successful imaging center relationship with our hospital (and a third party) that is going on twelve years and is up to five centers. If you started today, everyone worked together on an aggressive timeline and agreed on all points, and there were no construction delays, you would probably be scanning your first patient in about nine months.

I think that my central concern with the entire proposal is that it hinges on the hypothetical JV with the hospital, which currently is only in the imaginary state. A better idea would be to engage the hospital on the idea, create the partnership, and find the right location together, which will likely not be the building already owned by the rads (conflict of interest).

3. Do all the rads really want to own a building. While I do not know your radiology group, I know radiology groups, and I would predict that if you have 30 rads, 6 are really excited about the building and pushing hard for it, 12 will go along with it with mixed levels of enthusiasm , 6 are largely against doing it, 3 are threatening to quit or retire over it, and 3 change their opinion every time the issue is discussed. (How close am I do the actual numbers? )

4. You need a real business plan for the IR doing procedures in an outpatient facility and your hospital relationships to sign off.

A better solution might be to get the people that want to invest in real estate together to buy the building (independent of the overall practice) and uncouple it from the imaging center development idea, which may or may not proceed on its own merits. Same with the IR business plan, which should not be forced just because you have space to fill in your building.

[Ghetto]

It's been 5 months since the original post. What's going on with this situation?

[Dreamgiver]

Leap of faith? Stop right there. There is no such a thing as a leap of faith in the business world. It is strictly data driven, that is, if you want to succeed...

So in short I would not invest with the info provided. To the person/group "offering" this opportunity you are just a rich doctor waiting to be suckered in. Nothing more, nothing less. Except they make their living doing these transactions and know every little detail about them. You don't.

[mobilehomegurl]

If the building is commercial, find out what its use was before it was put on the market. That will give you more information in terms of the costs you will incur to rent out "as-is" versus fixing it up for "medical" use. From the commercial real estate investing classes I've taken, medical is one of those asset classes which require more money to get office space up to use (versus a regular office). Of course this will depend on what the space is used for and what is needed. You may want to connect with a commercial broker well versed in finding and locating medical type tenants for some input. Good luck with the opportunity!