At one time or another, every medical practice considers whether it is better off to rent or buy its office space. The decision varies.
We’ve compiled a few helpful factors you should consider as you evaluate and strategize your location and move.
Rent or Buy?
The Cash Flow Factor
Typically, you don’t need to invest as much money upfront when you rent as you do when you buy. For example: When you rent, your upfront cost typically comprises the first month’s rent, a security deposit, and extra dollars over the allowance to build out your medical space. When buying, pay for an appraisal, building inspections, loan fees, all the improvement dollars, and other costs.
The Fixed/Variable Cost Factor
Buying an office building gives you a good idea of what your annual costs will be, especially if you get a fixed-rate loan on the property. However, you must be prepared for costs associated with refinancing. Renting an office, on the other hand, is subject to market changes when your lease term expires. Many rental agreements also have a clause allowing for an annual cost increase tied to changes in the Consumer Price Index or some other measure.
The Expansion and Growth Factor
Buying a building to relocate may seem attractive, but factor in the potential for growth and expansion. Outgrowing a space doesn’t have to be a financial crisis. If your practice increases so much that it needs twice the space of the building you have, you can lease out the building at a profit and move your practice into a new, larger space.
Outgrowing a space doesn’t have to involve relocation. Sometimes a growing practice can avoid the cost of moving by simply leasing more space in the building it occupies (subletting). That, however, is not an option when you own a building unless you’re only occupying part of it and another space is available.
The Appreciation Factor
Buying a building opens the door to real estate investing, especially if you’re in an area of appreciating land values. If you own a building with more space than your practice needs, you will likely rent out available space to others, becoming a landlord. It can be profitable, but it can also be more work than simply renting a space.
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In general, renting tends to appeal to medical practices, especially those that don’t want to make large upfront investments. Buying makes more sense if your practice is more established, wants to be in one location for several years, has the financial resources to take on a significant real estate investment.
Whether your medical practice is growing or just getting started, Boulevard Medical Properties has the expertise and knowledge to help guide you. Avoid the pitfalls of expanding your practice; our expert staff can give you the tips to help you effectively rent or buy your next medical office.