When it comes to choosing a commercial space for your dental practice, you want it to have the ideal layout and be in a location with lots of traffic, both on the road and sidewalk, and be easily accessible. However, while you can put a lot of thought into those important details, there’s another big one: should you lease/rent or buy the space?
Dentists are “dream tenants” for all landlords. First of all, there is steady demand for their service with a great prognosis for their future. Second of all, dentist have to spend $250-$500 per square foot on “leasehold improvement”, underground plumbing, multiple lead lined walls, and cabinetry they will never recapture if they move. Thus, landlords know dentists will never move! So, in most cases, it makes a lot of sense for the dentist to be their own landlord.
There are pros and cons to both options, says Steve Mascarin of Toronto, Ontario, who has experience as a dentist and now helps others in the industry succeed. He shares a comparison of each to help guide your decision depending on your goals.
Buying a Space
Pro: Predictable Payments
When it comes to buying a commercial space for your dental practice, you will know how much your commercial mortgage will cost you each month (assuming mortgage rates stay the same). With that being said, you will also be able to write off all the mortgage interest from your annual taxes and several expenses required to operate the building. Steve Mascarin usually recommends a fixed mortgage for predictable monthly payments (depending on current interest rate environment).
Pro: Investment Value
Acquiring your own commercial space for dentistry also means you’re making an investment, notes Steve Mascarin. Commercial properties have historically shown positive growth in value that can benefit you down the road as you build equity, he adds.
Pro: Renovate Without Restrictions
When you own your own space, you can retrofit it the way you want and make renovations without clearing it with the landlord — as long as you’re following building codes and local bylaws.
Con: Taxes and Utilities Could Be on You
Aside from maintenance and repairs, you also have to consider commercial property taxes that vary by location and other fees that come with ownership (such as utility bills). Utility rates can change, meaning you may be paying more in the future for hydro.
Con: Not Easy To Expand
If you decide to buy a commercial space, it’s important to consider your needs for the coming years rather than just the short-term, says Steve Mascarin. That’s because if your practice grows, it’s not always simple to sell and move to another location that can accommodate it. If it’s a stand alone property you are buying, its always great to buy with an expansion strategy so you don’t have to move and lose on the huge aforementioned leasehold costs.
Con: Up-Front Expenses
If you’re buying, the up-front costs will likely be more (commercial down payments can range depending on building type and risk profile). There are other closing costs associated with closing a real estate deal such as lawyers and appraisals.
Leasing/Renting a Space
Pro: Maintenance is Often Covered
When negotiating a commercial lease, often the landlord will take responsibility for basic upkeep and repairs (as long as you did not cause the damage), explains Steve Mascarin. You may even be able to work out a deal to cover a portion or all of the utilities.
Pro: it Requires Less Initial Burden
Finding the money for a down payment and making necessary renovations can be a huge burden along with buying dental equipment. Renting or leasing requires less financial burden up-front, meaning you will likely have more capital to work with.
Pro: Prime Location
Buying a building in a desirable location that has all of the amenities may be out of the question due to cost. However, leasing might be a way to acquire an ideal space without the high costs of ownership, notes Steve Mascarin.
Con: Renewal is Not Guaranteed
When you sign a lease, there’s no guarantee the landlord will renew it after the term has expired. There’s also no guarantee the landlord won’t sell the building from under you, which could mean moving on short notice if the new owner doesn’t keep you as a tenant.
Con: Rates Can Rise
When it’s time to renew, there’s no legal limit for a landlord when it comes to determining your new annual rate (at least in Ontario), says Steve Mascarin. It’s best to negotiate these kinds of details up-front and have a lawyer review them, he adds.
When it comes to buying a dental space versus leasing, there’s no right or wrong answer — it comes down to your particular needs and your long-term goals.
Don’t wait to buy real estate, buy real estate and wait! And, of course location, location, location.