Dentist Real Estate Investment Tips

Whether you are considering expansion, relocation, or looking to start your dental practice, you have an important decision to make. And it’s one of the dentist real estate questions we hear most often. Is purchasing or leasing the right choice? “Many dentists wonder whether owning their office space or building will help them or hurt them financially,” explains Ken Rubin, CPA, PFS, Dental Economics. After all, commercial real estate is often the second-highest expense for healthcare providers, behind only payroll. However, “in the area of increasing wealth, owning real estate is a strong investment,” adds Rubin. It can be an incredible benefit to purchase commercial real estate. But how do you even get started?

Dentist Real Estate Investment Tips

“After stocks and bonds, real estate is the third-largest asset class in the U.S and commercial real estate is estimated to be worth $16 trillion,” explains Shawna Wright-Smith, Crowdstreet. Here are some quick dentist real estate investment tips to get you started.

Location, Location, Location

When it comes to both real estate and running your own dental practice, location matters.

• Demographics: Consider factors such as total population, average population age, income level, and population growth. Is the area being developed? New home construction can mean a new customer base for your dental practice.
• Competition: It is probably not in your best interest to open a location in an area with too much competition.
• Convenience: What is convenient for you? Drive time, daytime population, and traffic patterns are important considerations for YOU. Your new location shouldn’t be an inconvenience.

Purchase vs. Lease Comparison

Should you buy or should you lease? This is a pretty simple question with a rather complex answer. It depends on a number of different factors, including your current situation and immediate needs, your anticipated growth and future needs, and the state of the dental real estate market in Maryland. However, if all of the stars align, commercial real estate can be a great investment.

• Tenant Improvements: Even if you are purchasing an existing dentist office, chances are you will want to make, at least, a few improvements. “Dentists who lease their offices typically spend several hundred thousand dollars on tenant improvements (TIs) for the office, and in doing so ultimately make the landlord wealthier,” explains Rubin. “At the end of the lease, the landlord gets to keep the TIs and gets to charge increased rent to the next tenant because the dentist improved the property.” When purchasing a property, any improvement you make helps increase the value of YOUR property. 
• Equity: When paying rent, your money doesn’t benefit you in any way other than maintaining your current lease. When paying your monthly mortgage, a portion of the payment goes toward your loan balance, increasing your equity. In essence, your money is working for YOU.
• Tax Breaks: There are a couple key tax breaks that commercial real estate investors need to be aware of.
  • Depreciation: “Since the value of real estate deteriorates over time, there is a tax code that allows commercial property owners to depreciate the value of the property and receive an annual income tax deduction,” explains Paulina Likos, US News & World Report.
  • 1031 Exchange: “When you sell an investment, you usually have to pay capital gains tax,” says Likos, “but a 1031 exchange allows real estate investors to hold off on capital gains tax when selling a property to provide more capital when buying another investment property.”
• Retirement: When it comes time for you to hang up your dental tools, owning your building will make selling your practice easier. “[It] will help you avoid one of the most common problems when you prepare to sell your practice—inability to assign your lease to a buyer,” explains Rubin. Plus, when you own your property, you have the option of built-in retirement income if you decide to lease or even sell the property. 

Of course, there are also risks associated with any investment. “Beginners should be aware of the investment risks involved with this real estate property type,” explains Likos. “Every investment carries with it some kind of risk, and commercial real estate is no different.” An experienced broker can help you better understand the risks of potential investments, as well as help you avoid common pitfalls.

Dentist Real Estate Broker

The first rule of commercial real estate investment is that you don’t have to go it alone. In fact, the most successful investors have trusted partners – brokers – they rely on to identify good investment opportunities, negotiate favorable terms, and, ultimately, close the deal. A broker can help you find, negotiate, and buy the commercial property that is right for you. But did you know that not all brokers are created equal? The dental industry is a niche market, so it can be incredibly beneficial to work with a dental real estate broker that specializes in the representation of medical and dental professionals. 

United Development Realty understands the Maryland dentist real estate market inside and out. We use comparable building sale databases and tools that track industry trends and property costs to help us find the right location for your practice at the right price. Our services include:

At United Development Realty we take the time to get to know you, your vision, objectives, and goals. Then, once we fully understand your practice and its unique needs, we can assist you through a tailored package of services. Our client-first approach ensures that your unique needs are always met. We will help you find, negotiate, and lease or buy the commercial space that is right for your practice.

Please call our office (locations in Bethesda 240-221-1976 and Fells Point 410-522-1632) to get in touch with a licensed broker today. Let us help you find the perfect space to grow your dental practice, and negotiate a price that makes sense for you.

Sources

1. Esajian, JD. “Commercial Real Estate Investing – How to Get Started.” FortuneBuilders, FortuneBuilders, 1 Apr. 2021, www.fortunebuilders.com/how-to-invest-in-commercial-real-estate-getting-started/.
2. Likos, Paulina. “Adding Commercial Real Estate To Your Portfolio Requires Investor Due Diligence. Here’s What You Need To Know.” U.S. News & World Report, U.S. News & World Report, money.usnews.com/investing/real-estate-investments/articles/how-to-invest-in-commercial-real-estate.  
3. Rubin, Ken. “How to Create Wealth by Owning Your Office Location and Other Real Estate.” Dentaleconomics.com, Dental Economics, 1 Apr. 2019, https://www.dentaleconomics.com/practice/article/16386224/how-to-create-wealth-by-owning-your-office-location-and-other-real-estate. 
4. Wright-Smith, Shawna. “Commercial Real Estate 101.” CrowdStreet, https://www.crowdstreet.com/ie/commercial-real-estate-101.