To lease or to buy: a guide for medical professionals

To rent or to own? It’s a question that plagues everyone. When deciding if you should lease or own your new medical clinic space, it’s hard to know what the right answer is. 

It’s also a question that can elicit a lot of loud opinions. So, if you’ve been asking colleagues and friends, chances are you’ve heard a range of impassioned arguments for both sides.

The reality is that the only way to know whether leasing or owning a physical space is right for you is to take thorough stock of your business as a whole. This means evaluating your needs, growth potential, defining characteristics, and overall profitability. You’ll also want to consider your location, discipline, or career timeline. 

Finding the right answer for your practice is a lot easier with the guidance of a professional accountant who can evaluate all your business assets and liabilities. When deciding whether to rent or own, here are some questions to consider:

Who should buy?

Owning property can come with lots of financial benefits. You’ll build equity and create a solid investment. Standard financial advice tends to tell you that if you can afford to buy, you should. However, it’s not without risk (especially in today’s volatile markets) and it may be out of reach if you don’t have adequate funding available. It also might not suit your specific business goals.

Does buying line up with your business goals?

If you plan on buying, it’s best that you have plans to maintain your practice at this location for a considerable length of time. The absolute minimum should be somewhere around ten years. 

It’s also important to consider the type of practice you run when deciding between buying or leasing. For example, do you plan to open up a local family practice for clientele that will likely stay the same, which favours the stability of ownership? Or is your practice focused on the hottest new treatments, meaning that your patients and the way you practice could change drastically in the coming years? 

Answering questions like these can help you better understand the flexibility you’ll need from your business location and property type.

Just because you run a practice that is likely to change in the near future doesn’t mean that owning is a bad idea. Property ownership gives you the opportunity to build equity and even earn rental income. Other medical practices may be eager to move into spaces already suited to the needs of the industry.

But, before you decide to buy, you should analyze your business’ net worth and projected profits. You’ll need a clear idea of your business’ financial and purchasing capabilities before you buy office space.

Yes, medical practices get favourable rates on mortgages and loans since they’re perceived as stable business ventures. It’s also typically expected that property only appreciates. But while these factors are the norm, they are not guaranteed.

How much risk are you prepared to accept? Can your business handle a loan? Will your practice be okay if property values in the area change? These are all great questions for an accountant who’s familiar with your finances and business goals. Seeking their advice before making a real estate decision is one of the best things you can do. 

Who should lease?

Leasing is a safe bet that gives you the flexibility to grow or change your business. You won’t have to worry about fluctuating markets, neighbourhood locale, and building upkeep like owners do. 

When you opt to lease a space for your practice, you can evaluate trends in your area and move to the neighbourhood or building that will best suit your practice. Leasing lets you experiment with demographics, branding, the type of space you need, and so much more. 

Leasing also costs less than buying initially. If you have a limited budget for launching your new practice, it could be better to lease and put more time and money into building a solid patient base. 

Some business properties will only allow prospective clients to lease. Locating your practice in a business leasing area surrounded by traffic and other businesses can make it easier to attract prospective clients. This is an advantage of leasing, especially if your practice is new. 

Leasing is also the better option if you are approaching retirement or expecting a significant career change soon. It will give you more flexibility and less overhead to deal with as you make the transition. 

However, leasing could put you in a tricky financial situation. As rent prices increase, more and more of the practice revenue will have to go into the cost of leasing your office space. If your lease isn’t renewed, you may be forced to move your practice out of your preferred neighbourhood, which can be detrimental to your patients (and your practice). Although buying is more expensive initially, it could offer you greater financial and business stability in the long run.

To buy or to lease?

It’s not an easy question to answer on your own. You need to have a robust view of not only your business profitability but also mortgage rates, local real estate, and lease agreement terms. 

Deciding whether to buy or lease your practice space is one of the more complex questions you’ll answer in your career, which is really saying something for those in the medical profession. If you’re feeling overwhelmed, it’s time to seek out the advice of expert accountants. MMT Chartered Professional Accountants have years of experience helping medical practices make the best decisions for their future, and we’re ready to help you next. 

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