Before some of our physician clients first purchased their own offices, they had to navigate their way through the decision-making process of whether to own the medical real estate or continue to lease. This meant weighing the pros and cons of being a commercial real estate owner.
Renting vs. Buying
Controlling the office space throughout the facility, the signage on the building, what you can do with space, which space and how much space in the building you want to use, and what other tenants you want or don’t want in the building are all advantages for an owner of a building. Other advantages for physicians owning the building include being able to capitalize on the appreciation of a long term commercial real estate investment while at the same time collecting income from other tenants in the building, and having the ability to continue to own and receive rental income from the building when the physicians retire.
Those very same reasons to own that present advantages may also present disadvantages depending on your specific circumstances. For example, by becoming landlords the physician or medical practice creates an additional income stream through the rent payments from other tenants, but the physician-owner also now has the responsibility of maintenance, collecting rents, and managing the accounting and tax payments associated with the real estate ownership. However, the objective would be for the rental income received and real estate appreciation to greatly outweigh the property management and maintenance of the building.
Some physicians or medical groups have a greater need to be on a particular hospital campus, thus limiting their ability to own a building, either due to cost or limited availability. For those practices, the prestige and/or convenience for them and their patients of being on the same campus as the hospital or other medical-use buildings present a greater benefit than the advantages they may receive from owning their own building.
A physician or medical practice is advised to discuss the tax advantages or disadvantages of both options, renting and buying, with competent tax and legal professionals.
Consulting an experienced real estate advisor that is very familiar with the medical real estate market can also be of great value since this person can refer to you other professionals such as a lender or accountant or attorney that also focuses their practices in the commercial real estate or healthcare real estate sector.
