This is part II of my series on leasing versus buying your dental office space. Part III will be published on Monday.
Why Buying May Be Better Than Leasing
And now, we’re going to look at the other side of the coin and consider why buying may be better than leasing.
When making this decision, make sure you don’t let emotion sway you. You’ve got to carefully analyze all the various factors before deciding. A decision is like a multifaceted jewel. Look at it from multiple perspectives and fully appreciate it in all of its complexities.
If you have it in your head that buying is always better than leasing but have no rational basis to think this way, you could end up shooting yourself in the foot. But let’s say you’ve gotten past all that and now, you’re ready to proceed. What are the potential advantages of buying the building in which your practice is located?
Well for starters, a mortgage gives you a better idea of your future costs. This is less so when you lease because market fluctuations could make your rent skyrocket at any time in the future.
But when you buy, you pretty much know what you’re future expenses will be.
This is especially true if you have a fixed rate loan. Another reason to become an owner is that sometimes, you just can’t find any buildings to rent. This might happen if all the buildings are for sale only in the area where you want to practice.
In this case, buying is your only option, and the choice has been made for you.
Buying also allows you more creative latitude. Your vision of the way you want your space to look like may change over the years. Your landlord might not share this vision, and consequently, won’t approve these changes.
When you own the space, you have carte blanche over how it’s configured.
There are also certain financial benefits of ownership.
For example, you can write off depreciation expenses. You can also deduct mortgage interest, property taxes, and other items from your taxes. Another way it’s financially beneficial for you to own your space is that you can rent out your excess office space, which can fund your retirement.
Also, you can use the equity in your building as collateral when applying for a loan to expand your business.
Additionally, if you own your building, you can sell it and reap the proceeds from the sale.
Because of unforeseen market conditions, sometimes your building doesn’t appreciate as fast as you’d hoped. Still, there may be benefits to owning because excellent interest rates and the tax benefits that come with ownership could counteract disadvantageous market fluctuations.
Lots of people think the best reason for owning your building is the satisfaction of not having to pay rent to a landlord. While this is true, the way you structure your ownership entity for liability and tax purposes makes this entity the landlord.
This separate ownership entity would be owned by you and your partners.
The best way to figure out if buying is better than leasing is to sit down with your financial advisor and run the numbers. You can also pick the brains of other dentists to learn from their experiences.