5 Advantages of Owning Rather Than Leasing
Have you thought about owning space for your practice? Many veterinary practice owners confront this question at one point or another. Should you purchase commercial property or continue to lease? The answer varies.
New vets or start-up practices may benefit from leasing, providing the flexibility to move and grow. In general, it cost far less up front to lease commercial space compared to a real estate investment. For new practice owners, lease agreements free you up from the responsibility of property ownership, such as onsite maintenance. However, with lease agreements, you are not investing in your own future. Veterinarians with a strong client base and clear picture for the future should consider the benefits of owning.
- Long Term Investment
When you combine practice ownership with property ownership, you are investing in your long-term wealth. While property values are not as low as they were a few years ago, it is safe to assume they will continue to rise. As you pay down the note, you are building equity and net worth. By diligently growing your practice, you will be able to sell both the business and real estate when it is time to retire. Alternatively, you could sell just the practice and lease the property, allowing for a source of income during retirement. Building equity now will have long-term benefits.
- Tax Benefits
Real estate property owners enjoy tax advantages unique to ownership, including depreciation allowances and mortgage interest deductions. This deduction reduces overall taxable income, improving cash flow that you can reinvest in the business. Consult with a CPA or financial advisor to fully understand how a purchase would affect your particular circumstances.
When you own the property, you can more easily plan for long-term costs associated with the property. Without the variables associated with lease agreement renewals, it is easier to project the annual costs for the practice according to your mortgage contract, insurance and estimated property tax. You can plan for the long-term without having to worry about increased lease payments or a cancelled lease.
When you own the business property as well as the practice, you have the control to develop, operate and modify the building to your needs as the practice grows. You aren’t at the mercy of the landlord’s guidelines for space modifications and can adapt your building infrastructure to accommodate future developments in veterinary medicine and growth of your practice.
- Commitment to the Community
By owning your building space or building a new practice, you show your community you are here to stay. Involvement and trust in the community will go a long way with customers and future customers. Consider refreshing the space if it is an older building. If you are planning a ground-up construction project, consider the aesthetics and practical needs of a vet practice. An architect and builder experienced in the vet space can help ensure success.
If the advantages of owning rather than leasing seem to be a good fit for you practice, you will need to decide on a ground-up construction project or purchasing and renovating a space.
There are several factors to keep in mind when looking to purchase commercial real estate for your practice. When looking for a location be sure it is close to your client base. Staying within 5 miles of you current location is a good rule of thumb; however, that can vary depending on your location. Once you’ve selected a location, make sure it is zoned for a veterinary practice, including overnight boarding.
Purchasing commercial estate has its advantages, and you will want to know how much you can afford before getting too far into the process. Based on the practice’s historical financials and the business’s cash flow, the lender will determine what the practice can support. Working with a lender experienced in veterinary financing will help the lending process run smoothly.
If you are looking to finance a ground-up construction project, the loan amount will include the cost of the real estate, design, and build. In addition, soft costs such as appraisal reports, surveys, permits, fees, title, EPA reports, supervision frees, construction interest carry allocation, and working capital will be included in the loan proceeds. Also, consider funds for new equipment and unexpected Change Orders. Knowing the maximum about you qualify for will allow you to plan your project accordingly.
Some lenders today – particularly those with experience in the veterinary industry – offer flexible loan packages that may include up minimal equity requirements and loan terms extending up to 25 years. These loan terms allow you to avoid a large down payment as well as benefit from lower monthly payments.
Purchasing the real estate where your practice will reside is an expensive investment. However if the property is suitable for your practice and is capable of supporting long-term growth without overtaxing your current cash flow, it can provide a solid foundation on which to build your business and future.