For new dental practitioners who are uncertain of future space needs and want to ensure maximum cash flow as they grow their business, leasing may be a wise option. In general, it’s far less costly up front to lease commercial space compared to a real estate investment, making leasing a better choice for those who lack equity as only one to two months lease value is typically required as a security deposit on a leased space. A lease arrangement can also free up cash that can help fund the growth of your practice through equipment purchases or marketing. In addition, practitioners with lease arrangements will not be tied to the responsibilities of property ownership, such as onsite maintenance and tenant rentals, and can focus more fully on their practice and patients.
However, there are also significant disadvantages to leasing that need to be carefully considered. Most importantly, with a lease arrangement you are not investing in your own future. You do not have as much to show following years of investment in your office space. Should there be significant appreciation in property values over the next 20 to 30 years – which is likely given that CRE property values are currently at all-time lows – your landlord will be the beneficiary of that investment, not you.
In addition, some landlords are inflexible in allowing space modifications and may have the right to disapprove of changes or negotiate specific enhancements in exchange for permission to make alterations. The unique infrastructure requirements required in the dental practice can be costly to incorporate in a leased space, and may not be allowed. Also, if the building you are leasing does not have the proper electrical output and thermal insulation requirements to effectively support your equipment needs, the cash flow gains you may realize from leasing could be significantly diminished by excessive energy bills.
If you do choose to lease, be sure to contract a lawyer specializing in dental lease negotiations to help ensure your current and future rights are protected. While you may avoid the risk of fluctuations in property values by leasing your space, you are still at risk of being taken advantage of by your landlord.