Starting a Medical Practice: to Lease or to Buy the medical office
Now you have funding. Lets start spending it. But carefully! Remember you have to return the OPM after you use it. Should you buy an office space right now or lease a medical office space. If you have grasped the concept of cash flow and how it affects business. Both strategies have their own pros and cons.
LEASING A MEDICAL OFFICE SPACE:
Pros:
Good for trying out to see if the medical practice becomes successful or not.
No Long Term commitment, if you want to shut down for some reason.
Trying out the space before you buy it. (If you have lease to buy option.)
Easy to move to a bigger space if you rapidly outgrow the current medical office space.
Cost Control in the beginning years of the medical practice (improves cash flow!)
Cons:
No Equity is built up. The rent you pay is forever lost.
Landlord may decide not to renew your contract at the end of the lease. And you will have to move out.
Less independence in making modifications to the medical office space. Whatever modifications you do will have to be left behind if you move.
BUYING A MEDICAL OFFICE SPACE:
Pros:
Now you own equity. As the property prices rise, so will your net worth.
Make modifications as you please.
No one can throw you out.
If hospital buys your practice, you may be able to continue to rent your space out to them.
If you move to a new office space, you can convert the space as investment property and rent it to someone else (extra income!)
Cons:
Higher initial cost to acquire (down payment +OPM)- it can strain your cash flow needed to survive the business in lean times.
If you buy a smaller space at the outsset (most likely) and then you outgrow it – you may still have to move and probably sell or convert the older space as investment.
What if the location, you thought was good, was not so great after you start operating from there?
WHAT DID I DO?
My medical practice ACE MEDICAL GROUP chose to lease an office space for short term (one year + 6 months automatic extension). My practice rapidly outgrew the space and I personally realized that being near the hospital is much more convenient. Then we chose a location near the hospital to buy a medical office condominium.
WHAT SHOULD YOU DO?
Every situation is different but you have to maintain your priorities: maintaining ‘Cash flow’ is your first priority. If you can buy the medical office space without constraining your cash flow, that’s cool. If you can buy the building but the cash flow dries up – then the business will shut down and you may end up with the liability of medical office mortgage.
