For many tenants, the idea of owning their practice location is appealing, especially when landlord issues arise. However, the choice between owning and leasing carries significant differences that need careful consideration. Here’s a breakdown of the key factors to weigh in both the short and long term.
Immediate Impact: Ownership vs. Leasing
Owning Your Space:
- Control and Customisation: Ownership grants you extensive control over the property, including customisation of signage, parking, and adjacent areas. You also have full authority over maintenance and repair decisions, as well as managing costs.
- Financial Commitment: Purchasing property involves a substantial initial financial outlay, which can decrease your available cash flow.
- Time and Effort: Managing owned property requires ongoing administrative effort and attention to detail, which can be time-consuming.
- Mobility Constraints: If you own your practice location, moving to a new site isn’t as straightforward, potentially tying you to one spot.
- Location Opportunities: Ownership opens doors to establishing your practice in areas where leasing options might be scarce, giving you broader location choices.
Leasing a Space:
- Limited Control: Leasing offers less flexibility in terms of altering the space, as aspects like signage, parking, and maintenance are generally controlled by the landlord.
- Relocation Flexibility: Leasing gives you the freedom to relocate more easily at the end of the lease term.
- Financial Flexibility: Leasing doesn’t require an upfront capital investment, which can improve your financial liquidity.
- Simplified Management: With leasing, much of the property management is handled by the landlord, reducing your administrative workload.
Long-Term Considerations: Ownership vs. Leasing
Owning Your Property:
- Market Risks: Owning property ties you to a location, making you vulnerable to shifts in market conditions or demographic changes over time.
- Exit Costs: Selling the property when you no longer need it can incur significant costs, including real estate commissions and legal fees.
- Potential for Appreciation: Commercial real estate often appreciates, providing an opportunity for long-term capital growth.
- Tax Benefits: Ownership can offer tax advantages, such as depreciation deductions.
- Liquidity Challenges: A significant portion of your capital will be tied up in the property, potentially reducing your liquidity.
- Refinancing Opportunities: You may be able to leverage the equity in your property through refinancing, allowing you to access capital when needed.
- Selling Your Practice: Owning your property can complicate the sale of your practice if the buyer isn’t interested in purchasing the real estate.
- Satisfaction of Ownership: There’s a certain pride that comes with owning your practice location, which can be personally rewarding.
Leasing Your Property:
- No Investment in Real Estate: Leasing involves regular rent payments without building equity, as rent is simply an operating expense.
- Simpler Practice Sale: Selling your practice can be more straightforward without the need to deal with real estate transactions, assuming you have a favourable lease.
- Alternative Investments: Leasing allows you to invest capital in other assets, potentially offering greater diversification and returns.
- Reduced Financial Risk: Leasing helps avoid the risks associated with having a large portion of your investment portfolio tied to real estate.
Conclusion
Choosing between owning and leasing your practice location requires careful evaluation, ideally with the guidance of a financial adviser and accountant. Consider your readiness to handle the dual responsibilities of being both a property owner and a healthcare provider. Consulting with experts can help you make an informed decision that balances risk and return for your practice’s success.
