“Should I Lease or Should I Buy, That is The Question”?

by Brad Beck

Vice President, Banc of American Practice Solutions

Are you still writing rent checks? Have you ever asked yourself; “would I be better off purchasing a location instead of leasing?” In order to answer these questions you need to carefully review the advantages and disadvantages of leasing or purchasing property for your practice.

Buying real estate certainly has its rewards. Developing equity in real estate can be a sensible way to grow your business and personal wealth portfolio. What are the advantages and disadvantages of leasing property though?

One of the advantages of leasing is that your credit rating is not as crucial and normally requires little or no down payment. Another benefit is that you don’t have to worry about selling the building when you want to move to a new location. And, of course, your monthly rent may be considered a tax deduction that you can deduct as a business expense.

The disadvantage of leasing is fairly obvious – you never build any equity in the property and your rental rates could increase based on market conditions.

What are the advantages and disadvantages of purchasing? Crunching the numbers is important when doing any comparison. One advantage is when you own the property you eliminate dealing with a landlord. Additionally your interest on the mortgage loan should be tax deductible. Also, by making improvements to your property you could increase its value and, by holding the property long term, you should gain equity that can be used for retirement. With a fixed mortgage, you never have to worry about your payments going up annually like a rent payment, unless your interest rate is variable. Also, there is normally a depreciation tax write off available to the owners of a property and this could save you significant tax dollars. In fact many accountants recommend that a property be bought in the doctor’s name and then leased back to the doctor’s corporation (if he has one) to get the maximum tax benefit for the doctor.

One should also be aware that there could be some downside to owning real estate. Owning real estate could require you to invest time and energy in tasks that are not related to the day to day running of your office. Costs such as unexpected repairs, routine maintenance, trash pick-up, landscaping, and possibly snow removal should be considered in your cash flow analysis. Being a property owner could require you to be subject to legal and regulatory laws not associated with leasing property as well. Also, selling the property to get your money back out of it can take time and be subject to the economic whims of the real estate market.

Have you taken a look at your business plan? Have you asked yourself; “how much space will I need ten years from now? Will I be able to grow my practice and expand with the possible restrictions of the size of property I buy and/or will I be able to expand my rental space, as needed, in a leased property?”

All of these matters should be looked at when making the decision to purchase or lease. Answering all of these questions will help you make the decision as to whether leasing or purchasing is really best for your business future.

For a new practice, Banc of America Practice Solutions offers a Conventional Commercial Real Estate loan product that can provide you with an option of up to twelve months of interest-only payments that will give you lower payments at the beginning of the loan while you are building your client base. Banc of America Practice Solutions also offers fixed rate Conventional Commercial Real Estate loans of up to 25 years. Most banks usually don’t offer a long term commercial real estate loan, which is important to keep your payments low and affordable. Along with the longer term, Banc of America can lock in your rate in for 12 months, so you know today what your rate will be tomorrow.

Whether you are an established doctor buying the building where you are currently located, relocating your clinic to an existing building or condo unit, refinancing the existing debt on the building, or even starting an additional practice, contact Brad Beck Vice President Banc of America Practice Solutions @ 800-214-6087 brad.beck@bankofamerica.com and he will be glad to help you with your Conventional Real Estate needs.*

* Banc of America Practice Solutions is a wholly owned subsidiary of Bank of America, NA. Banc of America Practice Solutions and Bank of America, NA are registered trademarks of Bank of America Corporation. The suggestions set forth above are not intended to express, imply or infer any guaranty of success or promised result, and are intended as guidelines only.

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