Real estate is one of the highest expenses for most practices, second only to payroll. It encompasses your monthly rent or mortgage payments, along with the property’s operating expenses, maintenance fees, utilities, and janitorial costs. While many business owners view real estate as a necessary evil, it can provide an incredible opportunity to improve your bottom line. However, deciding whether to lease, buy, or build can be especially challenging for practice owners because healthcare requires specialized workspaces.

As you determine whether to lease or buy space for your next (or first) healthcare practice, you’ll need to know what you’re looking for, the pros and cons of leasing vs. buying vs. building, and who can help with your search.

1. Use data to choose a location

You may start by listing the physical requirements for a space, but there are additional aspects to consider during your real estate search.

  • Competition. Data may also help you assess the competition in a certain area. Is it an underserved or oversaturated market? This is a good place to begin, as it may eliminate doing research on an area that has no need of your services.
  • Demographics. You can access information about population size, education, income, and other factors from the United States Census Bureau. These may help pinpoint an area for your practice, based upon the type of patient you are trying to attract.
  • Healthcare needs. Look for surveys and studies on buying habits and healthcare needs of the population. A practice in a largely commercial area may be more likely to see random walk-ins of local workers, while a residential area could have a more static population of loyal patients.
  • Current patient base (if applicable). If you have an existing practice (or are purchasing an existing practice and moving it to a new location), consider what makes sense for current patients. For example, do most of your patients live or work near the existing practice location — or could you move a few miles closer to most of your customers? Think about how moving your site might impact loyalty and retention, or survey patients for an even clearer view.

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After you’re settled into your new location, use the above insights to decide what unique amenities to offer or what kind of marketing strategies to use.

2. Look at leasing options

Leasing may be the preferable choice for a practice that is expected to outgrow a location in 10 years or less. Perhaps the most obvious benefit of leasing is the flexibility it offers. First-time practice owners can start by leasing a space that’s small and more cost-effective. As their business grows, they can move out and move on without worrying about being attached to an asset. Leasing can also be a good idea for practice owners seeking a space for their second practice location. It can allow you to test the waters without making a long-term commitment.

The main drawback: After your lease term is up, your renewal option may be subject to rent increases, either built into the lease or negotiated each year. This can impact your cash flow, so it should be re-evaluated before extending the term.

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If you are interested in being in a high-traffic retail center, you may be required to lease, as these properties may not be for sale. This may be a worthwhile tradeoff because being in a prominent location may help you grow your patient base.

3. Decide if you’re ready to buy

Many practice owners make the switch from leasing to owning after they’ve built a patient base and reached a sustainable, predictable level of revenue. This has several benefits, including allowing you to lock in a mortgage payment so you won’t have to worry about rent increases.

The main drawback: Buying real estate will likely involve more up-front costs, which could pose a significant roadblock by tying up cash flow.

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Real estate can be a valuable asset when it’s time to retire. At that point, you can sell it outright or lease it and use the rental income for living expenses.

4. Weigh the benefits of building

Building a location from the ground up works best in markets where the cost of land is reasonable and the area is not overdeveloped. Building is more common for veterinarians, as developers or landlords might not have interest in installing animal boarding spaces for a vet clinic.

The main drawback: As with buying a location, building requires additional up-front costs. It also may require more of your time and energy, as you’ll be making decisions about everything, from foundation to roof.

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If you have enough capital saved, you could construct a whole building where your practice occupies one floor or office, and the rest is rented to other practitioners in related fields. A vet, for instance, could rent to a pet supply store, or a dentist could rent to an oral surgeon.

5. Seek representation before negotiation

Showing up with proper representation adds to your credibility, can save you a substantial amount of time, and typically results in a better deal for you. It can also prevent you from getting taken advantage of by landlords or sellers, who are professional negotiators. Real estate groups can offer representation, whether you are a prospective tenant or owner. They can help you find multiple options, which will provide you with leverage when it comes time to negotiate a contract. 

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For help determining the level of lending your business can qualify for and the potential cash flow of a particular location, talk to a lender who specializes in working with people in your branch of healthcare.

Wondering how much of a difference all this prep work can make? Consider this: Having representation with the right broker helped one dentist save $15 per square foot when leasing a 3,000-square-foot practice. That’s over $3,700 per month. Imagine what that amount of money could do for your cash flow — or what new tech or equipment it could help you buy.

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