Dentists who are not yet ready to retire may want to consider owning their office building to their long-term retirement strategy. Real estate has historically been a solid investment for anyone looking to generate income on the side, and at a time when dental office lease rates are rising, why not become your own landlord? Properly done, the real estate value you gain when you sell your practice could add a significant revenue stream to your retirement.
When you own the building your dental office is in, you don’t have to negotiate with the landlord on escalating costs, worry about whether your rates are higher than a competitors’, or what charges the landlord fits into the total rent. You don’t have to negotiate the lease several years in advance or be concerned with what happens when or if the lease expires.
You’re probably already doing tenant improvements anyway, and the payments to a mortgage build equity. If there are other tenants in the building, their rent payments can often pay for the regular monthly mortgage payment. You can use the property as you like – for example, new signage for your practice – and there’s no need to involve a landlord in the discussions surrounding the eventual sale of your practice.
If you lease the office space of your dental practice, it could become a sticking point for potential buyers when it’s time to transition out of your practice. The buyer may not want saddled with whatever lease obligations you entered into; after all, it’s a necessary component of the sales agreement, but there’s nothing to negotiate. The lease is determined. In some rare cases, the landlord can play a role in the sales agreement, and that’s a contract many buyers are hesitant to enter into.
There have been times when a selling dentist did not plan appropriately, and when it came time to sell the practice, there were issues getting the buyer approved, added to the lease, and releasing the seller from the lease contract. In dental transitions, these types of situations can kill the deal quickly.
If buying your own office building isn’t an option, you could consider residential or commercial buildings. Apartment buildings, rental homes, splitting a parcel of land into smaller parcels, and other office buildings are all viable options depending on where you live and what your budget is. Buying a property and making some small but strategic improvements is an easy way to increase your initial investment. Worried about daily upkeep? Property management companies can handle the day-to-day repairs and tenant requests, so you don’t have to.
Since investing in real estate tends to be a long game, this isn’t the best strategy if you’re within five years of selling your practice. But if you have at least ten years left in your career and an eye for investing and real estate, this may be a good option.
Have you utilized real estate as a means of passive income, whether by owning your dental office or another piece of property? Share your experiences in the comments below! For questions on preparing for retirement or planning for the sale of your dental practice, contact N/L Transitions here.