Tori Freeland, DDS, MS, an orthodontist in Lake Orion, Michigan, has a spacious lakefront office in a building designed to look like a lighthouse. Her own office and her patient chairs all face the lake, which is only a few yards from the floor-to-ceiling windows. Freeland, however, doesn’t own her office, but leases it from the owners of the building. “When I bought the practice,” she says, “they weren’t selling the building, which has four owners. I sort of inherited the lease space with the practice.”
Freeland notes that although she’s pleased with the office and the space, “in the long run, if you know the area you’re going to stay in, it’s much better to buy as an investment.”
LEASING: THE FEWEST HASSLES
The biggest problem with leasing for most physicians is the perception that they are throwing money away. Although you’re acquiring a needed service for the money, it’s not an investment. Freeland says, “Rent is not an investment. It is set, but it increases every year.”
Freeland also notes that CAM costs-Common Area Maintenance charges like snow removal, restroom maintenance, and upkeep—typically are lumped into the rent, which can change every six months to a year.
Mike Crosby, CPA, MBA, the president of Provider Resources, a physician practice management company in Nashville, says, “The cons to leasing are that you can end up in a space that requires constant maintenance on a triple net lease. Triple net means essentially that the taxes, insurance, and minor repairs are all passed through to you. You pay the utilities; the taxes are all passed on to you as well as the association fees or general building fees; any general assessments are passed through to you, and then minor repairs are your responsibility as well.”
There are advantages, though. “Leasing gives you a chance to get in and have some options, depending on the length of the lease. You may be entering an area where you’re not sure you’re committed to being in permanently,” Crosby says.
Some of the advantages, of course, depend on timing. John Guiliana, DPM, a podiatrist in Hackettstown, New Jersey and a partner in SOS Healthcare Management Solutions, a practice management group, says, “Most of the people I give advice to I recommend that they lease for at least a year to be sure that this is the right marketplace for them, the right location for them. Then they can certainly restructure their lease so it’s available for repurchase.”
Shelly Klein, MD, a pediatrician in Prescott, Arizona, says, “I don’t have a problem with leasing, but when I found out that the local leasing situation involved paying everything, I figured I might as well own the property and be my own landlord rather than pay all the expenses and have to follow somebody else’s rules and not get any benefit from it.”
Guiliana has owned his own practice facility for almost 20 years. “Unless you’re absolutely averse to having the necessity or responsibility of being a landlord, I would say there’s no real downside to owning. Certainly it’s a capital issue; you do need the capital available for down payment, and that capital that’s tied up in real estate could be used for something else. I can’t really see any other downsides,” Guiliana says.
OWNING: THE BIG COMMITMENT
Although the consensus seems to be that owning your facility is preferable to renting it, it’s not a particularly simple decision. Many physicians acquire or build a building—either to host their practice or for multiple practices or multi-use with the intention of it being a good investment. Paul Angotti, who runs a practice management firm called Management Design in Monument, Colorado, says, “Fundamentally, I would ask, ‘If it wasn’t the building the physicians occupy, would they want to invest in it as a building anyway?’ If it’s not a good deal, but they want to buy it just because they occupy it and want to be able to exhibit some power or want to exhibit some influence over the owners, then they probably shouldn’t do it. If it were a shopping plaza or an office building downtown, would they want to invest in it? If the answer is no, then they shouldn’t do it, because then it’s going to be a bad deal.”
Topics: Live and Practice, Practice Success
What specialty has the most satisfied physicians? Dermatologists take the cake, with radiologists and oncologists following.
