Owning vs Leasing
Owning vs. Leasing
Factors to Consider
by Bill Molloy
Purchasing a medical office condo is a long-term investment that will have a significant impact on your medical practice and personal finances. Following are questions you need to ask yourself when contemplating the purchase of a medical condo.
What are your business goals and how will a medical condo fit your business plan?
If your practice will remain largely unchanged over the next 10 or 15 years, a condo purchase may work for you. Note that more than 50 percent of medical tenants require space reconfiguration every four to seven years. Twenty percent of practices relocate for various business reasons, including capturing a more profitable payer, enhancing the businesses’ referral pattern or expanding (or contracting) their practice.
Will your investment allow you to make sound business decisions?
A condo investment is illiquid. Investing in where you practice may restrict your ability to sell in a strong market or require you to move when it is not in the best interest of your investment. Given the specialty nature of most medical tenant improvements, the potential buyer’s market for most improved medical condos is extremely limited.
Most large corporations don’t necessarily own their office locations, instead they use their capital for operations.
Have you considered all the costs?
Property taxes, future interior upgrades, condo-association fees, cleaning and maintenance costs all need to be weighed. The cost burden to you, when other condo owners can’t pay their share of expenses.
If you were not occupying the medical condo, would you invest in it?
Historically, medical condos have experienced tremendous decrease in value and today’s market is being driven by unusually low mortgage rates.
What is the relative percentage of the typical physician’s rent as compared to total operating expenses?
Rent is only a small percentage of a physician’s operating costs, and it typically ranges from 5 to 7%.