HENRY SCHEIN || THE 2025 INTERACTIVE PLAYBOOK TO BUILDING YOUR DENTAL PRACTICE
5. DECIDE: BUY OR LEASE
Identifying the pros and cons to owning vs. leasing your practice space is an essential component of your business plan. Owning commercial real estate gives dental practice owners increased independence and flexibility in designing and renovating the space. It also promotes equity growth and potential rental income opportunities if the building has multiple commercial/residential units. Leasing, however, requires less oversight in that the property is managed by a third-party landlord. These spaces are also commonly in desirable, high population areas, which may drive increased foot traffic and active patients.
Managing a property in and of itself can be a full-time job. “One of the advantages of leasing rather than owning is that you know you have another entity responsible for all repairs and maintenance,” says Eric Pook, president of Cirrus Consulting Group. “That can be invaluable, because it frees you up to focus on being chairside and building your business.”
Fluctuating commercial real estate costs can create another large risk of owning a practice.
“For early- to mid-career doctors, leasing is preferable,” says Pook. “You’re likely already facing considerable personal and professional debt, so it’s not necessarily a good idea to lock yourself into a specific location for the next 20 to 30 years. Having a lease that has a five-year renewal with the option to extend gives you much more flexibility.” This way, you can relocate in the future if your practice needs it, if the patient demographics are no longer ideal where you are or if you simply want a change.
GETTING STARTED:
If you’re considering purchasing a property:
- Talk with your tax adviser about any tax implications of doing so and the significant corporate structure setup and ongoing costs to do this.
- Be sure you understand the risks and liability that come along with owning the property. To reduce personal risk, keep your real estate holdings and dental practice corporation as separate legal entities.
- Talk with your financial adviser about the long-term implications of the purchase, as it can often be difficult to find a buyer for both the dental practice and the commercial property where the practice resides.
- Have a well-structured dental lease between the two legal entities, regardless of ownership.
- Be careful tying up your access to capital. Have you ever wondered why many DSOs do not own any real estate? The answer is simple: there can be a much greater return from opening another dental office or two, rather than tying up your cash in a building that anyone can own.
If you’re considering leasing a property:
- Find a professional firm well versed in negotiating dental office leases that has access to all relevant local market data and relationships with landlords nationwide.
- Understand the business terms of the agreement. For example: Are there protections in place in the lease for your family if you are no longer able to work?
- Are you providing personal guarantees?
- Can you bring in associates?
- Are you required to be open during certain days/hours?
- Can the landlord relocate you anytime at your expense?
- Does the assignment provision allow you to sell your practice and if so, will you have to pay the landlord a portion of your sale proceeds?
- Ensure the ideal location isn’t hampered with a “landlord-friendly” lease agreement. Negotiating the financial terms (e.g., rent, escalation, tenant improvements, etc.) requires expertise and access to local real estate and proprietary data.