Our thoughts . . . 06-16-09
BUILDING OWNERSHIP – TO BE OR NOT TO BE . . .
One of the ongoing debates in the circle of dental practice business discussions is on the question of building, buying, or owning the building in which the practice is located. Strong opinions abound on either side. A recent article by Dr. Bill Blatchford for Dental Economics magazine (May 2009, pg. 58) certainly left no doubt about his stand on the issue. In our market, we have seen cases where it made sense and other cases in which the building made the practice unsellable. I'll try to put aside our personal opinions for a few minutes and discuss a few pros and cons for your consideration.
On some level, it seems common-sensical that one would own rather than rent. After all, isn't paying rent often characterized as throwing money down a rat hole? What about all of the tax breaks you hear about? Can't you write off the lawn mower you use to cut the grass at the office on weekends? What about the painting and maintenance supplies you will need for keeping the building looking presentable? In addition, you can learn new skills like roofing and plumbing repair. Then, after all of those write-offs, you can watch the value of the property increase in a highly predictable, linear fashion. The real icing on the cake comes later though when you're ready to "cash out and retire." Selling the building along with the practice will really fill out that retirement account nicely.
If any of these thoughts sound a little tongue-in-cheek, let me tell you that over the years I have owned one practice location and the current EMA office. The EMA office experience has been positive but the practice location ownership was at best neutral. Dr. Blatchford's article is worth reading if you are even considering a secondary career in real estate investment which is exactly what a doctor-owned building entails. I love his reply to the statement that "real estate always goes up." His response, "yes it does always go up…except when it comes down." How many more 2008's and 2009's will there be in your career?
After all of this negativity, let me say that there are cases where owning the building is the right thing to do. We have seen some great deals on buildings lately and in some cases, owner financed. If ownership and maintenance costs are less than rental expense for the life of the practice, any proceeds from the sale of the building would be gravy. Undeniable too, is the control-freak dentist, pride of ownership thing that certainly has to be considered. Building and creating something of value is in our nature. As an old friend of mine once said, "God didn't put us here just to buy CD's."
Any conclusions? Get good objective advice before proceeding. Think in terms of the next generation of ownership. Be practical and prudent. Don't justify an inflated expense on the P & L for the sake of equity. Focus on the practice first and foremost. Don't fall off of the roof!
Steve Wolff, DDS
UMKC Class of 1977