Pro-Con: Leasing vs. Buying Space for Your Practice

When it comes to running a chiropractic office, you can either lease or purchase commercial property. Which option is better? To large extent it depends on your individual situation, comfort level and future plans. Yet another consideration is that leasable space is much more plentiful, while commercial properties for sale are not.

Chiropractors can dream of purchasing land or constructing their own building; however, buying property is not always feasible. The main reason that dream cannot or does not come to be is that the overwhelming majority of commercial space is for lease, not for sale. Yes, it's that simple.

Approximately 95 percent of ideal practice locations, such as office towers and strip plazas, are already owned by a landlord who does not want to sell you the property. The landlord wants you as a long-term, rent-paying tenant, and chiropractors typically are desirable, steady tenants who can remain in the same property for 20-30 years, even when the practice is sold.

If you are in the enviable position of considering purchasing a site, there are several opportunities available: a business condo in which you occupy the one unit; a strata title unit; small strip plazas or centers where you're a landlord to other tenants; or stand-alone buildings on a small piece of land. For the average doctor, major factors that impact this decision include the long-term commitment of purchasing a building and the ability to obtain financing.

Before you buy or lease commercial property, however, here are just a few of the pros and cons for you to carefully consider. Let's focus specifically on the pros and cons of buying office space.

Purchasing a Space: Weigh the Pros & Cons

Pros

• It is better to pay a mortgage than a lease because eventually, you will pay off the mortgage, whereas lease payments are forever. More often than not, the monthly mortgage payment is also very close to the monthly rent payment.
• Your equity in your property will typically increase over time. The building and the land value both can increase. Obviously, appreciated value will vary from location to location and city to city.
• You don't have landlord hassles when you buy; you feel in control, and can open and close your practice when you want. Ownership is empowering and feels great (most of the time).

Cons

• You might have to sacrifice on location strength or visibility. Many ownership opportunities tend to be secondary properties and not on the busier streets.
• You would have to move out or away from your current space, giving up a well-established location that another doctor might lease. Landlords almost always try to replace one industry tenant with another, so the possible competition should be a potential concern to you. If you are vacating an existing location, you may be leaving a great opportunity for a competitor to move into your practice location.
• You may have to become a handyman or deal with various ownership issues such as heating, ventilation and air conditioning (HVAC) units, building maintenance, grass cutting, snow removal, etc., that a landlord would have handled for you.

Case Study: The Power of the Purchase

We remember a doctor who hired us to negotiate his lease renewal. He was in a typical strip plaza – located across from a grocery store. Over the course of time and with due diligence (commercial lease negotiating is not an overnight process), we successfully achieved a $4/square-ft rent reduction; however, the doctor explained that he would prefer to own his own property.

We scoured the prime retail areas; however, there were not any suitable buildings for sale. We did find him a parcel of land on a busy street and recommended the doctor build his building as big as possible (within the city's restrictions to allow for green space and parking around the building).

This doctor wondered about our advice and explained he did not need the extra space himself (and could be paying a premium for rent on unused space). We clarified our recommendation by suggesting another tenant could lease the extra space (supplying additional income) and facilitated a deal with an optometrist to lease alongside. The doctor took our advice and when we met him again, he genuinely thanked us for our recommendation. His investment had worked out quite well, and he knew he could keep the building long after he retired and sold his practice.

Buying vs. Leasing: Other Considerations

Whether you are buying or leasing commercial space for your practice, there are numerous influences on your choice. Obviously, available space is the first factor – you can only put your practice into a building that has space available. Consider the hours you want to keep. If you are in an office tower and want to accept evening patients, the building's elevator may be locked down after 5 p.m.

Finally, look at your practice's long-term potential. Ideally, a chiropractic tenant should lease or purchase a suitable location they can operate from for many years. We have seen many tenants move several times over the years as they realized they initially picked the wrong-sized space within a building, the wrong unit within a building or the wrong building altogether. These mistakes are costly and can be avoided by having a long-term vision for your business, as well as some professional help from a lease consultant.

As a final note, when making the decision to purchase or lease, don't decide to purchase simply for the sake of owning real estate. Consider purchasing a space or property only if you would be prepared to lease that same location anyway, If you wouldn't lease it, why buy it?