The decision as to whether to lease or buy an office space will likely have to be made by most business owners sooner or later. Before making this critical decision, it is important to consider a number of factors. When dentists don’t know their future space needs and want to maximize cash flow as their practice expands, leasing may be a wise choice. Nevertheless, a commercial property purchase can be a good choice for practicing physicians who have a strong financial profile, a clear picture of future growth, and the ability to take advantage of tax advantages.
Owning commercial property can have some of the following advantages:
The Lowest Prices In History
The cost of commercial properties for dental practices has dropped significantly since the recession. There are some areas where the cost of purchasing and outfitting commercial real estate may be less than that of building out and leasing a leased space. Despite not likely rising at the same rate as they did from 1998 through 2005, both residential and commercial properties are likely to appreciate over time at today’s lower prices. Property owners will benefit from the appreciation.
Financing At Favorable Rates
The interest rate on a mortgage is the most significant cost of purchasing a home. Commercial real estate Melbourne rates are at an all-time low today, allowing you to save significant funds when paying off your commercial mortgage. Getting financing can still be challenging, so you should keep an impeccable financial profile and prepare a business plan that proves the viability of your practice. Considering a lender who understands your needs is also important if you require financing for a dental practice.
Equity Appreciation
As your practice grows, you can leverage the value of your practice real estate without putting it at risk as you expand your business. This will allow you to manage the growth of your practice more effectively.
Additionally, you will have more options when retirement time comes. If you own a commercial property, you may sell the practice and underlying property outright at the time of retirement, or you may sell only the practice but lease the property, which produces an ongoing income stream.
Opportunities For Cash Flow
If you purchase a commercial property with tenant space, you can receive additional cash flow through rental income. Tenant income can be used to offset the investment by paying down the purchase price. The responsibility of property management can become a distraction from your core business of treating patients when you have tenants.
Tax Advantages
You can depreciate your assets while deducting all mortgage interest paid during the year from your tax return. Additionally, you can take advantage of several tax deductions designed for business owners or property owners:
- Equipment and furnishings purchased and placed in service in the same year they were purchased may qualify for deductions under Section 179 of the IRS Tax Code. Congress has provided a generous deduction of $500,000 in the past three years, which can help offset the cost of purchasing property.
- The building and its components, such as wiring and lighting, can be depreciated over a 39-year period, reducing the cost of building maintenance for a long time.
- Within 180 days of the sale of an investment property used in a trade or business, the proceeds can be used to buy a similar or like property without incurring tax consequences. An equal or greater value of the purchased property is required to avoid a tax penalty. If the practitioner does this, they can expand their practice to a larger facility as their practice grows without having to worry about tax penalties.