you Lease or Purchase your Medical Office Space
First and foreMedical-Office-Spacet
you should compare the benefits of leasing versus buying from a cash standpoint,
as well as the more obvious needs standpoint, such as long term space
requirements and expansion possibilities. In the early years leasing a
office space may be better than a purchase from a cash flow perspective.
For startups there appear to be more benefits to leasing than buying.
Cash flow, of course an issue and buying takes a larger portion of your
cash upfront. Cash outlays associated with a lease may well be limited
to your security deposit, plus first rent payment.
Here are some other
benefits of leasing Medical Office Space:
" Your credit
rating will not be quite as critical for leasing as it would be for buying.
So, for startups, this might be a sticking point.
" Your monthly lease payment is tax deductible because it's a business
" The money you pay in renting Medical Office Space is deductible
depending on several factors, such as how long you have been in business,
how profitable your business has been and what portion of the rent relates
to land itself-rather than to buildings-a lease is likely to cut your
near-term tax bill when compared with a purchase.
" You may be free from paying for building maintenance-many leases
place the duty of maintaining the property on the landlord. Such maintenance
can include the things that are necessary to ensure the continued structural
soundness of the building housing the space, (such as roof repairs and
periodic maintenance of heating and cooling, electric, and plumbing equipment),
and those that go to the facility's ease of use and appearance (such as
snow shoveling of walkways and parking lots and cleaning of windows and
Here are some non-monetary
benefits of leasing Medical Office Space:
" Freedom to
sublet your space and move to another location if you find the need to.
You want to retain your mobility. Maybe you are not sure that the office
building housing you will serve your needs several years in the future.
You may need more or less space, your target market may have moved elsewhere,
or better suited office space may later be built.
" No hassle of selling before you can move to another location.
" No loss from owning your Medical Office Space in a bad real
" No Assignment of personnel to oversee the space issues that the
owner should oversee.
Here are some benefits
of buying Medical Office Space:
" Interest on your mortgage loan is tax deductible
" You can take annual depreciation deductions on your taxes.
" You won't be facing increases in rent.
" You will benefit financially if the real estate market is good
when you sell.
" You may be able to lease out a portion of the building if you determine
you have excess space.
" You may make substantial changes to the building to accommodate
your business; those changes are owned by you and not your landlord.
" The hours of your business can be whatever you want them to be.
" You are free to stay in your same location as long as you
You should probably
do a cash flow analysis to see which option makes more sense from a cash
standpoint. Before you can do this, you have to have all the necessary
information for making your comparison.
" Full cost of purchasing
" Terms of the lease
" Depreciated value of the Office Space at the time you would want
" Estimate of the spaces value at that time
" Estimates of maintenance costs
" Your tax rate
Useable Space: You need to familiarize yourself with the commercial real
estate terms. When you ask to see space of a certain size, the agent will
show you useable space. Useable space is just the space you actually physically
occupy. It does not include common areas such as the entrance hallway
into the building, rest rooms, closets, etc. The square footage for these
areas is indicated as a percentage of the usable space. If you add the
amount of square footage for the common areas to the useable space you
will get the rentable space which is what you will pay for.
Creeping Leases: You
will probably have an annual increase built in your lease right from the
start. This is called an escalation clause. Your landlord has to account
for inflation, increases in the market value, etc. This may be a fixed
increase, or a percentage base on the consumer price index. Make sure
to negotiate those points.
Read the fine Print:
Remember the lease was written with the landlord's interests in mind.