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Buy vs Rent (Medical Building)

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  • Avatar chris1515 
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    Status: Physician
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    Joined: 10/31/2016

    I think WCI has discussed this in previous posts as I know he is part owner of his own medical building but I was having trouble finding those articles. Any help would be appreciated.

    My practice is a private practice. We have about 100 docs who work in various hospitals/surgery centers around town. We currently rent an office building and are considering buying in the future. Has anyone been thru this and if so, what did you learn? We don’t work out of our building, it is strictly for administrative staff.

    If not on WCI, are there any other blogs, sites, books you recommend on this topic?

    We would probably form our own LLC and then rent the building back to our group. If we bought the building outright, is there anyway to distribute this rental income from the LLC back to the partners at a lower tax rate to save some money now? Are there any other financial benefits in the short term while we are waiting for the building to appreciate over time? I am sure you may need more details so ask away, any help is appreciated.

    #220790 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3787
    Joined: 01/08/2016

    I would change the title to include this is an office. Many of us might avoid this thread thinking you are a resident buying a house…

    #220792 Reply
    Liked by ENT Doc
    Avatar MaxPower 
    Participant
    Status: Physician
    Posts: 289
    Joined: 02/22/2016

    @peds but we won’t be critical of your decision to buy a $1 million house with $600k+ student loans because that would be just mean…😜

    #220799 Reply
    Liked by Peds
    Avatar Peds 
    Participant
    Status: Physician
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    Joined: 01/08/2016
    medical school scholarship sponsor

    Please, 1MM feels like the down payment in CA 😂

    #220800 Reply
    Liked by MaxPower
    ENT Doc ENT Doc 
    Participant
    Status: Physician
    Posts: 3158
    Joined: 01/14/2017

    I think WCI has discussed this in previous posts as I know he is part owner of his own medical building but I was having trouble finding those articles. Any help would be appreciated.

    My practice is a private practice. We have about 100 docs who work in various hospitals/surgery centers around town. We currently rent an office building and are considering buying in the future. Has anyone been thru this and if so, what did you learn? We don’t work out of our building, it is strictly for administrative staff.

    If not on WCI, are there any other blogs, sites, books you recommend on this topic?

    We would probably form our own LLC and then rent the building back to our group. If we bought the building outright, is there anyway to distribute this rental income from the LLC back to the partners at a lower tax rate to save some money now? Are there any other financial benefits in the short term while we are waiting for the building to appreciate over time? I am sure you may need more details so ask away, any help is appreciated.

    Click to expand…

    Wanted to bump this thread to try to help you out.  My thoughts are that if you pay for the building outright you won’t be able to deduct any interest expense on the property.  All other costs should be the same – depreciation, utilities, etc.  If the returns are better than your alternative investment and superior to the industry standard then it might make sense to pay in cash.  Leverage allows you to deduct the interest expense and frees up cash for better alternatives elsewhere.

    Also, make sure you research the buy-in/buy-out from all angles and make sure you’re creating the right incentives for both new, current, and outgoing members.  Nothing rots out an organization than a smoldering sense of unfairness and resentment towards the older folks in the group.  Be kind to the new/younger members essentially.  You’ll want to know the market rates for rent in the area so you’re not overcharging and get with the right professionals to understand everything from proper location to valuation.

    Hope this helps.

    #221519 Reply
    Liked by Kamban
    Avatar Kamban 
    Participant
    Status: Physician
    Posts: 2250
    Joined: 08/01/2016
    make sure you’re creating the right incentives for both new, current, and outgoing members. Nothing rots out an organization than a smoldering sense of unfairness and resentment towards the older folks in the group. Be kind to the new/younger members essentially.

    Click to expand…

    This.

    My former boss, who controlled the multispeciality group, owned the building with his wife and did not want partners in the property. But he was willing to make us partners in the practice which showed a constant loss ( like Hollywood films). No wonder docs were unhappy, never became partners and left the practice constantly.

    Make sure there is a way for younger partners to buy into the building. Otherwise they will become unhappy at constantly paying rent and not owing anything. Also devise an exit strategy for retiring partners who want to sell a stake in the building. And if they don’t, can this be passed to their spouse / heirs who are just part-landlords with no stake in the practice. All these are minefield issues and probably more important in the final decision than the value of owing the building to save on rent.

     

    #221559 Reply
    Liked by ENT Doc

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