For The Education Center
Have you thought about owning space for your practice? Many veterinary practice owners confront this question at one point or another.
Should you purchase commercial property or continue
The answer varies.
New practice owners or those starting up practices
may benefit from leasing space, as this option can
provide the flexibility to move and grow. In general,
it costs far less upfront to lease commercial space
compared with purchasing real property.
Leasing space generally frees up new practice
owners from some of the responsibilities of property
ownership such as maintenance. However, when you
lease space, you lose the investment you might make
in your future through property ownership.
Veterinary practice owners with a strong client
base and a clear picture of what lies ahead should
consider the benefits of owning their own space.
1LONG-TERM INVESTMENT: When you combine practice ownership with real property ownership,
you are investing in your long-term wealth.
While property values are not as low as they once
were, generally it is safe to assume they will rise.
As you pay down the loan on your real property,
you build equity and increase your net worth. By
diligently growing your practice, you will be able to
sell both the business and the real estate when it is
time to retire.
Alternatively, you can sell just the practice and
lease the property housing it, allowing for a source of
income during retirement. Building equity now will
have long-term benefits down the road.
2TAX BENEFITS: Real estate property owners enjoy tax advantages unique to ownership,
including depreciation allowances and mortgage
interest deductions. This deduction can reduce overall
taxable income and improve cash flow so you have
funds to reinvest in the business.
Consult with a CPA or financial adviser to understand fully how a real estate purchase would affect
your particular circumstances.
3STABILITY: When you own the property, you can more easily plan for the long-term costs associated
with that property.
Without the variables associated with lease agreement renewals, it is easier to project annual practice
expenses as you will know the terms of your mortgage, your insurance costs and the estimated property
taxes you will incur.
You can plan for the long term without having to
worry about increasing lease payments or the possibility a landlord will not renew your lease.
4CONTROL: When you own the business real property as well as the practice, you have the
control to develop, operate and modify the building to
your needs as the practice grows.
You will not be at the mercy of the landlord’s guidelines for space modifications and can adapt your building infrastructure to accommodate future developments
in veterinary medicine and the growth of your practice.
5COMMITMENT TO THE COMMUNITY: Owning your own building demonstrates your commitment
to your community and advertises that your business is
there to stay. Involvement and trust in your community
will go a long way with existing and future clients.
Consider refreshing your space if you own and occupy an older building. If you are planning a ground-up
construction project, consider the aesthetics and practical needs of a veterinary practice.
An architect and builder experienced in the veterinary field can help ensure your project is a success.
If the advantages of owning rather than leasing seem to be a good fit for your practice, you will need to decide on a ground-up construction project
or purchasing and renovating existing space.
There are number of factors to keep in mind when
looking to purchase commercial real estate for your
Be sure the location is a good one from which to
serve your client base. Remaining within five miles
of your current location is a good rule of thumb, but
this can vary depending on the demographics of your
Once you have selected a location, make sure it is
zoned for a veterinary practice, including overnight pet
Purchasing commercial real estate has its advantages and you will want to know how much you can
afford before getting too far along in the process.
Based on the historical financial performance of
your practice and business cash flow, a lender will determine what your practice can support. Working with
a lender experienced in veterinary financing will help
the lending process flow more smoothly.
If you are looking to finance a ground-up construction project, the loan amount will include the cost of
the real estate parcel along with building design and
In addition, “soft” costs such as appraisal reports,
surveys, permits, title fees, EPA reports, supervision
fees, construction interest carry allocation and other
common expenses along with working capital will be
included in the loan proceeds. Also consider funds
required for new equipment and unexpected change
orders during the build-out process.
Knowing the maximum loan amount for which
you can qualify will allow you to plan your project
Some lenders today—particularly those with experience in the veterinary industry—offer flexible loan
packages that may include up 100 percent financing
with payment terms extending up to 25 years. These
loan terms allow you to avoid a large down payment
as well as benefit from lower monthly payments.
Purchasing real estate is an expensive investment.
However, if the property is suitable for your practice
and is capable of supporting long-term growth without overtaxing your current cash flow, it can provide a
solid foundation on which to build your business and
your future. ;
This Education Center story was underwritten by
Live Oak Bank of Wilmington, N.C.
The five advantages
of owning vs. leasing
Practice owners with a strong client base would
do well to consider the benefits of ownership.