Why Dentists Should Buy Their Office Building Instead of Renting

As a dentist, owning the building where your practice operates can be a game-changer. While renting may seem like the easier route, buying your office building offers several financial and strategic advantages that can greatly benefit your practice in the long term. Let’s explore why owning is often a smarter move for dentists and the financial perks that come with it, including tax write-offs, depreciation claims, and financing options.

1. Building Long-Term Equity

Renting gives you a workspace, but every payment you make goes into someone else’s pocket. When you buy your office building, each mortgage payment contributes to building equity. Over time, your property appreciates in value, and this can provide a substantial financial return if you decide to sell. Essentially, owning is a way of investing in your practice’s future and creating a personal asset that grows over time.

2. Tax Write-Offs

One of the biggest benefits of owning commercial real estate is the tax advantages. Dentists can take advantage of various tax deductions, including:

• Mortgage Interest Deduction: The interest paid on your commercial real estate loan is tax-deductible, helping to reduce your taxable income.

• Property Taxes: Property taxes paid on your building can also be deducted from your income taxes.

• Operating Expenses: Any expenses related to maintaining the property, such as repairs, utilities, and management fees, can be written off as business expenses.

These deductions can significantly reduce your annual tax burden and improve your cash flow.

3. Depreciation Claims

The IRS allows commercial real estate owners to depreciate their property over a 39-year period, even if the property’s actual market value is increasing. This non-cash deduction can reduce your taxable income each year, giving you an additional tax benefit. As a dentist, this means you can lower your practice’s tax liability while benefiting from the appreciation of your property over time.

4. Control Over Your Space

Owning your office means you have complete control over the space. You can make modifications to better suit your practice’s needs without needing approval from a landlord. This can be especially valuable in a dental office where specific equipment and layout configurations are crucial for daily operations. Plus, you won’t have to worry about rent increases or the possibility of having to move when your lease is up.

5. Stability and Predictable Costs

When you own your property, you’re not at the mercy of fluctuating rental markets or lease renewals. With a fixed-rate mortgage, your monthly payments remain predictable, which helps with long-term financial planning. You’ll avoid the risk of rent hikes and have peace of mind knowing you have a permanent location for your practice.

Financial Analysis: Renting vs. Owning

Let’s break down the cost comparison between renting and owning.

• Renting: Assuming the rent is $5,000 per month, over 10 years, you’ll pay $600,000 in rent with no equity or ownership stake.

• Owning: On a $500,000 commercial real estate purchase with a 20% down payment and a 5% interest rate, your monthly mortgage payment (excluding taxes and insurance) would be approximately $2,684. Over 10 years, you’d pay $322,080 in mortgage payments. Plus, you’d gain equity in the property and likely benefit from appreciation.

Even factoring in property taxes, maintenance, and insurance, the long-term financial benefits of owning typically outweigh the costs of renting, especially when you include the tax deductions and depreciation benefits.

Financing Options for Dentists to Buy Commercial Real Estate

Several financing options are available to help dentists purchase their office building:

• SBA 504 Loan: Dentists can take advantage of SBA 504 loans, which offer long-term, fixed-rate financing for commercial real estate. These loans provide up to 90% financing, meaning you only need to put down 10%, making them an attractive option for dentists looking to minimize upfront costs.

• Conventional Commercial Loans: Banks and other lenders offer conventional loans for commercial real estate. These typically require a larger down payment (20-30%) and may have higher interest rates, but they provide flexibility in terms of loan structure.

• Commercial Bridge Loans: If you’re looking to purchase a property quickly or need short-term financing while waiting for long-term funding, a commercial bridge loan could be an option. These loans are designed to bridge the gap until more permanent financing is secured.

• Owner Financing: In some cases, the seller may be willing to finance the sale, allowing you to make payments directly to them over time. This can be a good option if you’re having difficulty securing traditional financing.

Conclusion: Invest in Your Future

Owning your office building as a dentist can provide long-term financial stability, significant tax benefits, and control over your workspace. While it may require a higher initial investment than renting, the long-term rewards, including building equity and tax savings, often outweigh the costs. With the right financing, purchasing commercial real estate is a smart move that positions your dental practice for growth and success.