Tenants often wish they owned their own premises, especially when faced with challenging landlord issues.
Make no mistake, the differences between leasing and owning your premises are very significant. Consider the following.
What are the short-term implications of ownership versus leasing?
Ownership:
- provides a high degree of personal control of the space offering opportunities for improved signage, parking, access to adjacent space, and control of cost, maintenance and repair issues.
- requires a large initial capital investment resulting in reduced liquidity.
- requires significant administration time on a day to day basis due to constant care and attention to management details.
- limits relocation opportunities since you can’t leave if you own your own property.
- increases the scope of available locations within which to build your practice by providing access in areas with no space for lease.
Leasing:
- provides limited control of space limiting opportunities for signage, parking, space requirements, and control of cost maintenance and repair issues.
- provides periodic relocation opportunities since you can leave at the end of each term.
- requires no initial capital investment requirement resulting in improved liquidity.
- requires limited administration time since the takes care of most issues.
What are the long-term implications of ownership versus leasing?
Ownership:
- creates risk; you may be stuck with the property while unpredictable circumstances such as demographics and zoning may change over the course of ownership.
- may result in significant disposal costs related to selling the property, including real estate commission and legal fees.
- provides an opportunity for capital growth commercial real estate appreciates over time; it’s the gift that keeps on giving.
- provides tax sheltering possibilities through depreciation.
- reduces liquidity since capital is tied up in the equity portion of your real estate.
- provides a potential to recover capital through refinancing against the equity portion of your real estate.
- may result in a challenge or an opportunity when selling your practice since the buyer may not purchase the real estate with the practice.
- pride of ownership. Theres something really special about being able to touch your own property.
Leasing:
- eliminates investment through monthly occupancy costs since rent payments do not have an investment component; rent is simply an expense.
- may provide an opportunity to sell your practice without worrying about selling or leasing real estate. If you have a reasonable lease
- provides an opportunity for capital growth through alternate investment vehicles.
- limits risk of having a large component of your investment portfolio based on real estate.
Be extremely careful to research the decision to own or lease in conjunction with your financial planner and accountant. Evaluate whether you personally are suited to act both as a landlord and a health care provider. Consult a real estate practitioner to compare and contrast opportunities to maximize return and minimize risk related to your premises.
Contact Realty Lease Consultants Inc. at 705-743-1220 or email info@realtyleaseconsultant.com for Stress-Free Lease Solutions!
