HOW TO
Leasing vs Buying Medical Office Space THE UPSIDES & DOWNSIDES
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s you might imagine, there are many factors to consider when deciding about whether your practice should buy or lease real estate. There is no one-size-fits-all. The first thing to consider is the cost of each alternative. Ensemble has developed economic models to assist our clients in these assessments so we can compare outcomes with lease versus buy options, thereby arming our clients to make the best decision. Of course, there are other variables to consider.
L E A S I NG FLEXIBILITY | Leasing offers greater flexibility than owning, so if you are unsure if your practice is going to expand or downsize in the coming years, this option may be your best bet. COSTS | There are not many hidden costs with leasing since your lease dictates what your costs will be and most high-ticket capital items fall to the Landlord. MARKET FLUCTUATIONS | When leasing you are always riding the market. Significant increases in market rents could expose you to rent increases at the time of renewal. Conversely, tenants can benefit when markets experience declining rents and increased vacancy as landlords tend to be far more generous with lower rents and incentives to keep tenants.
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O W N I NG ARE YOU LANDLORD MATERIAL? | Although leasing offers more flexibility in your short-term future, owning lets you control your own destiny while potentially building wealth. RISK | Owning involves risk. When looking at ownership options you need to make some assumptions (i.e., guesstimates). What is the total investment, now and throughout the ownership cycle? Those high-ticket capital costs that fall under the Landlord when leasing are your responsibility now. Should you take on excess space for future expansion? Can you afford to carry the vacancy cost or pay for the leasing costs in order to secure an interim tenant? What will you sell the building for later — what is the exit strategy? With “assumptions” comes risk so it is important to ask the right questions. MARKET FLUCTUATIONS | While market downturns provide an advantage when leasing, it can significantly decrease the value of real estate that you own. However, even if appreciation doesn’t meet your projections, ownership might be more financially advantageous because
