How To Evaluate Purchase VS Leasing
Consider Your Financial Resources
Access to finances and financial resources is crucial in evaluating purchasing versus leasing a healthcare property. Property leasing can provide more financial flexibility upfront, as it typically requires a lower upfront investment. A lower barrier to entry can be especially beneficial for healthcare providers who are starting a new practice or expanding an existing one.
If leasing isn’t preferred, purchasing a property may provide long-term financial benefits. Property ownership does build equity in the business. This hard asset offers financial stability and predictability over the long run since the cost of the property is fixed, unlike a lease that may be subject to annual increases.
Licensing and Certification – States must license and certify healthcare properties. Some healthcare facilities require obtaining additional inspections, licenses, and certifications.
Zoning and Land Use – Healthcare properties may be subject to specific zoning and land use regulations. Providers must ensure the property is zoned for healthcare use and complies with applicable land use regulations.
Insurance and Liability – Healthcare providers must carry appropriate insurance to cover the property and any liability associated with the use of the property.
ADA Compliance – Healthcare providers must ensure that the property complies with the Americans with Disabilities Act (ADA), including accessibility for individuals with disabilities.
Environmental Regulations – Healthcare providers must comply with environmental regulations, including hazardous waste disposal and air quality standards.
It is vital to work with a team of experts to assess the financial impact of purchasing versus leasing and make an informed decision that aligns with their business goals. This team typically starts with a healthcare specific real estate broker, but will also include your CPA, financial advisor, and lender.
Location Matters
Location can impact patient access and the success of a practice, so it’s critical to choose one that makes sense, whether it’s being close to the existing patient base, their target audience, or establishing a practice in a growing community with the potential for increased demand.
For example, leasing might allow you to secure a prime location outside your budget if you were purchasing. However, buying a property in a desirable area can provide long-term benefits for your practice.
Upkeep and Maintenance Costs
Owning a healthcare facility comes with the responsibility of ensuring that the property is well-maintained and repaired as necessary. Property owners must account for expenses, including janitorial services, utilities, landscaping, parking lot, and building maintenance. The costs associated with these services can add up quickly and can be unpredictable, as unexpected repairs and maintenance issues can arise at any time.
Healthcare providers who own their facilities are responsible for these costs, which should reflect when calculating the total cost of ownership.
Determining how much a healthcare property owner should set aside for maintenance, repairs, and emergencies can vary based on several factors, including:
- Property Age
- Property Condition
- Size Of The Property
- System Complexity
Property owners should aim to set aside between 1% to 4% of the property’s value annually for maintenance and repairs. Additionally, aim to have a reserve fund of at least 10% of the property’s value for emergencies. This reserve fund can get tapped to cover unexpected expenses such as equipment failure, natural disasters, or emergencies requiring immediate attention.
In contrast, leasing a healthcare property can provide more predictability in terms of upkeep and repair costs related to the building or equipment included in the lease terms. Generally, lease terms require a 12-month minimum commitment and an ongoing rental agreement. Additional lease terms could require an additional security deposit or the first month and last month. However, these terms are negotiable from property to property.
Not being responsible for these expenses can be advantageous for providers who don’t want the hassle of facility management.
When deciding whether to purchase or lease a healthcare property, the potential owner must account for the costs associated with upkeep and repairs.
Your Business Plan
When choosing whether to lease or buy a healthcare property, it is essential to consider how your overreaching business plan can help guide your decision.
For example, if you are planning on significant growth or expansion, purchasing a property provides the opportunity to build the practice, increase equity and have the option to sell the property for a profit in the future.
For professionals who prefer a more agile approach focusing on core operations or minimizing expenses, leasing property may be a better option, as it provides more financial flexibility upfront and fixed maintenance costs.
Ultimately, deciding to lease or buy a healthcare property should align with your overall business plan and goals. Therefore, working with a healthcare specific real estate broker who understands your business is vital to making an informed decision.
How Working With FOCUS Healthcare Realty Helps You
At FOCUS Healthcare Realty, we understand healthcare professionals’ unique real estate needs and are committed to providing personalized solutions that align with our client’s business goals and objectives.
Whether you are looking to lease or purchase a healthcare property, we can provide expert guidance and support throughout the process, ensuring that you make a decision in alignment with your business needs.
With us as your partner, you can focus on your core operations while we handle all your real estate needs.