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Today, we’re diving into a topic that’s crucial for healthcare professionals—commercial real estate. Whether you’re a first-time practice owner or looking to expand, understanding the nuances of real estate ownership, leases, and professional representation can make or break your success. In this episode, we’ll unpack the key considerations, share expert tips, and discuss real-life examples that highlight the importance of making informed real estate decisions. Join us as we explore how to maximize profitability and avoid common pitfalls in the world of healthcare real estate.

The Importance Of Professional Representation

One of the most critical decisions you can make as a healthcare provider is whether to go into a real estate deal alone or hire a professional. Many doctors unknowingly venture into negotiations unrepresented, thinking it might save them money. However, this approach often backfires. 

According to Dell McCraney, a healthcare real estate agent, many doctors go into negotiations like “going to a gunfight with a knife.” Without professional representation, you’re likely to leave significant money on the table. For instance, McCraney recounted a case where a doctor initially negotiated a lease on his own and almost missed out on $100,000 in concessions that a professional agent later secured.

 

Key Considerations For First-Time Practice Owners

When opening your first practice, understanding the role of real estate in your overall expenses is vital. Keith Page, another expert in healthcare real estate, emphasizes that real estate is typically the second-largest expense after overhead. Hence, maximizing profitability through savvy real estate decisions is crucial. 

Main Considerations:

  1. Lease Terms: A typical lease spans ten years, making it a significant long-term commitment. Ensure the terms are favorable.
  2. Location Demographics: The success of your practice can heavily depend on choosing a location with the right patient demographics.
  3. Professional Guidance: Engaging a real estate professional who understands the healthcare market can save you from costly mistakes.

Negotiating Leases — Pitfalls And Strategies

Many healthcare providers mistakenly assume that handling lease negotiations themselves is more cost-effective. In reality, this often results in suboptimal deals. For example, Dell McCraney shared a story of an orthodontist who received $275,000 more in concessions through professional negotiation compared to a peer in the same strip center who went unrepresented.

Key Strategies:

  1. Engage Early: Contact a professional before you start any negotiations to ensure you’re well-represented from the outset.
  2. Understand Concessions: Be aware of tenant improvement allowances and other concessions that can be negotiated into your lease.
  3. Compare Options: Use tools to compare lease offers and understand the total cost over the lease term, including potential build-out costs and free rent periods.

Buying Vs. Leasing — Making The Right Choice

Deciding whether to buy or lease your practice’s real estate depends on several factors, including your long-term business goals and financial situation. 

Buying Considerations:

– Equity Building: Owning real estate builds equity, which can be beneficial in the long run.

– Stability: Owning provides stability and control over your practice location.

Leasing Considerations:

– Flexibility: Leasing offers flexibility, especially if you’re uncertain about long-term location needs.

– Lower Initial Costs: Leasing typically requires less upfront capital compared to buying.

 

Keith Page suggests that each situation is unique, and often the decision comes down to financial viability and long-term goals. For instance, a doctor straight out of residency with significant student debt might find leasing more feasible, whereas an established practitioner looking to expand might benefit from purchasing property.

Navigating commercial real estate is a complex but crucial aspect of running a successful healthcare practice. Engaging professional representation can save you significant money and ensure you secure the best possible terms. Whether you’re opening your first practice or expanding, understanding your options and the long-term implications of your real estate decisions is essential. Remember, building a trusted team of advisors, including real estate professionals, accountants, and bankers, can provide the support you need to make informed and profitable decisions.

For additional help, feel free to connect with Carr for personalized advice and support on your real estate journey. You can reach out to Dell at dell.mccraney@carr.us or Keith at keith.page@carr.us.