Should you lease or buy real estate for your practice?

Whether you’re opening a new veterinary practice or outgrowing your current location and looking to move, your decision about where to set up shop and how to secure that property can have a lasting impact on your business. 

As most practice owners will tell you, nothing matters more than location. Ideally, you want to find a high-traffic spot to help you attract new clients and, if relocating, one that is still easy for existing clients to continue to reach you. That part may be obvious, but how you secure that location is less so. When it comes to securing that location, is it better to lease or buy the property? There are benefits and drawbacks to both options.

• Leasing reduces investment: Leasing frees up your working capital so you can use it to cover other expenses. If you lease a building or space that is already equipped and set up as a veterinary practice, you can get started immediately with minimal start-up costs. 
  
  
• Leasing provides flexibility: Leasing gives you the flexibility to relocate to a new area to expand or grow your business without the hassle of having to sell your current property under current market conditions.
  
  
• Leasing reduces the hassle of maintenance: When you lease, your landlord will be responsible for all building maintenance and repairs. This allows you to focus more time on what you do best: building your practice as opposed to acting as a landlord.

• Leasing can have building restrictions: Leasing may mean you have more restrictions on the kinds of physical changes you can make to the inside or outside of your building. Instead, you may need to wait for your landlord to make upgrades and improvements.
  
  
• Leasing costs can vary: When you lease, your monthly rent could potentially increase each year, or your landlord may refuse to renew your lease if your agreement expires without a renewal option. To avoid any surprises, it’s a good idea to review your lease agreement carefully and consult a lawyer or advisor to make sure you’re asking the right questions.
  
  
• Leasing can affect your client base: As a tenant, there is always the risk that your landlord could sell your building or demolish it for redevelopment, forcing you to move. Should this happen and you’re unable to find an affordable practice in the same area, you could lose clients who are unwilling or unable to follow you to your new location. 

• Buying gives you more revenue streams: If you buy a building that has more space than what is required for your practice, you could consider renting part of it out to other tenants. This may provide you with additional cash flow and income. 
  
  
• Buying secures your location for the future: With property values and leasing costs on the rise, owning ensures you do not have to worry that a potential spike in rent might cause you to have to search for a more affordable location. You will have the security of knowing you can grow your client base in your current location for the long term. 
  
  
• Buying is an investment opportunity: A building you own could be a valuable investment. In the future, if its real estate value has increased, you could sell it for a profit or lease it out to help provide you with additional income in retirement. 
  
  
• Buying gives you tax deductions: Owning real estate provides certain tax advantages you don’t get when you lease. You can claim specific tax deductions associated with the cost of running your practice, including mortgage interest and property tax. You can also claim building depreciation. It’s important to consult with your accountant on what is deductible.
  
  
• Buying gives you remodelling freedom: Buying gives you more freedom to remodel if you need to update your building or change the interior layout to fit your practices' needs. 

• Buying is a substantial investment: Buying real estate for your veterinary clinic will require you to invest a significant amount of capital that could be used for other purposes, such as purchasing equipment and marketing. It will also require additional up-front legal and building inspection fees and potential environmental assessment costs.
  
  
• Buying can reduce flexibility: Buying can stall your growth efforts should you need to relocate because you have outgrown your space. Along with resale costs, it might take a long time to sell or lease, or you might have to take a loss if the real estate market is not thriving.
  
  
• Buying can have higher maintenance costs: Owning a building means you’ll be responsible for its upkeep, which can take away from the time you spend managing your practice. Along with regular maintenance costs, you must also be prepared to cover potential costly unexpected repairs. Purchasing an older practice that allows you to get started quickly at first, can later on add significant costs to replace and repair facilities such as plumbing and electric to maintain a professional looking and well functioning premises. 

The decision whether to lease or buy real estate for your practice is an important one. The key is to weigh all your options carefully. Depending on where you plan to practice, you may also want to consider leasing for a few years and then buying later. 

Scotiabank Healthcare Specialists understand that each situation is unique. We recognize your personal and professional financial needs will evolve as your practice grows. With decades of experience providing veterinarians with tailored advice and solutions on personal and practice financing and more, we can support your financial needs at each stage of growth. 

Contact us to learn more about the Scotia Professional® Plan or to speak to a Scotiabank Healthcare Specialist about your business banking needs.