Where is the profit in owning your office?
Doctors have told me, "Land is always a good investment." Yet, we have all just experienced the largest drop in real estate values during our lifetime.
Bill Blatchford, DDS
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Doctors have told me, "Land is always a good investment." Yet, we have all just experienced the largest drop in real estate values during our lifetime. As land values are lower, you may be tempted to build your own office. Owning your dental office is a very emotional decision, one based mainly on profit and partially on being in control of your own destiny. Is it a good deal?
Keeping in mind that land goes up in value and also comes down, let's examine building. Most dentists lease at first and then decide they want to have a perfect office. Builders are eager to help dentists as well as real estate agents find the perfect space or lot. Dental supply houses are eager to help design the dentist's dream.
When that emotional decision is made to build your own office, waiting for the market to become right is usually not the chosen path. In my experience, I decided I wanted my office when interest rates were 22%. The high rate didn't matter because I wanted the office. Emotions took over.
Because profitability is one of the motivating factors in owning your own office, let's examine several factors. Dentists are not real estate professionals. Every commercial real estate agent knows where there is available land. If there is an empty lot, it has already been evaluated and rejected by the professionals for reasons you do not know. But again, emotions rule here.
Once you decide to build a dental office, the value of the land diminishes because you have built a one-function office. Yes, a chiropractor could use it; however, it would need leasehold improvements. A dental office does not hold the same value as a multifunction building such as a warehouse.
Besides purchasing a lot that other professionals rejected before you, in building your dream, you become permanently positioned. In a way, you're stuck. You have a one-purpose office in a permanent position. Small town or large city, location makes a difference, and in your 30-year practice life, things will change.
Once the perfect place for you, now your street is one-way, several businesses have changed or departed, and two new shopping areas are on the other side of town. But you own your office. The value has diminished, but you need to ride it out. You wanted to be in control. How does that feel?
Since profitability is one of your primary motives, you want to make a profit on the building. In today's marketplace, a young dentist graduates with an average debt load of close to $200,000. Your practice is for sale and you would like to sell the building as a package. Banks are being stingy about loaning that much money, so you end up selling the practice and keeping the building.
That sounds good because the rent continues; however, what happened to me could happen to you. I kept my building and knew the value I had. The third dentist, a good businessperson, called me to say he wanted to buy the building and he told me what he was prepared to pay. He also said that if I did not want to sell for that amount, he would move elsewhere and build on his own.
In my situation, our building was one of 10 in a professional complex. After about four were built, the developers asked me, "How would you like to finish the development?"
I was flattered, and little did I realize that they knew there was little money in completing the development. At one time, I owned four of the 10 buildings and was always scrambling to find tenants as well as stay on top of upkeep. What is the joy and profit in this?
We dentists are not real estate experts. Building is an emotional decision and is not based on the best market times. We tend to build when we need to and sell when we are finished, no matter the market. Thus the profit motive in owning your own building is no guarantee.
If you own 50 units and have one vacancy, you have a 2% drop in income for awhile. If you have one unit and have a vacancy, you have 100% drop in income. Where is the profit motive in this?
My choice and advice is, if you do not own your own office, continue to lease. It gives you the option of moving to a different location as your community transitions, and the freedom to not be a real estate developer. Stick with your profession earning money as a dentist.
Dr. Bill Blatchford, America's premier dental business coach, has produced a new comprehensive business course called Blatchford in a Box – the Classic. Requiring no travel and no contact, Dr. Blatchford is offering his coaching lessons on leadership, profitability, bonus, strong systems, an accountable team, marketing, and sales. See www.blatchfordinabox.com. Amazing results can be yours for $1,995. Dr. Blatchford is also author of two books, "Playing Your 'A' Game" and "Blatchford BLUEPRINTS." Contact him at firstname.lastname@example.org and www.blatchford.com
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