Should you jump in?
by Keith Merklin
If you have ever thought of owning the property underlying your dental practice, now is the time. The commercial real estate market has stabilized during the past few years, and there is an abundance of exceptional properties available for purchase.
With relatively stagnant sales during the Great Recession, it is now a buyer's market, with commercial real estate prices lower than they have been in decades – down 30% from the national peak* before the crash in 2008.
In addition, properties are available in prime locations. Small business owners are starting to invest in premium retail properties for their private enterprises, including buildings that previously housed Blockbuster, Jack in the Box, and Barnes & Noble outlets.
Many commercial real estate owners are also realizing a cost savings in building out properties. The competition among builders for CRE construction jobs has driven costs lower, with some builders significantly cutting their margins in order to maintain payrolls. Dental office designers and architects are also trimming costs as they compete for fewer projects. As a result, the commercial property owner often has more room to negotiate prices.
Purchasing real estate where your practice resides will likely be one of the most expensive investments you'll ever make. But if you can ensure that the property is suitable for your practice, and is capable of supporting long-term growth without overtaxing your current cash flow, it can also provide a solid foundation on which to build your business and future.
Advantages of jumping in now
Here's what jumping into the commercial real estate market can mean for you:
- Purchase "more" real estate – Today you can get more property for your purchase than was the case just two or three years ago. Not only are property prices at a new low, but financing rates are at historic lows. So you can save on the cost of the property and the cost of the financing for the property. This means you can expect to purchase real estate with more square footage, in a better neighborhood, or have enough funding remaining to make a larger investment in upgrades and equipment.
- Get out from under rental payments – Your lease payment will likely fluctuate over time, typically to your disadvantage. (Have you ever known a lease rate to go down?) But mortgage payments for commercial real estate are often less now than an office lease payment, depending on the location of your practice.
- Secure your balance sheet – With a fixed mortgage payment that does not rise with real estate prices and loan rates as the market continues to recover, you can secure a balance sheet for the long term. This provides a steady foundation for making plans for the growth of your practice, and ultimately means more cash flow through the years.
- Invest in your future – Purchasing commercial property at a below-average price positions you to reap the financial gains when it is time to sell or retire. In the meantime, if the property has more square footage than your practice requires, you can generate additional cash flow through tenant rentals and expand into the extra space as your practice grows.
- Take advantage of today's loan options – Several good loan options are available to today's real estate purchasers. Most lending institutions offer conventional loans with both fixed and variable rates, and typically a requirement of 20% to 25% down payment. SBA loans are available through most major lenders with a 10% down payment. Lenders who specialize in dental financing can typically create custom loan packages that provide up to 100% financing, with terms up to 25 years.
So if you've ever considered owning business property, now may be the ideal time to jump in. You'll find an abundance of properties from which to choose, as well as opportunities for your business.
*Small Business Real Estate Boom Spurred By Government Support, Pallavi Gogoi, Huffington Post, News and Trends Small Business, July 11, 2012.
Keith Merklin joined Live Oak Bank in early 2010, bringing with him over 14 years of experience as a commercial lending officer. He has spent the majority of his career working with small healthcare practices. Keith originated loans for veterinarians and dentists who were acquiring a practice or property, consolidating debt or expanding their businesses. Keith is a top producer, a testament to his understanding of healthcare practice challenges as well as his dedication to helping small practitioners acquire financing to achieve their professional goals.
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