If you have been thinking about building a dental practice, now is a great time to do so. Market conditions continue to support favorable mortgage rates and construction costs, and the U.S. government has reached out to small businesses with even greater tax deductions for equipment purchases in 2011. Owning commercial property also still appears to be a reliable and potentially profitable future investment.
Favorable commercial property values
Commercial property values are at their lowest level in decades, providing purchasers an opportunity to obtain far more for their investment than they could have just a few years ago. Plus, property values are likely to increase in time as the economy recovers, making commercial real estate a relatively secure long-term investment. Commercial property can become a potentially valuable source of retirement revenue either through outright sale of your practice and the underlying property, or through sale of your practice and lease of the property to create a lifelong revenue stream.
Historically low mortgage rates
As with residential properties, commercial real estate mortgages continue to be at historically low levels. It is possible to secure long-term commercial mortgage payments that rival rental payments for a comparably leased space. Also, down payments for financing can be as low as 10% of the total loan amount if financing is obtained through an SBA program.
Stable construction costs
Costs for construction materials such as plywood, copper, and diesel fuel have climbed during the “Great Recession,” jumping 5.4% during 2010. Nevertheless, construction companies are still holding the line on bid prices because of intense competition and weak demand for their services. As demand for commercial building construction increases with a recovering economy, expect construction costs to increase as well. Now is an excellent time to build your practice while costs remain relatively stable.
Section 179 tax deduction
Higher allowable IRS Section 179 tax deductions for 2011 mean an investment in building a practice actually costs less. The 2011 deduction limit is $500,000, up from $250,000 previously, and can be used to write off the costs of purchasing new or used equipment, including new software. The 2011 limit on equipment purchases that qualify for the deduction is $2 million, up from $800,000 last year. The government also offers a 100% “bonus” depreciation on new equipment taken after the $500,000 deduction limit is reached.
In addition, you can purchase equipment for a new practice anytime during the year. As long as the equipment is placed in service during the 2011 tax year, you can write it off for 2011 even if you do not start making payments on your purchase until 2012. People are strongly encouraged to consult with a certified public accountant regarding tax deductions prior to purchasing equipment and software.
So if you are considering building a practice, don’t wait. Current market conditions have created an unprecedented opportunity to invest in your future at historically low costs. But the opportunity will not last forever.
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