**Purchasing the Premises of your Practice**
Part 2: Established Practice
In part 1 we spoke about purchasing the premises for a start-up. In part 2 I will concentrate on purchasing the premises for an established practice.
For an established practice, I most often than not advocate for buying the building as well if it is available for purchase. This contrasts completely with my advice for start-ups and the main reason for this is that when purchasing a solid established business there is an existing level of security as the business has proven itself over time and there is a low risk of failure.
Purchasing the building allows you to keep the rent that you would otherwise have been paying someone else and build up an asset. Further, you are not bound by constraints that a landlord may have in place and have the flexibility to improve the facilities as required. There can be several tax advantages as well.
Moreover, existing practice owners with a solid established business who are currently renting should seek to either buy the premises or look to move into a premise they own.
Recently, I’ve purchased some land with medical zoning close by one of my large established practices. The purchase price was 1.05 Million for 4611sqm of land (there are currently tenanted houses on the land so there is some holding income). 2369sqm of the land will be used to build 2 duplexes and a house leaving 2242sqm at a cost of ~510K for the dental surgery. Approximately 140k was spent on getting approvals and the land works just for the dental portion. We have been quoted 1.3million (includes the dental fit out as well) to build a 449sqm 8 surgery building with 38 car parks. The building only portion of this is approx $700k
Therefore the total spend to build the premises only (not internal fitout and new chairs etc), is $1.35million
Then, I will write a lease to myself at the prevailing rental rate for a building of that size in this area (around $450/SQM) giving a total rental of $202,500 a year. With a long lease in place, to a health business established many years in the area and a personal guarantee from an asset backed tenant, in addition to the significant depreciation benefits of a brand new construction, the building could be sold at a 6% return. This would value it at $3,367,000 meaning we have created over $2million dollars of cash or equity, just by moving into our own premises.
There would be huge appetite for this building from investors.
As the example above shows, significant equity can be created by building your own premises and many owners currently are unaware of the potential goldmine their practice is sitting on.
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Our next lot of practice Ownership seminars are in Melbourne and Brisbane later in the year. We cover all these topics and more, they sell out quick so please register ASAP:
We also offer services for people looking to set-up or buy practices where we assess things such as leasing vs buying. Please see the below link for more information.