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To Own or Not to Own
by Greg Sneyd
 Greg Sneyd, Director of DentalSuccess Financial, Talks About... Last month I read an email that was sent to the Crown Council email network from Chris Chaffin. Chris is considering owning his building rather than continuing with his lease that is about to expire. Chris was looking for feedback that might help him to make this important decision.
Fellow Crown Council member, Dr. John Frerich responded with the following suggestions:
Chris,
I have been in a similar situation and can relate. Reality check: spend as
little as possible to get what you want. I bought land and paid for
complete plans and found an office to remodel and retrofit using the same
architects. Cost a bit to start over but some portions were duplicated like
interior details to some degree. Bottom line: a savings of about $250K over
building from scratch.
What have I learned so far:
1) Don't romanticize over your "dream" office. Be practical and realize the service within the office will far exceed the wow of a brand new building
2) Look at a past issue of Charles Blair's newsletter which goes over the own or rent scenario
3) Look at how long it would take to pay off the new building, how much money it really is, how hard you have to work to pay for it, and how much you would save by buying and renovating what space you are in now. Then look at how much the anticipated savings would become if you invested that money for your retirement.
4) Think about what you really need to do great dentistry and look at every purchase in terms of what your return on investment will be. Decide what is a need and what is a want. Remember the example of little kids: you buy them great "learning toys" and they end up playing with the box. Give your patients what they really need and want: excellent dental care and outstanding service. This will generate more referrals than a brand new building.
In case you are wondering we aren't done yet with our project. But I sleep
a lot better knowing I won't be married to this building for the next twenty
years and the overhead will not stop me from taking a week off every two
months or so. That counts for a lot.
Hope this helps.
John Frerich
Dr. Steven Blank also responded with some suggestions of his own:
Chris,
I almost built, and then decided to rent after going to lunch with a banker, created a spreadsheet for costs per square foot to build and own, and evaluated comparable real estate. The real decision is.do you want to be in the real estate business also? What training do you have? Is your dental business self-sufficient or are you trying to build that business too? If you rent from yourself at a $4000 increase per month, are you willing to do 5-6 more units of crown and bridge, just to break even for the next 30 years, month after month after month, even on the months that you want to take off and go on vacation??? If you got sick, and had to sell, could you talk anyone else into buying that deal or would they be better off going somewhere else? In my situation, I could not build for just me. It was NOT financially a good move. I had to build big enough to have tenants, then try to rent to them. That was the only way to get the dollars per square foot down to the level of the local market. It was not worth it to me. If you can afford the building with cash, maybe... if you borrow $500-$1million it is a poor return on the dollar. You pay interest, you pay taxes, you HAVE to work more, and if it does not rent, you are stuck (broke, hungry or more debt and stress).
I vote that you 1) improve the current facility 2) move to a small, exquisite, office at a good cost with the minimal impact on your total cash flow (the new building going up) 3) take Dental Boot Kamp Hands On ASAP, so you can start seeing more of the patients you want while you decide how to go broke in real estate.!!! DBK has a very fast ROI, month after month.
The false assumptions with owning a building are: If I own it, I will pay it off and then have no rent some day. The reality is: If you own it, you will probably pay more rent to yourself for years so you can say you own a building, then some day you will own real estate that has no income (while your office has no rent), but pays tax and upkeep. The real question gets back to ....Do you want to be in the real estate market?
If yes.... you will own something and your dental practice will rent something. It does NOT have to be the same building!!!! Think about that one for a while, most professionals don’t get this concept. If I can rent somewhere at a fair deal, and lease out my building for profit, I do NOT need to be in my own building. My dental business is doing ok, and my real estate business is then profitable too. If I rent from myself, then my rent check goes to me, but then I have one less tenant. The net difference is a wash. You don’t have to be tied to a building you own, or better put, you don’t have any advantage owning as a dentist. You can own, but that is a second business that should stand on its own.
And finally (should be first).. what does your ideal day look like (vision). Mine was one good patient a day, and maybe 2-3 simple procedures, each patient reaching optimum health, no emergency repair stuff. I went from a 5 chair office to a nice little 3 chair office. One for hygiene, one for exam, and one for treatment, It MAKES me practice towards my vision. More chairs = more debt, more staff, more overhead, more patients per day, less happy. Been there done that. The new building going up is the best deal, and you don’t want to own part of it!!! There is no value there, just ego. Save $$$, go to the beach, and call the guys at work that own their building that still work 5 days.
Call to discuss if you wish.
Steve
Hope this helps, if you are in a situation similar to Chris.
[PRINTER FRIENDLY VERSION]
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