As a doctor entrepreneur, investing in real estate for your dental clinic is likely to be the most crucial decision you’ll make during your career. After years of balancing school and life decisions, making another enormous investment can come with a lot of stress.
At Practice Real Estate Group, our healthcare real estate agents evaluate thousands of healthcare properties each year and can show you how to set up your property up to maximize its value.
Whether you start up or sell a dental practice, I want to share three real-time lessons my clients are learning so you don’t have to learn the hard way.
1. From The Start, Location is Everything.
I recently sold a practice based solely on location. The owner had not been the manager he should have been so I couldn’t sell it based on profitability or a strong patient base. But the location was incredible.
So when I found a qualified buyer, I told him the same thing: it’s all about the location. There was even a site selection report to back it up. The office was in front of a Walmart and across from a grocery-anchored shopping center. I also broke down each specialty for him so he could see how dense the area was and how underserved it was for his practice type based on the numbers. I told him, “If you’re willing to be the manager and cultural leader, you’ll do great.”
He purchased the practice, and just three months after doing so, he called me back and said, “You’re so right – you undersold it. I’m so busy.”
The importance of location can’t be emphasized enough. Whether you’re starting, expanding, or selling, make the most of your clinic by placing it in a part of town that serves your ideal patient and has data to back it up!
2. Cheap Rent is Only One Piece of the Puzzle and Lease Terms are a Dance.
You’ve likely read a lot about this venture, particularly lease terms if that’s the route you’re going. It’s a dance, though, when it comes to negotiations. Negotiations aren’t just about the cheap base rents.
I debated this with one of my smartest clients recently and here’s how the conversation went:
I like this location, I can get cheap rent, and the competition is non-existent.
Why do you think it’s non-existent?
C’mon. This neighborhood is up and coming. And again…I can afford it.
You are correct that it is a developing neighborhood, but the landlord isn’t giving you anything. No TI, no build-out time. That says to me that he could be tough to work with, he wants to profit off you rather than invest in you, and ultimately it’s going to cost you more. Here’s how:
The bank will lend you $600,000, but it will cost you $400K to build it out on your own. That’s $200 left for everything else. People, equipment, everything.
The site I’m recommending? I negotiated a $160,000 investment from the Landlord for TI. In addition, I negotiated 5 months’ free rent and you need as much time as possible now.
I hadn’t thought of it that way.
As a healthcare real estate agent, there is no greater priority than putting you in the right space that you can afford. When you’re considering spaces, trust your advisor and look beyond cheap rents.
3. Exclusivity is Critical Whether You’re a General Dentist or Not
Maybe you’re a specialist, an Endodontist, let’s say. You tell me when we start negotiating on a space that you’re not worried about a General Dentist coming into your retail center and adding endo to his or her list of services. I’ll tell you: I hear you. I’m not worried either. But I’m still going to negotiate it and here are two reasons why.
- Exclusivity doesn’t just mean competition. It also refers to co-tenants. And in the short term, co-tenants are critical. We’re not going to handcuff the landlord. However, if you see a wide range of ages, I’d strongly advise you to consider co-tenancy. I’d encourage you to push for language that grants you exclusivity for as many lines of business as possible. Furthermore, exclusivity can apply to other types of businesses. If your clients are children, for example, you may not want a smoking store next door, and our real estate agents can address that.
- Let’s imagine you didn’t engage a broker ten years ago, and your lease didn’t include exclusivity. You began your career as a general practitioner on a low budget but have now built a high-functioning and profitable practice. You’re now certified in more services and can serve entire families. You’re thinking about the best way to sell a dental practice, but in the eighth year of your lease, an orthodontist moves into the retail center. Overnight, your buying pool narrows. No one offering ortho will likely consider your practice.
When you hear exclusivity, know that the term doesn’t just apply to competition, it applies to co-tenants, too. The environment you surround yourself with will impact your business in the short term and if you sell a dental practice, the long term.
Do any of these points resonate? Thinking about opening, expanding, or selling your practice? Set up a time to talk with me about points you shouldn’t miss in your negotiations.
