Dental Expansion Guide
Buy or Lease the Premises for Your Dental Office?
Separate the cost to occupy from the value you might own at exit. A five-year cash comparison with down payment, rent, debt, maintenance, a major repair and net property sale proceeds.
Cash burden
Upfront capital plus recurring external occupancy payments
Ownership value
Sale proceeds minus selling costs and remaining debt
Worked horizon
Five years; same usable premises and fit-out scope
Scope boundary
Premises ownership—not buying the operating dental practice.
Should you buy or lease a dental office?
Buy only if control and the risk-adjusted ownership case justify the capital and property obligations alongside the clinical business. In the hypothetical five-year example below, buying uses $966,572 of owner cash before sale and returns $299,936 after selling costs and debt, for a $666,636 net cash cost. Leasing uses $540,000 after the deposit is returned. Ownership builds equity, but that equity does not make buying the lower-cash option under these assumptions.
A second office already puts capital into equipment, a team and a collection ramp. Buying its building adds a separate investment with a different hold period and risk. Assess whether you want to own that specific property even if the practice grows differently from plan. A loan approval or a mortgage payment below headline rent does not answer that question.
Align the premises scope, follow the five-year example, or use the property checkpoint.
Start with the same usable space and control period
The SBA lease-or-buy discussion identifies upfront liquidity, maintenance obligations and the details of lease terms as factors to weigh. It is broad asset guidance, not a dental real-estate return study. Do not import its simplified accounting or tax descriptions as advice for a particular property arrangement.
Normalize usable area, parking, access, utilities, permitted dental use and delivered condition. A cheaper building that needs major systems replacement is not equivalent to a ready suite. Nor is a five-year lease without enforceable renewal control equivalent to a building you can hold indefinitely. Compare the actual period of control and the consequences of needing more or less space.
| Buying | Leasing | |
|---|---|---|
| Upfront cash | Down payment, inspections, closing costs and owner-funded work. | Deposits, lease diligence and tenant-funded work net of eventual contributions. |
| Recurring external cash | Full debt service, property charges, insurance, routine maintenance and capital repairs. | Base rent, escalations, pass-throughs and tenant repair obligations under the actual lease. |
| Control | Ownership subject to financing, zoning, building restrictions and any association rules. | Permitted use, alterations, renewal, assignment and relocation terms. |
| Exit | Sale timing, transaction cost, remaining debt and uncertain net proceeds. | Deposit recovery, restoration, remaining rent and assignment/termination obligations. |
ADA's practice-buyer article explains that a seller who owns premises and pays no rent can understate the incoming buyer's occupancy costs. Make this adjustment even if ownership is through a separate related entity. Separate operating-practice performance from the property investment rather than using free occupancy to inflate practice earnings.
Worked example: a five-year owner cash comparison
Editorial hypothetical, not an actual property or a market quote: compare the same usable dental premises for 60 months. Clinical equipment, tenant fit-out, utilities and practice operating cash are identical and excluded from both options. The example isolates external premises cash. It assumes a lease that ends cleanly at month 60 and a building sale at that same time.
| Buy the building | Lease the suite | |
|---|---|---|
| Property price / upfront occupancy cash | $1,200,000 price; $240,000 down payment + $30,000 closing/diligence = $270,000 owner cash. | $20,000 refundable deposit, paid before month 1. |
| Financing / rent | $960,000 loan; assumed fixed 7%, fully amortizing over 240 monthly payments. | $7,000 monthly base rent + $2,000 pass-throughs = $9,000/month. |
| New monthly debt payment | $7,442.87 starting month 1; no balloon within the example. | No premises debt in this comparison. |
| Property charges and insurance | $2,000/month, external cash costs. | Included in the assumed $2,000 pass-through line. |
| Routine maintenance | $1,500/month, assumed spent rather than saved as a reserve. | Included within the landlord's obligations at the stated rent; no separate tenant cost assumed. |
| Major repair | $40,000 paid in month 36, additional to routine maintenance. | Landlord responsibility under the assumed lease; no tenant charge. |
| Exit assumptions | $1,200,000 gross sale price; 6% selling costs; repay remaining loan. | Full $20,000 deposit returned; no restoration, assignment or early-exit cost. |
These obligations are assumptions about two offers, not rules about all commercial leases. A different lease might pass structural, HVAC or other repair charges through to the tenant. A real property may need substantially different reserves or immediate remediation. This model also assumes constant rent and property operating costs for five years to isolate the mechanics; actual increases belong in both forecasts.
Monthly payment = $960,000 × (0.07 ÷ 12) ÷ [1 − (1 + 0.07 ÷ 12)−240] = $7,442.869782. Buying's recurring owner cash is $7,442.87 + $2,000 + $1,500 = $10,942.87/month, or $1,942.87 above the assumed lease. In month 36 it also requires the $40,000 repair. The $270,000 upfront ownership cash cannot simultaneously fund the patient ramp.
Reconcile the asset at exit without counting equity twice
After 60 payments, remaining debt = $960,000 × (1 + 0.07 ÷ 12)60 − payment × [(1 + 0.07 ÷ 12)60 − 1] ÷ (0.07 ÷ 12) = $828,063.60. Principal repaid is $131,936.40. That principal was already paid within monthly debt service; its benefit appears as lower debt at exit, not a second cash receipt during operations.
| Buy | Lease | |
|---|---|---|
| Upfront owner cash | $270,000 | $20,000 |
| 60 months of occupancy payments | 60 × $10,942.869782 = $656,572.19. | 60 × $9,000 = $540,000. |
| Major repair | $40,000 | $0 under the assumed contract. |
| Cash out before exit | $966,572.19 | $560,000 |
| Cash returned at exit | $1,200,000 − $72,000 selling costs − $828,063.60 debt = $299,936.40. | $20,000 deposit recovery. |
| Net five-year owner cash cost | $966,572.19 − $299,936.40 = $666,635.79. | $560,000 − $20,000 = $540,000. |
Buying costs $126,635.79 more net cash over this horizon. This is not a claim that leasing always wins, nor is the net cost accounting expense. It includes the initial equity contribution and full debt payments, then returns net equity at sale. It does not subtract the full $1.2 million purchase price on top of the down payment and payments; doing so would count borrowed funding twice.
If you keep the building at year five, the assumed $299,936.40 of net sale equity is not cash in the bank. Show an estimated asset and debt separately from liquidity. Refinancing or borrowing against that equity requires a separate available funding decision, with its own costs and obligations.
Change the exit assumption before declaring ownership cheaper
At a hypothetical $1 million sale instead, net proceeds are $1,000,000 × 94% − $828,063.60 = $111,936.40. Net ownership cash cost rises to $854,635.79, or $314,635.79 above leasing. The larger loss reflects the price decline plus the assumed percentage selling cost, not an extra principal repayment.
Under all other inputs, the sale price that matches the $540,000 lease net cash cost is ($966,572.19 − $540,000 + $828,063.60) ÷ 94% = $1,334,718.93. This is a break-even assumption to investigate, not an appraisal, appreciation forecast or cap-rate claim. Taxes and time value could change the comparison.
Cash tied up has a practice consequence
Buying needs $250,000 more initial cash than the lease deposit in this example. That difference may matter more than a modeled property return if it leaves the second practice unable to fund payroll or a delayed collections ramp. Do not count protected first-site cash or an unapproved future refinance as freely available liquidity.
A premises decision checkpoint for the owner
- Match the actual premises. Compare the same usable clinical capacity, delivery condition, parking and expansion rights, not just square feet.
- Price all external cash. Attach quotes and dates to purchase diligence, closing, debt, rent, pass-throughs, insurance and repairs. Identify which party bears each building system risk.
- Check property and practice readiness separately. The SBA location guidance points to local zoning and location-specific costs. Have qualified advisers verify title, condition, permitted use and needed approvals for the exact address.
- Protect the operating reserve. Overlay the property cash schedule with construction, staff and receipt dates. Test major repair plus slower collections rather than either alone.
- Show an honest exit. State hold period, sale costs, debt balance, time to sell, lease restoration and guarantee exposure. Stress a lower sale and an unwanted early move.
- Reconcile entities and tax independently. Record legal ownership, internal rent, partner shares and cash-transfer restrictions. Use adviser-prepared after-tax analysis rather than generic deduction claims.
For lease offers, use the dental lease negotiation worksheet to compare allowances and commencement. For an unproven catchment, start with location analysis. Carry premises cash into the working-capital reserve and business plan. The relevant practice financing options should follow this operating and property assessment.
Sources and methodology
Primary SBA and ADA public pages support scope, liquidity and occupancy diligence, not hypothetical property prices, loan rates, repair amounts or sale assumptions. Calculations retain unrounded amortization inputs and are nominal, pre-tax cash totals, not net present value or total investment return. No depreciation, deductions, appreciation guarantee, cap rate, rental income from other tenants or practice enterprise value is assumed.
- SBA — Buy Assets and Equipment: Decide to Lease or Buy
- ADA — What Dental Practice Buyers Want
- SBA — Pick Your Business Location
General planning information, not real-estate, appraisal, tax, accounting, legal or investment advice. Obtain property-specific inspections, written offers and independent professional review.
Frequently asked questions
Buying can provide premises control and a residual asset, but requires capital and leaves the owner with debt, repairs and sale risk. Leasing can preserve cash for the practice but creates contractual occupancy and exit obligations. Compare the same usable space over the same period, including exit proceeds net of debt; rent versus mortgage alone is incomplete.
The full loan payment is a cash outflow, so it belongs in the cash schedule. Principal repayment also reduces the debt owed at sale. The example subtracts only the remaining balance from sale proceeds; subtracting all original debt again would double count repayment. Formal accounting profit treats principal differently.
No. The practice and property company each need accurate separate records, but a combined owner cash view eliminates internal rent and includes external debt, property costs and any co-owner interests. The ability to move cash between entities and the tax consequences require independent review.
No. Even an unlevered building has capital tied up, property charges, insurance, maintenance and eventual repairs or exit costs. If a seller owns the building and shows little facility expense, normalize the cost your operating practice will actually face.
No. Show residual value as an assumption and stress it separately. Sale price, transaction costs, debt balance, time to sell and alternative use all matter. The worked case includes no appreciation and no tax calculation; it is not an appraisal or an investment-return guarantee.
Practice & firm funding
Compare premises funding without losing operating runway
Bring the purchase and lease offers, property obligations and the practice cash forecast.
- A person reads this, not a bot, and replies within one business day.
- This form authorizes neither a lender application nor a credit pull. Lender review needs separate permission. Preliminary illustrations are not final pricing; review final terms before signing.
- We provide financing for your practice's next move. Review legal and tax questions with your own advisers before you sign.
- We start with your plans, then explain the bank, SBA or nonbank financing that may fit. Costs and terms are clear before you commit; if another option is better, we say so.