Advantages of Owning a Commercial Property
It will eventually be necessary for most business owners to choose whether or not to lease or purchase their office space. A number of factors need to be considered before making this important decision. Leasing may be a wise choice for dentists who are uncertain of future space requirements and who want to maximize cash flow as their practice grows. Nonetheless, a commercial real estate purchase can provide a solid basis for growing the business for new or seasoned practice owners with a strong financial profile, a clear picture of future growth, and the ability to take advantage of tax benefits.
The following are some potential advantages of owning commercial property:
LOW PRICES HISTORICALLY
Commercial properties for dental practices are much less expensive than they were before the recession. The cost of purchasing and outfitting commercial real estate may ultimately prove less costly than building out and leasing a leased space in some areas. Although property values will not likely rise at the same rate as they did from 1998 through 2005, both residential and commercial values are likely to appreciate over time at today’s lower prices. The property owner will reap the benefits of the appreciation.
FAVORABLE FINANCING RATES
The mortgage interest rate is the most significant cost of purchasing real estate. Rates for Commercial real estate Melbourne purchases are at an all-time low today, allowing you to save significant funds as you pay off your commercial mortgage. Obtaining financing can still be a challenge, so you’ll need to keep a spotless financial profile and prepare a detailed business plan that proves the viability of your practice. If you require financing for a dental practice, you should also consider working with a lender who understands your needs.
Building equity in your practice real estate makes it a valuable asset that you can leverage as you grow your business without putting your practice at risk. In this way, you can manage your practice’s growth more effectively.
Additionally, when retirement time comes, you have more options.
CASH FLOW OPPORTUNITIES
You have the opportunity to receive additional cash flow through rental income when you purchase commercial property with tenant space. You can use tenant income to help pay down the purchase price, thus offsetting the investment. You need to remember that having tenants requires property management responsibilities that can detract from your core business of treating patients.
Your practice allows you to depreciate your asset while deducting all mortgage interest paid during the year. Additionally, you can benefit from several tax deductions designed for business or property owners:
- Section 179 of the IRS Tax Code allows deductions for equipment and furnishings purchased and placed into service in the same year in which they were purchased. During the past three years, Congress has provided a generous deduction of $500,000, which can help offset the cost of a property purchase.
- Cost segregation allows you to depreciate the building and its components, such as wiring and lighting, over a 39-year period, thus reducing the cost of building maintenance for a long time.
- The sale of an investment property used in a trade or business can be applied toward the purchase of a similar or like property within 180 days of the sale without incurring tax consequences. In order to avoid a tax penalty, the purchased property must be of equal or higher value. By doing so, a practitioner can expand his or her practice to a larger facility as the practice grows, without being hindered by tax penalties.