While there are no guarantees, commercial property can be a great investment for those in the medical community. Certainly, there are many that put their proverbial toes in the water, but a lot more professionals sit back and wonder "Should I take the plunge?"
After spending many years in commercial property consulting, we have identified four common reasons why those in the medical profession should NOT own commercial property:
Reason #1 - The Downside of Being Smart
Those in the medical profession are bright people. Due to the highly specialized training and education necessary though, most practitioners are solely focused on the art and science of their craft. They are not focused - at least as heavily - on maximizing the results of their financial affairs. Interestingly, while they recognize that running a successful medical practice requires a team where each member is playing his or her part, they don't apply that same model to their thinking about financial opportunities. Instead, they want to "know it all"....but because of their other commitments, they just can't.
To optimize your financial success in commercial real estate, you need a team.
Reason #2 - Lack of Legal & Tax Knowledge
When it comes to the unique tax issues involving commercial property ownership, you need a diverse financial consulting team in place. After all, many would-be medical property owners do not even know how to choose the correct entity structure for their property. To compensate for this, they often rely on their CPA to handle all financial matters. Unfortunately, the reality is that your CPA's knowledge is just like your knowledge and my knowledge. It's limited. As a result, your CPA may not have the required expertise to optimize the financial results of commercial property ownership.
Investing in commercial property, particularly for those in the medical field, requires knowledge of how to:
There is an African proverb that says "If you want to go fast, go alone. If you want to go far, go together." You can see how this applies to working with a knowledgeable team.
Reason #3 - Paying Too Much in Taxes
The government provides a lot of tax incentives for property owners. The problem is that few people know what those incentives are or what needs to happen to qualify for them. Because of this, owners of commercial property frequently end-up paying much more than they should in taxes. Additionally, property tax valuations across the nation are often inaccurate because of the Great Recession's impact on real estate. Because commercial property taxes are a big expense - and an expense that might come as frequently as twice a year - making sure your property is not over-valued on the tax rolls is important!
Reason #4 - Energy Efficiency
Is the building energy efficient? Will the state or federal government require it to be? How much are the utilities truly going to cost?
Utilities are a bottom line expense and often completely out of an owner's control. Most in the medical community have no knowledge of how to manage this expense. Even fewer are privy to the conservation products on the market. If you are unfamiliar with terms such as: Energy Metering, Power Factor Correction, Kilowatt-hours (kWh), or Demand Rate; you definitely should not own a commercial property.
Commercial property ownership is not for the faint of heart. If you own commercial property or are thinking about jumping into into it, you should consult a firm with expertise in the areas listed above. Contact us for more information.
Bruce Wing is the principal of Strategic Wealth, LLC, a financial planning and business consulting firm located on the north side of Atlanta, GA.
Entrepreneur, financial guy, husband and father of two great kids.