Purchasing your own practice premises is a big decision and should be made with consideration of the short and long-term goals of the practice. Some events that might prompt this decision include:
- The current landlord has other plans for the property, such as property development.
- Your practice has outgrown its current premises
- You want long-term security and control over your business premises, with the option to invest in a fit out for example
- You and/or other practice owners want to invest in the property market.
One of the key attractions to buying your own premises from an investment perspective is that you remove all the risks involved with leasing to a tenant, including damage to the property, late and non-payment of rent.
How to fund the purchase
Most practice owners won’t have cash on hand to purchase their premises and will need to find a way to fund the purchase.
As a first step, most people will consider bank finance. Some banks are willing to lend up to 100% of the property purchase price to doctors, which could allow the purchaser to increase their budget. It is important to understand the terms and conditions of any borrowing, and to ensure that the repayments are affordable. If the property is not ready for the practice to move in, then you will also need to consider financing the capital works or fit out.
The borrowing structure may need some consideration, particularly if there are several owners. For example, will each of the owners obtain their own finance? Or is the ownership entity itself taking out the borrowing? It is also important that the right entity within the business group takes out the borrowing to ensure that interest can be claimed as a tax deduction.
One alternative to funding the purchase through bank finance is inviting an external party to jointly purchase the property. However, this might limit your control over the property and the rent charged to the practice.
How to find the right property
If you’re interested in the property market, you might find the process of sourcing your perfect practice premises enjoyable. If you are less interested or time-poor, you may wish to engage a property consultant. The property consultant will get to know you and your practice to scour the market and find a property that suits your needs and budget. Often, it’ll take some time to find the right property, but sometimes, it happens almost immediately.
Seek advice
The right advice is critical when buying property. In addition to a property consultant, you should also consider seeking advice from professionals for:
Building inspections
You should have a licenced builder conduct a pre-purchase building inspection to provide you with any important information about the property.
Conveyancing
A good conveyancer will guide you through the settlement process and take care of any potential issues that may arise in the transfer of the property.
Business and legal advice
Business advisors, lawyers and accountants can advise you on the most tax-effective ownership structure of the property, which could include a family trust, unit trust or self-managed superannuation fund (SMSF). Your advisor can also provide guidance on taxation of rental income, eventual capital gains on sale, GST and state taxes such as stamp duty and land tax – all of which you should consider in line with your own personal circumstances and goals.
Finance broking
A finance broker can assist you to obtain finance from a bank or other lender and to understand the details. They act as a conduit between you and the potential lenders and can determine the lender that’s most suited to you and your practice.
Financial advice
You may consider obtaining financial advice as part of the property purchase process, particularly if you’re considering purchasing the property through a self-managed superannuation fund or there are more than one purchaser involved in the deal.
Purchasing a business premises can be a challenge, but most practice owners find it to be a rewarding experience. For more information or help purchasing your practice premises, contact your local William Buck Health Specialist.
