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To Buy or Lease - That is the Question
By Jennifer LeClaire

Should you buy or lease office space? What about equipment? How about your car, boat or other luxury toy? Whether you are just launching your practice or you’ve already built a successful chiropractic empire with multiple offices, these are important questions—and your decision has both short- and long-term impacts on your bank account.

New practitioners may be tempted to lease to avoid going deeper into debt after college, but established DCs may choose leasing for altogether different reasons. On the other hand, buying offers benefits of its own (read: tax breaks). The bottom line is the lease versus buy determination is different for different assets, different markets and different chiropractors. Indeed, one option does not fit all.

Business savvy chiropractors take an entrepreneurial approach to the lease versus buy question, examining it from all angles and settling on the opportunity that meets their unique needs at whatever stage of practice they are in, entrance, established or nearing retirement. Keeping your individual needs in mind will lead you to the right solution for your chiropractic lifestyle.

Why You Should Buy Your Office
When it comes to setting up shop, the lease-vs.-buy debate is clear to some: buying is the only option. Yet, only about 15 percent of medical professionals own their own building, according to Mark Alexander, senior medical office advisor for Sperry Van Ness Commercial Real Estate Advisors in Irvine, Calif. He sees that as a sad reality, especially for DCs at the end stages of their careers who are looking at practice value and office building value to help supplement retirement income.

“The majority of doctors build up a lovely pile of rent receipts and have no equity at the end of their career, as opposed to paying mortgage payments and having a building that’s worth even more than the practice,” Alexander says. In addition to an appreciating property, buying also offers tax benefits. The interest payment on the mortgage is fully deductible and the Internal Revenue Service (IRS) allows you to depreciate the asset.

Alexander recommends DCs form a Limited Liability Corporation (LLC) that holds the property title. The practice can lease the property from the LLC, allowing the chiropractor to pass cash flow in the form of rent from the practice to the corporation. When it comes time to retire, Alexander has another recommendation: Don’t sell the building with the practice. In his estimation, you can lose between 20 and 30 percent of the value of the building with that strategy, because the building often gets valued as cost replacement rather than an appreciated asset.

Dale Willerton, a.k.a. “The Lease Coach,” offers a good reason so few medical professionals own their own building: a lack of affordable, strategic locations for sale. “Most of the good locations for chiropractors are for lease,” he offers. “A bad location means you have to spend more money marketing—and it takes even longer to build business if it’s a new practice, because fewer people know about you.”

Why You Should Lease Your Office
Even if you find the ideal location at the right price, it’s not a done deal. You still need to consider the property’s condition. Unless it’s relatively new, Willerton says, you have to budget for repairs and maintenance. “Unless you have an established patient load, you need to be on the beaten path. You need to be where the people are,” Willerton says. “It’s not likely that you’ll find a decent location for sale.”

Andrew Waguespack, a broker with CRESA Partners in Atlanta, spends most of his time helping clients negotiate the lowest possible rents on their leases. That’s because many young chiropractors don’t have a large enough down payment to offer a lender, and established practitioners prefer not to tie up their cash in office assets that could be used to pay off other debts. And for practices with multiple chiropractors, the decision often boils down to the future: If a DC exits the partnership how do the remaining partners compensate him for his share of the office assets?

Then there’s another factor—a hot commercial real estate market. “Institutional investors are chasing real estate and driving up the prices,” Waguespack says. “If you buy now, you may be paying a premium on the property. We are advising clients to wait until the market cools down.”

The Equipment Equation
Experts have a more straightforward story to tell with equipment. Current IRS tax policy encourages chiropractic practices to lease, according to Marc Levine, CPA, JD, tax director of the Pittsburgh-based accounting firm Horovitz, Rudoy & Roteman. The practice can deduct the full value of a lease as a business expense, whereas the cost of equipment purchases over a maximum amount of $18,000 per year must be deducted over a number of years.

“A small practice may not even get to deduct the full maximum per year if it has to pay the notorious Alternate Minimum Tax, or AMT,” he cautions. “The AMT affects depreciation of purchased equipment, but not leased equipment.” Taxation issues aside, Levine says leasing makes more sense than buying when a practice or organization wants to put less cash down, when the equipment may become obsolete before it wears out, or when equipment is available at a reasonable price from leasing companies than from equipment sellers.

“On the other hand, if a practice is going to run a piece of equipment to its useful life and does not anticipate having to upgrade the technology, it will cost the company much less money in the long run to buy the equipment,” Levine suggests. “The information about taxes is targeted to the expenses related to the practice, but parts of it also apply to the luxury toys.”

Cars, Boats & Luxury Items
Levine brings us to our next assessment, cars and luxury toys. After all, the chiropractic lifestyle isn’t all work and no play. So where do cars, boats and other luxury items fit into the buy versus lease equation? Leases tend to come with lower down payments and higher monthly payments, so, generally speaking, the more expensive the toy the more attractive a lease, especially if you plan to trade in or trade up within a three-year period or don’t plan to use the toy long-term.

Boats, cars and recreational vehicles are depreciating assets, so some believe the less cash you invest the better off you are. But others, like consumer advocate Tim Duffy, only recommend leasing vehicles if you don’t have enough money to get the car you really want. “Leasing allows you to get into a car that normally you couldn't buy,” he explains. “If you do decide to lease, don’t tell the dealerships your plans until after you negotiate the price because they may not tell you about available rebates.”? He also suggests paying for more miles than you think you'll need up front and finding out what the dealer considers normal wear and tear so there are no surprises at the end of the lease.

At the end of the lease debate, it’s clear that leasing is an attractive option for offices and equipment, but perhaps not so attractive for vehicles. Still, what’s attractive to one DC may not be attractive to another. And real estate markets vary from region to region. The bottom line with any lease versus buy decision is to crunch the numbers, keeping in mind factors such as down payments, monthly costs, appreciation, depreciation and, of course, taxes. If the numbers work for you in the short- and long-term, then you’ll be satisfied with the outcome either way.