06 Mar The Best Investment You Have Already Made

When you finally realize that it is time to retire, your first thought will be… I will have to sell my practice. And, if you own one, your second thought may be… I will have to sell my building too. Obviously, you are right on the first one. However, you may not be on the second one.

Retiring dentists often site the same reasons why they think they have to sell their building. They fear the new dentist will not do as well as they did and if he or she fails, they will own an empty building. Statistically, dentists rarely fail. That’s why banks are still willing to make 100% loans to young dentists – even debt-ridden ones!

They fear being an absentee landlord. They do not want the responsibility of owning a building while they are living in their retirement haven far away. In reality, most buildings today require very little maintenance – particularly if the owner has been diligent about repairs all along. Regardless, most dentists don’t remove snow themselves or mow lawns themselves and definitely do not replace broken toilets themselves – even if they are capable of all three. They simply call someone else to handle those chores. The world is full of absentee property owners who never maintain anything personally.

They fear that at some point the new dentist will pack up and move to a new location down the street. This may be a valid point – especially if your building is inadequate in the first place. Of course if it is inadequate, it is also highly unlikely that anyone would want to buy it. And unfortunately, that may interfere with the sale of the practice. If your building is nice, given today’s building costs or even renovation costs, leaving your building may not make any financial sense to a buyer or especially not to his banker.

The list of fears could go on indefinitely with most objections easily refuted, but forget all of that. Focus instead on the two biggest reasons that you may want to consider keeping your building instead of selling.

While it is true that banks – despite the difficulties in their industry – are still willing to lend money to young dentists for the acquisition of dental practices, there is ultimately a limit to how much each buyer can borrow. Not all buyers are capable of obtaining the same amount of money and not all practices generate enough net cash to pay practice expenses and a building mortgage too. A particular buyer may qualify for a loan to buy your practice, but adding the cost of a building to the equation may raise

the overall cost enough to scare both him and his bank away. And, unless you are willing to carry the loan for him, he may have to drop out of the available buyer pool. If your buyer pool is small to begin with, you may not be able to afford turning any buyer away by trying to combine a practice sale with a building sale.

Have a sit-down with your accountant. Remember, it is likely that you will be paying both capital gains and ordinary income tax on the sale of your practice alone. If you sell your building, you will be paying even more in that particular year – considerably more…paying taxes is a given! The critical task is to calculate just how much actual cash you could expect to net from the sale of your building and then ask yourself what you will do with it.

With interest rates at essentially zero, a spooky stock market and almost every other potential return on investment limited, these are perhaps the strangest economic times most potential retirees have ever seen. Where indeed will you put the cash that you net from your building sale to earn a decent return?

Now let’s compare keeping vs. selling by doing a little math exercise. Take the total amount you could reasonably expect to earn by renting your building (after real estate taxes, insurance, and maintenance) and divide it by the net cash number you and your accountant derived. Then, take a long, hard look at the result. Invariably, you will see that the rate of return you will realize from the rent of your building will be very respectable – particularly respectable, in our current investment climate. Better yet, you will be able to get that return without having to take money out of your pocket.

Not only will keeping your building dramatically increase the chances of selling your practice by opening up the available buyer pool, but it may also become one of the best retirement investments you have already made!