Smart doctors use real estate to build wealth. This excerpt from Benco Dental’s timely new white paper explains how to reap the benefits of being your own landlord.
DENTAL REAL ESTATE can be the best investment doctors in private practice make over their entire career. In fact, some dentists find—as McDonald’s CEO Ray Kroc did—that they build more long-term wealth in their physical building than in their practice.
Like any asset class, commercial real estate values can fluctuate from year to year. But over the roughly two decades from 1998 to 2018, U.S. commercial real estate values more than doubled, in-creasing twice as fast as inflation over the same period.
It’s almost always better for real estate to be an investment, not an expense. For most properties, a renter could have owned the property anyway after 10 to 12 years of rental payments. (That assumes a 4 percent interest rate on a building loan.) By purchasing the real estate, you build equity that will continue to generate income and potentially increase in value, versus having nothing at the end of a lease. Transitioning the practice separately from the real estate allows even greater flexibility, so each can be transitioned on your desired schedule.
In addition, rental income is not subject to payroll taxes the way wages are, so practice owners who also own real estate have a clear incentive to pay themselves less in salary and more in rent. Be sure to get the advice of an experienced tax advisor to ensure that you set those two figures at levels that align with IRS guidance.
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