A taxing decision

If you own the building you practice out of, it’s a good idea to charge your practice rent. Guiliana says rental income to a doctor who owns the real estate is taxed at a different rate than ordinary income. “Most doctors should do that,” says Guiliana. “Even if they own, they should pay rent to themselves, simply because it shifts some of the compensation to rental income rather than ordinary income.”

That can be a double-edged sword, of course. If you own the building, you’re paying individual property taxes on the property. The taxation issue is further complicated because it varies from state to state, but in general, Angotti says, “There tend to be more tax advantages if you’re an owner.”

The “M” word

Although it makes good fiscal sense to own your own facility, some people just might not want to wear the management hat. When considering the possibility of owning a multi-use and multi-tenant facility, it’s important to remember the time issue. One of the primary arguments for physicians not to invest in real estate is that they’re unlikely to make as much income from it as they would from practicing medicine.

Even with a sole-use facility, there are going to be issues of upkeep and maintenance that will suck time away from a practice. Klein agrees. “The big thing is, if you’re going to own, can you handle it? Financially it’s one thing, but you have to shovel sidewalks if it snows; you have to have the trash taken care of; if the lights burn out, you have to have to have bulbs. Can you handle it? Do you want to handle it?” she says.

A supportive, available, and handy spouse might help. Klein says that she’s fairly handy herself, “but I know a lot of people who wouldn’t know the first thing to do with a plugged up toilet. It’s like home ownership. You’ve got to be comfortable, not just financially, but you’ve got to know you can keep up the yard and the facility. And sometimes with a medical facility there are additional things you’ve got to stay on top of to keep in code.” (See “Accessibility for Patients,” page 24.)

Crosby says that whether you can handle the management yourself depends greatly on the size and complexity of the building. “If you’re a sole tenant, then you can manage it. But if you have multiple tenants, you’re probably going to be much better off having a management company do it for you.”

Tift agrees, emphasizing that if you’re looking for a real estate management company, look for one that specializes in medical office buildings. “It’s a different business. It’s all we do, but if I owned a shopping center, I wouldn’t manage it myself and I wouldn’t go to an office manager. I’d go to a retail company. I also believe physicians should have someone else manage it because physicians’ expertise is in running a practice and being a physician. It is not in running real estate, and it’s going to take time away from their business to handle real estate and those unique problems.”

Crosby is also a fan of having a professional management company run the building, and he urges shopping around for the right one. “As an accountant, an attorney, a doctor, or any professional, you should do what you do well, and in this case, it means a doctor being a doctor. Having a professional management firm will allow you to get a greater return on your investment,” he says.

Although it would seem to be a good business decision to own your practice facility, there are a tremendous number of variables involved in making it work. Many physicians will simply want to focus on medicine and not get into the headaches of investing in real estate or the upkeep and management of a facility, whether or not they have tenants. There are, after all, plenty of people who choose not to own homes, but rent apartments. Sometimes that’s an economic decision, but often it’s a personal decision having to do with lifestyle choices. It may also be a decision having to do with where you are in your life. If you’re undecided about where to practice or how long to stay in one area, leasing may be the way to go. If you’re closing out your practice for retirement in the near future, that’s also a consideration, but ultimately the decision may not be economic. END

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Mark Terry is a free-lance writer and novelist. His next book, The Serpent’s Kiss (Midnight Ink), is due in July. This is his first article for UO. He can be reached at www.markterrybooks.com.