The Third Piece of the Puzzle

My last two blog posts have discussed wealth accumulation strategies guaranteed to provide the necessary funds for a comfortable retirement. Qualified pension plans and whole life insurance are relatively easy to implement provided you can find the discipline and the available cash to contribute. Owning your own real estate is a horse of a different color, and requires much more of an entrepreneurial spirit and creativity. But the returns can be outstanding.

Instead of paying rent to the landlord, be your own landlord!  It is easy to set up a separate entity to own the real estate. The rent payment is made with pretax dollars and of course is a 100% tax-deductible business expense of the practice.  And you can – within reason – pay an above market rate to reduce your debt sooner.

I would advise this for any dentist planning to practice for another 15 years or more. Over 15 years – let’s say your current rent is 5K/month. That equals 60K/year which equals a staggering 900K over 15 years!! And we know it  will be more than that because rents customarily increase by 1-2% every year. All that money is gone. Disappeared. You have absolutely nothing to show for it. Unfortunately, it is all part of the cost of doing business. If instead, you owned your space and retired the mortgage over that 15 years with your rent payments, you now have a debt free property that in the worst-case scenario has maintained its original valuation.

Here is another collateral benefit for you to consider. Studies have shown – and I have seen this happen with many of my clients over the years – that if you move your office even 4 or 5 miles but stay within the same town, every existing patient remains with the practice and new patient flow increases by 35 to 40% in the first year! And amazingly enough, it continues at that increased level for the next five years! I’m not sure why this happens, but it does. By buying an existing condo space or professional office or actually building a new structure, you also have the potential and the opportunity to design a better layout with room for growth. And money currently is so cheap – at historic low rates – that I see mortgage costs not exceeding – or minimally exceeding – your current rent costs. I honestly don’t believe there has ever been an easier time for dentists to borrow money.

So take a hard look at your current occupancy arrangement and explore your options. Saving for retirement by making contributions to pension plans or a whole life policy requires finding additional dollars. Saving for retirement by owning your own property simply means keeping the dollars you are currently paying to someone else!