For most dental practice owners, the office lease is one of the largest fixed expenses on the P&L — for most practices, second only to staff payroll — and for many, eventually buying the building becomes an obvious next question. But obvious doesn’t mean simple. The buy-vs.-lease decision is really three decisions stacked on top of each other: a cash flow question, a tax question, and a wealth-building question. Getting any one of them right while ignoring the other two is how practice owners end up with a building they can’t afford, or a lease they can’t escape.
The answer depends heavily on where you are in your practice’s financial life cycle, how long you plan to stay in that location, and what your full wealth picture looks like outside the practice. That last piece is the one most real estate conversations skip entirely.
The financial case for leasing your dental office space
Leasing preserves capital during the years you need it most. For a dentist still building production, still paying down student loans, or still growing a patient base, keeping cash out of a down payment and into the practice itself usually generates a better return. A well-equipped operatory generates revenue. A building does not, at least not directly.
Leases also offer flexibility that ownership removes. If your patient base grows faster than expected and you need a larger footprint, or if you’re considering a DSO affiliation that may require relocation, a short-term lease with renewal options keeps your options open far better than a fixed long-term one. The typical commercial dental lease runs five to ten years with renewal options. Shorter initial terms cost more per square foot but reduce lock-in risk.
The main downside: every payment you make builds equity for your landlord, not for you. Over a 20-year practice tenure, that adds up to a meaningful transfer of wealth, particularly in markets where commercial real estate has appreciated steadily. If you’re in a stable location and planning a long run, the ownership question deserves a serious look, starting with how the financing actually works.
What you actually own when you buy the building
When you purchase your office, the monthly payment shifts from an operating expense to a balance sheet asset. The practice is no longer the only appreciating asset on your personal financial statement, because the real property is too. For dentists approaching exit planning, that distinction matters enormously: a building you own separately from the practice can be structured as a sale-leaseback to a buyer, creating income you continue to receive after the clinical transition.
Building ownership also gives you control over the physical space. You can renovate without landlord approval, design operatories to your exact spec, and make capital investments in the property knowing you’ll recapture them either through appreciation or through the eventual sale. Tenant improvement allowances from landlords sound generous until you realize they tend to come with longer mandatory lease terms that trade short-term cash for long-term obligation.
The capital requirement is the catch most dentists underestimate. A commercial mortgage on a dental office typically requires a down payment in the range of 10% to 30% of the purchase price, depending on whether you’re using SBA financing or conventional lending. Understanding which loan structure fits your situation is the next piece of the equation.
How does the SBA 504 loan change the math for dentists?
The SBA 504 loan is the most common financing structure for owner-occupied commercial real estate in healthcare, and for good reason. It allows eligible borrowers to purchase commercial property with as little as 10% down, with the remaining balance split between a conventional first mortgage (typically 50%) and an SBA-backed debenture (40%). For a dental practice owner who qualifies, that down payment floor is meaningfully lower than a conventional commercial loan.
The SBA 504 program is administered through Certified Development Companies, and current loan limits, rates, and terms are published by the U.S. Small Business Administration. Rates on the SBA debenture portion are tied to the 10-year Treasury and vary, so check current rates directly with the SBA or a participating lender rather than relying on any number quoted here.
The tradeoff is underwriting complexity. SBA loans carry more documentation and longer closing timelines than conventional financing. If you’re in a competitive real estate market and need to close quickly, SBA 504 may not be the right vehicle. The tax treatment of ownership versus leasing adds another layer to that analysis, and it’s where the two paths diverge most sharply.
The tax treatment is different for owners vs. tenants
Lease payments are fully deductible as a business expense in the year they’re paid. Mortgage payments are not deductible the same way: only the interest portion qualifies as a business expense, while principal repayment builds equity in an asset rather than flowing through the income statement.
Building owners can depreciate the structure over time, though. Commercial real estate is depreciated over 39 years under the standard Modified Accelerated Cost Recovery System. Qualified improvement property (interior improvements to nonresidential real property) is 15-year property eligible for bonus depreciation, and for dental-specific equipment and buildout, Section 179 and bonus depreciation rules apply separately. The IRS publishes current depreciation rules in Publication 946, and the figures update, so verify before you plan around a specific deduction. For owners, a cost segregation study on the building and buildout can pull a meaningful share of those deductions into the early years of ownership — the study covers the structure and buildout, not free-standing equipment like chairs or imaging units, which is already 5- or 7-year property and needs no study.
The net tax picture depends on your entity structure and how your practice and real estate holdings are structured relative to each other. Most dental practice owners who buy their building do so through a separate LLC or holding entity, which affects how rent flows between entities and how the deductions land. This is exactly the kind of cross-entity coordination that gets missed when your CPA and your financial advisor aren’t working from the same plan. Our approach to tax planning for dentists covers how that coordination works in practice.
Does buying make sense if you plan to sell the practice in under 10 years?
Not always, and this is the scenario where many dentists get the decision backwards. If you buy a building within five years of a planned practice exit, you’re taking on a capital commitment and a financing structure that may not recoup its transaction costs before you need to unwind it. Commercial real estate closings carry meaningful costs on both ends: origination fees, title, inspections, and on exit, brokerage commissions that commonly run in the mid-single digits as a percentage of the sale price, though terms vary by market and are negotiable.
The exception is a structured exit strategy that includes a sale-leaseback. In that scenario, you sell the practice to an associate or a buyer, retain the building, and lease it back to them at market rate. You exit clinical practice but continue receiving commercial rent for years after. That structure requires planning well in advance of the transition, and it changes the financial case for ownership significantly.
If you’re within seven to ten years of a likely exit, the buy-vs.-lease decision shouldn’t be made without a conversation about what your exit actually looks like. The practice valuation and the real estate decision are connected, even though they’re often treated as separate conversations. Running your practice value numbers is a good starting point for that analysis.
What the rent-to-own option actually means in commercial dental leases
Some commercial landlords offer right-of-first-refusal clauses or purchase options in dental office leases, and these are worth understanding before you sign. A right of first refusal gives you the ability to match any offer the landlord receives if they decide to sell. A purchase option specifies a price or pricing formula at which you can buy the property during or at the end of the lease term.
Purchase options negotiated at lease signing often lock in a price or a formula that can work in your favor if the market appreciates. They also add complexity: an option has a term, exercise conditions, and legal mechanics that need review by a real estate attorney, not just a CPA. If your current lease includes any of these provisions, pull it out and read it carefully before assuming you have an automatic right to buy.
Whether or not your lease has a purchase option, the underlying real estate market shapes whether buying makes economic sense at all. That context is just as important as the financing terms.
The location and market matter as much as the financing terms
Commercial real estate fundamentals don’t disappear because you’re a dentist. Cap rates, local vacancy rates, comparable sales, and the long-term demand profile of your specific submarket all influence whether the building is likely to appreciate, hold its value, or decline. A dental office in a growing suburban corridor with limited competing space is a different asset than one in an aging strip mall with three vacant anchors.
Before making an offer on a property, it’s worth getting a commercial real estate assessment independent of the selling broker’s perspective. The same discipline applies to lease negotiations: knowing the market rate per square foot in your submarket before you counter is the difference between a lease you can live with and one you’ll resent every month for the next ten years.
This is the kind of decision that benefits from having one team that sees your practice financials, your personal balance sheet, and the real estate math in the same room. If your current advisors aren’t structured that way, the buy-vs.-lease decision is a good moment to ask whether they should be.
If you’re weighing this decision for your practice, our dental CFO services team can model both scenarios against your current financials and help you see how the real estate fits into your full wealth picture. Or, if you’re thinking about what your practice is worth as part of the bigger exit picture, start with our free dental practice valuation calculator. And to understand how the tax side of practice ownership fits into a coordinated plan, visit our tax planning for dentists page.
This article is for educational purposes only and is not tax, legal, or financial advice. Consult your own tax or financial advisor about your specific situation.
Until next time!
