Are you thinking about purchasing a dental practice freehold? Whether you’re just starting out or already own one, have you weighed up the benefits of owning the freehold?
Freehold vs. Leasehold: What’s the Difference?
Buying a dental practice freehold means you own the property and the land it stands on outright. On the other hand, a leasehold arrangement requires you to pay ground rent and service charges to the property owner. For dentists, this decision boils down to two main options: freehold or leasehold. While freeholds can be pricier, leaseholds are often the only available choice in prime locations like city centres and high streets, where properties are usually part of larger complexes and freeholds are only sometimes on the market.
Why Choose Freehold?
Opting for a freehold is a significant investment, but it pays off in the long run. You’ll avoid the recurring costs associated with leaseholds, and when it comes time to sell, a freehold property can fetch a higher price. Plus, owning the freehold gives you complete control over your practice’s premises, allowing you to make any changes or upgrades without needing permission from a landlord.
Here are some compelling reasons why owning the freehold could work in your favour:
- Cost Savings: Say goodbye to unpredictable service charges and ground rent. These fees can add up over time and often don’t directly benefit your practice.
- Security and Stability: Leaseholds come with uncertainty. A landlord can refuse to renew your lease or even ask you to vacate if they have other plans for the property. Owning the freehold puts you in control.
- Flexibility for Upgrades: Freehold ownership lets you make significant changes to your property (with planning permission), whether expanding or modernising. With a leasehold, you’d need the landlord’s approval for major renovations.
- Future Investment: Owning the freehold increases the resale value of your practice. Potential buyers often prefer to purchase both the business and the property in one go.
Financing Your Freehold Purchase
Raising the funds to buy a freehold often means securing a loan. That’s where The Mortgage Blog comes in. We specialise in helping dentists obtain the financing they need to make informed business decisions. Our team will help you find the best lenders, choose the right type of finance, and negotiate the best deal on your behalf.
The Perks of Freehold Ownership
Owning a freehold property means no more worrying about variable service charges or ground rent. These costs can add up with leaseholds and often don’t contribute directly to managing your practice. With a freehold, you save money and gain peace of mind, knowing you have full ownership of both the building and the land.
Additionally, leaseholders can sometimes impose unexpected fees or even request you sell the property back to them. Owning the freehold eliminates these risks, providing stability for your practice’s future. Plus, if you ever decide to invest in your property, having complete control makes expanding or upgrading your facilities easier.
Steps to Buying Your Freehold
There are two main paths to owning a freehold: acquiring it when purchasing your practice or negotiating to buy it from the current landlord. If you started under a lease without considering freehold options, now might be the time to rethink your strategy—especially if your lease has less than 80 years remaining. Extending a lease can be costly, so buying the freehold early could be more economical.
When negotiating with the landlord, the price will depend on the remaining lease term and the current ground rent and service charges. Be prepared for additional costs like legal fees and stamp duty, but remember the long-term benefits of owning your freehold.
Is Freehold Always the Best Choice?
While the upfront costs of buying a freehold can be daunting, the long-term advantages typically outweigh these initial expenses. However, some dentists might prefer a leasehold if they’re focused on building business goodwill rather than property ownership. A leasehold might suffice if you’re confident in selling your practice based on its business value alone. But remember that future buyers must take on the lease, which could limit your selling options.
Ultimately, your decision should align with your long-term goals. Consider whether owning the freehold will enhance your practice’s value and appeal to potential buyers down the line.
Financing Options for Freehold Purchases
Investing in a freehold is a smart financial move, and securing the right financing is crucial. You’ll need a solid business plan and a clear idea of the asking price from your landlord. Whether you’re looking to boost your current loan or refinance with a new lender, we can guide you through the process. We offer a range of borrowing options tailored to commercial property needs, including development financing if you plan to expand your practice.
Selling Your Practice with Freehold Ownership
Owning the freehold can significantly enhance your selling power when it’s time to sell. Instead of just selling the business’s goodwill and dealing with leaseholder arrangements, you can offer the entire package—including the property and freehold. This can command a much higher price and attract more buyers.
Our team at The Mortgage Blog has strong relationships with selling agents specialising in dental practices. We can help connect you with experts who understand the market and can assist buyers in securing the necessary funding to meet your asking price.
Other Financing Solutions for Dentists
Beyond buying your dental practice freehold, there are various financing options to help your dental practice grow. Whether you need funds to manage cash flow, hire new staff, or lease equipment, The Mortgage Blog is here to help. We’ll work with you to find the best deals and navigate the lender’s market, ensuring you get the support you need without the hassle.
FAQs About Buying a Dental Practice Freehold
Here’s a collection of frequently asked questions about buying a dental practice and answers to help you make an informed decision.
Is buying a dental practice a good investment?
Yes, buying a dental practice can be an excellent investment. It allows you to build equity, establish a steady income, and control your business operations. The financial rewards are typically greater than being an associate, provided you manage the practice well and understand the economic aspects of ownership.
Should I buy a dental practice freehold or leasehold?
The choice depends on your goals. A freehold gives you full ownership of the property and land, eliminating rent and offering more control, but it requires a more significant upfront investment. A leasehold can be more affordable initially but comes with ongoing costs and less freedom for property changes.
How do I finance the purchase of a dental practice freehold?
Financing options include:
- Commercial loans: Tailored for buying businesses or properties.
- Specialist healthcare financing: Designed specifically for dental professionals.
- Refinancing existing loans: To increase borrowing potential.
A strong business plan is essential to secure favourable terms.
What factors should I consider when buying a dental practice?
- Location: Proximity to your target demographic.
- Patient base: Active patient numbers and retention rates.
- Financial performance: Review income, expenses, and profit margins.
- Condition of premises and equipment: Evaluate any renovation or upgrade costs.
- Staff contracts: Ensure team stability post-purchase.
How much should I pay for a dental practice?
The price depends on factors like location, goodwill, equipment value, and real estate. Practices are typically valued as a multiple of their EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) or based on a percentage of annual revenue.
Can I negotiate the price when buying a dental practice?
Yes, negotiation is common. You can negotiate on the practice’s valuation, equipment, and transition support from the seller. Working with an experienced broker or consultant can help you get the best deal.
How long does it take to buy a dental practice?
The process can take 3 to 9 months, depending on factors like financing approval, due diligence, and legal requirements. Working with a knowledgeable team can streamline the process.
Do I need legal support when buying a dental practice?
Yes, hiring a solicitor experienced in dental practice acquisitions is crucial. They will handle contracts, property transactions, and regulatory compliance to protect your interests.
What are the main risks of buying a dental practice?
- Overestimating patient retention post-sale.
- Underestimating operational costs.
- Poor location leads to low patient volume.
- Potential hidden liabilities in the practice’s accounts.
Can I buy a dental practice as a first-time buyer?
Absolutely. Many lenders offer tailored finance solutions for first-time buyers, and working with a broker can help you identify the best options. Having a strong business plan and industry advisors is key to success.
What happens to the existing staff when I buy a practice?
In most cases, existing staff members transfer to the new owner under TUPE (Transfer of Undertakings Protection of Employment) regulations. Reviewing staff contracts and discussing retention plans is critical during the purchase process.
Get in Touch Today
Don’t let financial hurdles keep you from owning your dental practice freehold or accessing other essential funding. Contact The Mortgage Blog today, and let our team of experts help you secure the best deal for your dental practice’s future. Simply call our office at 0333 335 6595 or message us to speak with a member of our dedicated commercial team.
