Should I Rent or Buy My Medical Office Building?

Choose poorly and your capital could be trapped in a medical office building with limited upside and mounting maintenance costs. Align every dollar with practice growth or risk restless nights. As Barbara Corcoran often says, commercial real estate demands surgical precision. Every location, every clause, and every investment must serve your long-term objectives, or momentum stalls.

High-performing physicians are not just looking for space. They want control, tax advantages, and the stability that ownership provides. At the same time, leasing offers flexibility that is difficult to match, especially when market conditions shift or career timelines evolve. For many physicians, the real decision is less about walls and exam rooms, and more about balancing liquidity, fixed expenses, and long-term portfolio growth.

This guide examines both paths: equity building through ownership versus flexibility through leasing. Backed by insights from physician investors and real market trends, it will help ensure your next move is strategic, measured, and aligned with your career trajectory.

What Is the Rent vs Buy Decision for Physicians?

For physicians, deciding whether to rent or buy medical office space is about more than comparing monthly payments. It is a strategic choice that shapes liquidity, tax planning, practice growth, and even retirement.

Renting offers agility, lower upfront costs, and protection from property management responsibilities. It makes subletting or relocating simpler when your practice footprint changes.

Buying builds equity, captures appreciation, and creates new income streams when you sublet space. Ownership also delivers tax advantages that can strengthen long-term wealth.

As Dr. Nisha Mehta often notes, the best choice depends on career timeline, practice partners, and evolving investment goals. Each option requires careful evaluation of depreciation, tax impact, and long-term operating costs.

Key Factors Shaping the Decision

According to the National Association of Realtors, medical office buildings have an eight percent higher tenant retention rate than traditional office properties, highlighting their long-term value. But deciding whether to rent or buy requires attention to several variables:

Practice LongevityThe longer you remain in one location, the stronger the case for ownership. Seven or more years allows you to maximize equity building and depreciation benefits.

Capital AvailabilityAccess to upfront funds for a down payment, renovations, or improvements can make buying more attractive, especially when combined with low-cost financing.

Market ConditionsEconomic cycles, interest rates, and vacancy levels can affect appreciation and exit strategies. A buyer’s market may allow for more favorable terms.

Expansion FlexibilityLeasing allows for easier adaptation to growth or contraction, while buying requires careful selection of a building that can accommodate future needs.

Regulatory CompliancePhysician owners must remain compliant with Stark laws and structure partner agreements properly to avoid legal complications.

Lease Rates vs Mortgage CostsAccurately comparing long-term lease escalations against mortgage, tax, and insurance obligations is essential for forecasting cash flow.

Buying Your Medical Office: The Benefits

Equity and AppreciationOwning transforms mortgage payments into wealth-building investments. Over the past two decades, medical office buildings have appreciated at roughly three percent annually.

Tax AdvantagesDepreciation and loan interest deductions reduce taxable income, helping physicians amplify wealth through real estate.

Customization and ControlOwnership allows physicians to design for efficiency, branding, and patient flow without negotiating with landlords.

Rental IncomeUnused space can be sublet, creating additional revenue streams and strengthening long-term cash flow.

The Challenges of Ownership

Buying a medical office is not without drawbacks. It requires significant upfront capital and ties up liquidity that could otherwise be used for practice growth or other investments. Owners also assume responsibility for maintenance, property management, and insurance.

Market volatility may affect property values, while regulatory issues such as Stark law compliance can complicate rental income strategies. Ownership requires careful due diligence to avoid costly mistakes.

Leasing Medical Office Space: The Benefits

Flexibility and LiquidityLeasing allows practices to stay nimble, conserve capital, and pivot as demographics or specialties evolve. Relocating or expanding is far easier under a lease.

Landlord ResponsibilitiesIn many leases, the landlord manages repairs, taxes, and insurance. This allows physicians to focus on patient care rather than property issues.

Tenant Improvement AllowancesLandlords often provide allowances for customizing space, reducing the burden of upfront costs. Physicians can create an exam-ready office without major capital expenditures.

The Drawbacks of Leasing

Leasing offers no equity or appreciation. Rent payments build the landlord’s wealth, not yours. Physicians also miss out on tax benefits such as depreciation.

Lease agreements can contain rent escalator clauses that steadily increase costs. Restrictions on customization, signage, or subletting can also limit practice growth.

Comparing Cash Flow and Wealth-Building

Long-term ownership often generates higher net worth for physicians compared to leasing. For example:

Leasing a Class B medical office building might cost $60,000 per year with no equity building.

Buying the same building with a 20 percent down payment may require $120,000 upfront, but after 10 years could generate $350,000 in equity.

Using an SBA 504 loan with just 10 percent down could lower upfront costs to $60,000 while still producing over $300,000 in long-term value.

The numbers illustrate how ownership creates wealth over time, but only if the practice has the stability and capital to support it.

When Ownership Makes the Most Sense

Ownership is most advantageous when:

The practice plans to stay in one location for seven to ten years or more.

Patient volume and staffing are stable with predictable growth.

Physicians have access to favorable financing, such as SBA 504 loans.

Market conditions show strong appreciation and low vacancy.

There is potential to sublet extra space for additional revenue.

Retirement or exit strategies can benefit from a sale or sale-leaseback arrangement.

Unique Risks and Regulatory Issues

Ownership comes with risks that must be carefully managed. Stark law compliance is critical when leasing space to other physicians. Buy-sell agreements among partners should be established early to avoid conflict.

Deferred maintenance is another major risk. A thorough property condition assessment before purchase helps avoid hidden repair costs that could erode returns.

Advanced Tax and Financing Strategies

Physician owners can optimize returns with advanced strategies:

Cost Segregation: Accelerates depreciation and reduces taxable income.

LLC Structuring: Protects personal assets and simplifies partner transitions.

1031 Exchange: Defers taxes while upgrading into more valuable properties.

SBA 504 Loans: Allows ownership with only 10 percent down, often including renovation costs.

Tenant Improvement Reimbursements: Buyers can negotiate credits or seller contributions to offset renovation costs.

Practice Growth, Relocation, and Valuation

Ownership supports long-term practice valuation by locking in costs and creating equity. However, rapid growth may outpace the facility, requiring expensive renovations or subletting strategies.

Leasing offers easier relocation, helping practices adapt quickly to patient demand, demographics, or specialty shifts. Physicians must weigh stability against flexibility when planning for the future.

Retirement and Exit Strategies

Owning your medical office can strengthen retirement planning. Physicians may sell the property outright, complete a sale-leaseback for ongoing income, or retain the building as a passive investment.

Leasing, by contrast, offers no exit value beyond avoiding long-term capital commitments. Ownership allows physicians to convert decades of practice payments into tangible wealth.

Conclusion: Rent or Buy?

The rent versus buy decision is not just about monthly costs. It is about aligning your real estate strategy with your career trajectory, practice growth, and financial goals.

Physicians who seek flexibility, liquidity, and lower upfront costs may benefit from leasing. Those with stable practices, long-term plans, and available capital may find ownership to be the foundation of long-term wealth and retirement planning.

The right choice requires running the numbers, considering tax advantages, and weighing risks. With careful planning, your decision can become more than just a real estate transaction—it can be a prescription for growth and stability in your medical career.