The medical industry is one of the most valuable industries in America with an average medical office building costing $1.5 million, according to a report by Colliers International. Medical buildings are often attractive investments because they have high traffic and are not seasonal like retail stores or restaurants which can be subject to fluctuating demand during holidays or bad weather.
However, investing in a medical office for sale is a risky business—as evidenced by the recent downturn in medical real estate prices following the recession of 2008-2009 when vacancy rates for medical offices skyrocketed from 6% to 20%.
To help you make smart decisions when buying medical properties for sale, here are some information on investing in medical office spaces that you should know before making your purchase decision.
How to Buy a Medical Property for Lease?
The first thing you need to do is find an agent who specializes in commercial real estate investment properties. The next step will be visiting online listings from websites that offer thousands of available properties across America so you could evaluate what would make your perfect purchase—for example, whether it should have a certain number of medical offices, medical labs or medical clinics.
Medical offices can be located in standalone office buildings or high-rise towers that also house professional services such as dentists’ practices, pediatricians’ rooms, medical labs on the top floor with other businesses below them like retail stores and restaurants occupying space at street level.
When you have located a medical office for sale that meets your needs, the next step is to do some due diligence on the property and its seller. This includes reviewing:
- The medical office building’s history including occupancy rates and vacancy trends: you want to make sure the medical office building you are interested in is not only currently occupied, but also has a stable history of occupancy and good lease terms.
- The medical office building’s financials: it is important that the medical office building generates enough income to cover its expenses as well as provide you with a desirable rate of return on your investment. You can request an Income and Expense Statement (I&E) from the seller or their broker to help assess this.
- Lease agreements for existing tenants: one key factor that determines the attractiveness of any commercial property for sale, including medical offices, is the quality and strength of tenant leases.
- Environmental reports: especially if you are looking at purchasing an older medical office building, it is important to order an environmental report to check for any potentially hazardous materials that may need to be remediated before you can occupy the space.
- The medical office building’s location: this includes analyzing things like traffic counts, demographics and competition in the area.
- The credit of the tenant mix – Lease terms, square footage and rent prices: medical office buildings come in all shapes and sizes, so it is important to make sure the square footage, rent prices and lease terms are appropriate for your needs.
- The physical condition of the medical office building: medical office buildings can be tricky to renovate and update, so it is important that the medical office building you are interested in is not too outdated or in need of a lot of repairs.
- The availability of parking spaces: medical office buildings do not typically have a lot of parking space available for their medical staff, so you may want to look at medical offices in areas with good public transportation.
Once you have completed your due diligence, it is important to get the medical office building under contract with a good deposit and set a timeline for when you want to close. This will help ensure that the medical office building does not slip away from you while you are still conducting your analysis.
It is also important to remember that medical office buildings are often long-term investments, so make sure you are comfortable with the terms of the purchase agreement before signing on the dotted line!
Things to Know When Investing in a Medical Office Building
Buying medical office buildings is a big investment and you’ll want to make sure that you don’t get stuck with something that will not generate high returns. There are many medical offices for sale these days, but they’re not all of the same quality or value.
To help you find the perfect medical building for your needs, here are some factors you should take into account:
Location is key
A medical office for lease or sale should be situated in areas that have a large population of people who need medical attention. The best locations for medical offices are usually found in densely populated urban areas or suburbs. You can log online and type “Medical Building for sale near me” to help you find the best location.
Demographics matter
The age and income demographics of an area are important to consider when investing in medical properties as it will affect how much money doctors can charge for services, the amount available for potential patients to spend on medical treatments, and how often they visit medical professionals.
Competition is fierce
Before making your purchase decision, it’s important to do your research and find out how many other medical offices are located in the same area as the one you’re interested in. If the market is saturated, it might not be a good idea to invest in medical property for sale as there’s a higher chance of businesses closing down and leaving the area.
Lease vs. Own
Another thing you need to decide when investing in medical office space is whether you want to lease or own the building outright. Leasing has its benefits (such as lower upfront costs and no long-term commitment) but can also be risky if the lessee decides to move out or goes bankrupt. On the other hand, owning medical office buildings comes with certain risks such as fluctuating interest rates and potential vacancies, but offers more security and control over your investment.
Financing
One way to make medical office investments more affordable is by securing financing from a medical office building loan. However, medical loans are more expensive than other types of loans because medical offices generally have high vacancy rates and the value decreases when interest rates increase.
Reputation
It is important to do your research on any business you want to invest in—which includes checking out their reputation online as well as asking people you know if they’ve had a positive experience with them before investing. It can be difficult for medical practices that don’t specialize in certain areas (such as cosmetic surgery or plastic surgery) to attract patients so make sure there’s enough demand for what they offer by looking at review websites such as Yelp!
Instead of buying a medical office for sale outright, many investors choose to buy properties through private investment funds which spread their investment around multiple medical office buildings. This can be a more secure way to invest as it reduces the risk of losing your entire investment if one property goes under.
How Much Should I Pay to Buy a Medical Office?
Medical buildings in America are currently valued at $30 per square foot, according to Colliers International’s report on the state of the US commercial real estate market. However, this value is not fixed—as it depends greatly on the location and quality of the investment property you want to purchase as well as how desirable the area is compared with other areas.
The best way will be to take advice from your agent who has experience investing in medical properties so they could help evaluate different options available and make recommendations accordingly. Good agents also have connections with banks where they can give referrals that provide financing when purchasing medical office spaces which allow investors to acquire medical office buildings without having to pay the full price upfront.
When buying medical properties, you should know that medical offices are generally more expensive than other types of commercial properties like retail or industrial because they cost $50 per square foot which is five times higher when compared with medical office leases The main reason for this high average value is due to the high demand and low supply as well as their desirable location in large metropolitan areas. Despite being one of the most costly building types, however, it can still be a good investment if there’s sufficient money from patients who need medical attention—especially those who have no health insurance.
However, medical real estate prices could go down by 15% during hard economic periods, especially where unemployment rates rise sharply and patients defer medical treatments.
The Bottomline
Once you have closed on the property, it will now be up to you as the new owner of this medical office building to find tenants and fill those vacant medical offices! But with a well-executed marketing plan and some luck, you should be able to lease up those medical offices in no time.
Investing in medical office space can be a lucrative endeavor but it’s important to do your research and understand all the risks involved before making any decisions. By taking into account the factors mentioned above, you’ll be well on your way to making smart investments in medical offices for lease or sale. You can also visit our website to stay updated on this topic.
