Defusing The Myths About Investing In Medical Office Real Estate
- Volume 21 - Issue 4 - April 2008
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• Myth one: Real estate is too expensive to invest in today. This is one of the biggest misconceptions. I do feel land prices around some hospital areas may have appreciated greatly due to hospitals overpaying for real estate as a way to control the market. Ultimately, hospitals want to control the doctors and try to commit them legally to their facility. One way is by forcing physicians to rent from buildings that hospitals control. That makes sense if you are the owner or administrator of a hospital but it does not make much financial sense to the physician. In fact, some hospitals are selling real estate back to physicians.
How many times have you said: “If I bought that building or property 10 years ago, imagine how much I would be ahead financially right now?” The truth is that you would have said that 10 years ago and most likely you will say that 10 years from now. Money is relative and making money in real estate usually occurs when you buy or develop a piece of property. If you pay too much, you might get a lower return on your investment in the future and visa versa. It is true that some properties are expensive and overpriced but there are a lot of good opportunities all over the country for physicians to develop and purchase their own real estate.
• Myth two: I do not have the money to invest in real estate. One of my first investments was the development of a 9,500-square-foot medical office building. My total cash investment on this project was $200,000 and the rest was financed through bank debt of $1.4 million with a total cost of $1.6 million. This was in 2001. In 2007, the building was appraised at $2.9 million and the investors were able to refinance this building and put $1 million in their pockets. Not bad for a $200,000 investment. In addition, the building still has $1 million in equity.
I have invested in many partnerships that own about 14 commercial real estate properties around Atlanta and have found very creative ways to finance the cash portion needed for these projects. There is a lot of money out there for doctors who want to own their own real estate. There are many vehicles and partnerships to invest in and by signing a 10-year lease, you have a lot to offer an investment group. You do not need a lot of money to own real estate in the medical arena. A good credit score, a successful practice and a solid reputation in the community are the right ingredients for any institution to want to finance your investing activities in real estate.
Navigating Risk And Potential Reward
• Myth three: Real estate is too risky. I truly think this is a generational problem. My father used to tell me all the time to be careful since real estate is too risky. My father never invested in real estate and was misinformed in this area of investing. I always noticed that the wealthiest people with the most free time seemed to be real estate investors.
If real estate is so risky, why are banks willing to give you 80 to 100 percent of a building’s value to buy or build your own medical office building or invest in other real estate deals? Would they give you 80 percent of the value of a stock for you to buy into the stock market?
Banks inherently understand the value of real estate and are willing to lend for you to buy your own building. They know that as physicians, we work hard, rarely ever go out of business and do not like to move our location once we are established in the community.