Buying a Dental Practice With the Building

Treat the practice and the building as two decisions

Buying a dental practice with its building joins an operating decision to a property decision. Start by identifying exactly what each proposed purchase includes. A combined asking price does not tell you which assets transfer, who can use the space or what cash the two operations need after closing.

The ADA's practice-sale guidance asks an owner to decide whether to sell the building with the practice or remain a landlord. For a buyer, that is a useful starting distinction: establish which proposal is actually available before evaluating its economics. The article does not establish the value or transfer terms of a particular property. Read the ADA real-estate discussion.

Ask for a written description of the practice assets, property interest and any excluded space or equipment. If the building has another tenant, identify that agreement separately. Do not assume that buying a property also acquires the tenant's business, deposits without an adjustment, or unrestricted rights to change the space.

The broader dental-practice buying guide addresses the acquisition process. This guide focuses on the combined cash decision: how to see the practice and property separately, remove matching internal rent from a full-owner comparison, and keep outside obligations visible.

Establish the ownership and period used in the model

Draw the proposed economic ownership before adding any numbers. Will the same person own the full interest in both operations? Will a partner own part of the property? Is the building held through a separate entity? Those facts affect whose decision you are evaluating. A combined total can hide a payment to someone outside your ownership group.

The example below assumes one person holds the full economic interest in both operations through a reviewed arrangement. It does not recommend that structure or authorize a transfer between bank accounts. Keep legal books, debt duties, contracts and permitted fund movements under their own professional review.

Use one stated period throughout. A monthly rent quote beside annual practice results is an obvious mismatch. A less obvious mismatch is a property budget that covers only occupied months while the practice plan covers a full year. Write the period next to the input before converting it.

Define the operating measure as well. The exercise uses a custom cash contribution, with exclusions stated below. It is not a property appraisal, SDE, accounting net income or a lender's coverage ratio. The SDE and seller-net guide explains why an earnings label and money available to an owner need separate treatment.

Reconcile the separate operating cash views

All following amounts are invented reviewer-supplied inputs for one annual period. They are not actual rents, financing terms, property costs or market forecasts. Assume the necessary operating arrangements have been separately reviewed; the arithmetic establishes no ownership, occupancy or clinical permission.

The practice produces $220,000 of operating cash contribution before occupancy. It pays $96,000 of rent to the buyer-owned property operation. The property receives that same $96,000 plus $12,000 from an outside tenant, and pays $30,000 of external property operating costs. The figures exclude debt service, building capital work, taxes on income, acquisition funding and owner distributions.

The $30,000 includes only the reviewed external operating cash costs in this case. It includes no property debt payment or capital work. The practice's $220,000 includes neither rent nor those property costs. These definitions prevent a later subtraction from silently counting a cost again.

Build a short payment map before accepting the figures. Name who pays each bill, who receives it, and where it appears in the plan. A charge can have a different label in the two sets of records. Match the actual amount and period rather than searching only for the word rent. If one side includes an unpaid amount while the other uses cash receipts, reconcile that difference before using this cash example.

Keep outside tenant deposits apart from the rental receipts in the model. Ask the deal team to explain any deposit transfer and who remains responsible for it. An amount arriving in a property account does not by itself prove earned rent or cash available for the owner's other uses.

The practice's $124,000 and property's $78,000 sum to $202,000. You can independently reach the same total by taking $220,000 plus $12,000 less $30,000. The matching internal rent cancels in this full-owner decision view because one included operation pays exactly what the other receives.

That cancellation does not make the property free. The outside operating costs still leave the group. The next step must also account for debt and the building work excluded from this table. Keeping the entity columns visible helps explain why the practice alone can show less cash even when the whole-owner total is unchanged.

Deduct the cash needs that operating figures leave out

The fictional plan calls for $60,000 of practice debt service and $50,000 of property debt service during the same year. It also calls for $20,000 of building work actually paid in that period. These are separate cash inputs, not market loan offers, a tax deduction calculation or a claim that the work can safely wait.

The resulting $72,000 is before income taxes, owner distributions and other excluded needs. It is not a promised take-home amount or a recommended reserve. A real analysis also needs the dated purchase funding, cash already available, payment timing and any additional commitments that apply to the actual buyer.

Debt service here means the reviewed cash payments, with no claim that all of each payment is an expense for accounting or tax purposes. Ask the CPA to keep those classifications distinct. Likewise, actual building spending can require cash even when its tax treatment differs from an immediate deduction.

The working-capital guide addresses the dated cash plan, while the lender-underwriting guide covers the financing evidence. Use those separate reviews to test whether the buyer can fund the transaction and meet obligations when due. The annual bridge alone cannot answer either question.

Test internal rent and outside changes separately

Suppose the internal annual rent changes to $120,000 while every external input stays fixed. The practice then shows $100,000 and the property shows $102,000. Their combined contribution remains $202,000. The allocation between them changed; no additional outside money entered this example.

That result depends on the matched entries and full-owner assumption. It is not permission to set any rent, disregard separate contracts or ignore tax and lender review. Retain the proposed agreement and let the appropriate advisers assess the actual terms.

The vacancy and additional-work rows are independent cases. Neither silently includes the other's downside. The vacancy branch reduces outside cash by $12,000. The work branch leaves operating contribution alone but takes another $25,000 from the later cash bridge.

A common shortcut adds the practice's $96,000 rent back while retaining all the property's rent income. That produces $298,000 before debt and work, overstating the correct $202,000 by $96,000. A seller presentation using that approach needs a corrected bridge before it informs your offer.

Review the property facts that can change the decision

The model does not inspect a roof, test a system or establish an approved use. Obtain the reviews needed for the actual property and planned dental operation. Ask each specialist to identify the condition examined, access limitations, unresolved questions and actions the finding could require. An excluded area or untested system is not a clean finding.

Tie each material finding to a decision. A priced repair changes the cash plan. An unresolved right to use space changes whether the operating plan is available at all. Those issues should not share a single vague contingency label. Use the dental-practice contingencies guide to connect evidence with the actual contractual decision and authorized response.

EPA describes All Appropriate Inquiries as an evaluation of environmental conditions and potential contamination liability. It relates to specified CERCLA liability protections with other requirements. Discuss applicable environmental review with qualified advisers before acquisition; neither this cash model nor a report guarantees a clean property or complete protection. Read EPA's AAI overview.

Keep environmental, physical-condition and operating-use questions separate. Their evidence and responsible professionals may differ. Ask what still needs to be resolved before you rely on the location. Do not treat a lender's acceptance of one document as a conclusion on every property issue.

Keep price, tax basis and financing purpose distinct

The combined asking price should not replace a supported account of what you are buying. A buyer can like the practice and still question the property price, or accept the property's price while questioning the business forecast. Identify which part of the offer changes when evidence changes.

IRS Publication 551 explains allocating a lump-sum purchase basis between land and buildings. That is a separate tax-basis task; this guide's cash bridge supplies no basis calculation or deduction result. Have the tax adviser apply the actual facts and current rules, including the relevant asset allocation. Read Publication 551.

Use the purchase-price allocation guide for the broader transaction allocation discussion. Keep the appraisal, agreed price allocation, tax work and cash plan identifiable. One figure may inform another, but the labels and purposes are not interchangeable.

Financing needs the same care. SBA's 504 overview lists eligible fixed-asset uses and excludes working capital, inventory and speculation or investment in rental real estate. It also states eligibility conditions. A practice-and-building proposal needs its own lender and program review; owning a dental office does not establish approval. Read the SBA 504 overview.

The example's outside tenant and separate property operation are fictional cash facts, not a finding that the arrangement qualifies for that program. None of its debt amounts comes from an SBA quote. Use the financing-options guide to organize the actual funding choices without treating all transaction uses as equally financeable.

Coordinate the two purchases without assuming either will close

Ask counsel how the business and property agreements relate. Identify whether one transaction depends on the other, who can agree to a change and what evidence is needed before a condition is cleared. A shared intended closing date does not itself create a binding connection.

If the property purchase falls away but a lease is proposed, evaluate that actual alternative. The lease-review guide covers occupancy terms and transfer questions. Do not carry the property's investment return into a practice-only lease case or assume the old internal rent becomes the new outside rent.

Keep initial seller outreach blind and require an NDA before identifying disclosure. Coordinate contact with tenants, staff and service providers through the seller's plan. Staff participation should reflect the work needed and applicable duties. Patient-information authority remains a separate question; property access and a commercial NDA do not settle it.

Maintain separate open-item lists for the practice and property, with a short shared list for matters that affect both. For example, an inspection may require access during a planned clinical session. Resolve the actual access and scheduling needs with the responsible people rather than treating diligence as permission to disrupt patient care.

Common mistakes when the building comes with the practice

Do not describe internal rent as an outside benefit to the same full owner. Preserve both sides and show the elimination. Equally, do not remove real outside property costs just because rent cancels. Insurance, service bills and other reviewed operating payments in the model remain cash outflows.

Avoid subtracting a mortgage twice. Find where each payment first appears, and distinguish it from any interest expense inside a different earnings measure. The example avoids that problem by defining its operating inputs before debt service; a real seller report may use another definition.

Do not convert the additional-work sensitivity into a standard repair allowance. Its amount is invented. Use inspection findings, actual scope and supported prices for a real property. Necessary safety or clinical action should follow the responsible professional's judgment, not the convenient timing of a cash forecast.

Summary: make the whole-owner result traceable

An explainable combined purchase starts with clear assets, ownership and periods. Show the practice and property separately, cancel only matching internal entries and retain every outside cash need. Then test changes that matter to your actual decision, such as lost outside receipts or newly priced work.

The result should help you identify what to verify, renegotiate or fund. It should also show what the arithmetic cannot establish. Carry those open matters into the due-diligence checklist so the final decision rests on usable property rights, supported operating inputs and a complete cash plan.