Whether you’re a cosmetic surgeon fresh out of fellowship or a seasoned surgeon ready to branch out on your own, the prospect of starting a new practice can be daunting. You want to be successful, but it’s a growing space and competition can be fierce. So where do you start? One word: Location. A strong location can mean the difference between success and mediocrity. Therefore, we’ve partnered with Practice Real Estate Group, a full-service healthcare real-estate solutions company based in Austin, Texas, to bring you a series on how to find the best location by analyzing your competition, understanding the surrounding market and more. This first article is all about first steps.
First Steps to Finding the Right Location
If you believe that corporations and large hospitals make it nearly impossible for cosmetic practices to succeed on their own, Thomas Allen, founding partner of Practice Real Estate Group, says this doesn’t have to be the case.
Despite the perceived barrier, Allen encourages practices to research what it is really like to own one’s own practice. “Maybe they can find some colleagues or other people that they trust and who will talk to them,” Allen tells The Aesthetic Channel. “I think they will discover that there are a lot of independent physicians out there who are very happy with their situation.”
Once you decide it’s time to seriously consider taking those first steps, there are several initial questions about the type of practice you envision owning that will affect the ultimate location of your practice, including lifestyle, brand and demographics.
Apart from location or demographics, practices need to consider lifestyle when considering real estate: “Do they want a big, super busy practice that will, no doubt, attract attention but a lot of overhead, too, or do they want a smaller practice with a more relaxed life while still achieving the same income?” Allen poses.
Retail vs Office Setting
A decision also needs to be made as to whether a practice seeks to locate in a retail center with great visibility to potentially draw patients or to an office setting with less visibility but a more professional feel. “We see dermatologists do really well in retail centers,” Allen points out.
A Question of Demographics
And when it comes to demographics, what type of patients does the practice most desire to attract? “This would be locations with middle-upper to upper income,” Allen notes. “It is important that a practice can fit in an area.” Also, is the practitioner willing to live or drive in a particular area?
“A lot of physicians that we work with do not truly think about the lifestyle aspect before they start a practice,” Allen says.
Lease or Buy?
The big question everyone faces when opening a new practice, is whether to lease or buy, and each has pros and cons.
“Leasing is a lot less expensive and requires a lot less cash output on the front-end compared to buying,” Allen explains. “With leasing, you will also receive some build-out allowance from your landlord.”
And because of the temporary nature of leasing, “if your space ends up being too small due to practice growth, you can easily move to a larger site or different location once your lease expires,” says Allen, who recommends an initial lease of 7 to 10 years.
On the other hand, a monthly lease payment doesn’t accumulate equity. “You also do not have full control as to physical changes you may want to make to the practice,” Allen says.
One of the pros of purchasing real estate is that the practice has complete control over its space. “You can do whatever you want, whenever you want, in that space,” Allen conveys. “You are also building equity.”
Conversely, selling a space that is very specialized to the practice can be extremely difficult. “I tell people it is like selling a 7-1/2 size shoe that is yellow,” Allen says. “There is only so much of a market for that specific shoe. Your buyer pool is very limited if you want to get maximum value out of the situation.”
And if you’re simply relocating within the same area, “The most likely buyer is probably a competitor. And if you are moving down the street, you definitely do not want a competitor buying your office.”
Allen believes, though, there is a true differential between owning a free-standing building and owning condo space. “Condo space rarely appreciates in value and it is normally very hard to sell,” he says.
So to answer the question of lease versus buy, unless there is a great purchase option, Allen recommends that a start-up practice initially lease, in part because there are many more sites for lease than purchase.
Our Real Estate Series continues next month with a focus on how to assemble the right professional team to successfully set up a new practice with more tips for finding the best practice location.