To Sell or Not to Sell? Randi Ross DC - Chirosecure Malpractice Insurance

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Hey everybody, welcome to another event hosted by ChiroSecure. I’m Dr. Randi Ross, CEO of Premier Practice Consultants, and today I want to spend a few minutes chatting with you about something that comes up a little more frequently and commonly than you probably think about. And when you’re selling your chiropractic clinic, And you also own the real estate that your clinic is housed in.

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Should you sell the real estate? Should you hang on to it? What does that process look like? So there’s actually, or obviously, pros and cons for both. So we’re just going to talk through the different elements that will help you make that decision. So the first thing that we really come up with is, do you want to sell the real estate?

And some people do, and some people don’t. Some people are getting advice from their accountant or maybe your financial planner. And they’re saying it’s okay to sell your business, to sell your clinic, but don’t sell the real estate. Because as you’re in retirement, it can often be a form of passive income for you.

And also there’s a difference in tax position. So you’re selling your clinic. Okay. You’re going to pay X amount of dollars in taxes on that. And then if you also sell the building, the real estate, there’s a totally different tax position that you’ll pay capital gains on that. So those are the important things to understand tax and financially wise that you probably want to talk to.

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Your financial advice, because everyone has different tax position, so that’s a little something that’s difficult to advise on. So you definitely want to consult those consultants and get their opinion. What you have to be conscious of is that is just an opinion, and not that what they’re saying is necessarily wrong, but there may be parameters within the structure of selling your particular practice that really make it make sense.

for you to also sell the building. So a few things that we have to look at is there a buyer? And what I mean by that is, if there’s a huge discrepancy between the price of your clinic and the price of your building, there’s a good chance that especially if the clinic is a little bit maybe on the lower end and the building is really expensive.

Just to give you an example, a practice is selling for 200, 000. And the building you own is worth 1. 3 million. There’s a good chance the buyer that’s coming along for the clinic at that level, which is often what I refer to as entry level, someone that’s been an associate for a few years, or possibly someone looking to expand their portfolio.

There’s a good chance. They’re either not gonna be looking for an acquisition that large to include the building, or they might not be in a financial position. Where they’re gonna get a little bit of sticker shock that even if we introduce the concept to them, they’ll be like, wait a second, I know I need 20% down to buy your practice, now we’re talking about, $1.23 million building.

I don’t know if that works for me. So that’s something that can come up to be aware of. But if your practice is a million, the sale price in the building’s 1. 3, there’s a good chance that particular buyer might very well be in a position to also acquire the real estate. So these are just different elements that sometimes help make that decision.

Some people just like being landlords. I don’t quite understand that, but there are some people out there that are like that. They like owning and acquiring real estate as part of a portfolio, so they would not be interested in selling their particular real estate along with selling their clinic. So those are a few things, that initially you want to figure out.

You also want to really have a good, either a broker opinion from someone that does commercial real estate in your area or actually pay for an appraisal. That’s going to give you the best legitimate price. Cause I will tell you, everyone always thinks that their property is worth more than it is.

Cause remember most chance, most times you’re talking about a bank is going to fund this. And the bank is going to send an appraiser out and that’s really what they’re going to fund on. So you might think your building’s worth a million dollars, but then actually you go ahead and get an appraisal and they tell you, it’s worth 780, 000.

Guess what? You’re not getting a million dollars because a bank’s not going to fund that and no one’s going to cover that gap. It wouldn’t make sense. They’re underwater in the property at the time that they buy it. So that’s a way to gear Not just what you think your real estate is worth, but what is it actually worth on today’s open market?

Other thing to be aware of when someone is buying a clinic and also is interested in the real estate, chances are they’re going to want a little wiggle room on price. They may not offer you or give you exactly full price on the real estate. They might want a little bit of a deduction.

They’re buying your business. So they feel that they want a little bit of We want to go as far to use the word deal there. So a few things that happen with real estate. First of all, whenever I take on a client that we’re representing their practice for sale and they own the real estate, one of my very first questions about that topic is are you willing to sell the real estate?

along with the practice for the deal. If people say yes, great. I know what direction to go. We need to figure out what the price of the real estate is and a number of other elements that they can get as if it was an MLS listing. So I know the age of the building, how old is the roof, how old is the air conditioner, so on and so forth.

If they say no, I always ask them why. Why wouldn’t you? And they’ll very often share with me, things like, in retirement this is going to be some passive income, or my financial advisor told me not to sell, I’m going to pay too much on capital gains. And they’ll give me a number, and some of them just go, I don’t know why.

Here’s a few things to understand. Very often, there are buyers that want to buy the real estate. So that makes it attractive. For your clinic sale that we also have real estate. I get calls like that all the time. Can you tell me what practices you represent that have real estate with it? Because that’s how some buyers buy.

So that’s one thing to be aware of that might put you in that direction. Another thing to be aware of is that think about how much passive income you would get as a getting rental income because it doesn’t take a whole lot to wipe that out, you get a leaky roof or, an HVAC system breaks or something like that.

And all of a sudden that, 10 gram that you made over the course of the year is like down the drain because you’re still responsible. For the maintenance of the property, yes, you’ll probably have a lease that holds them responsible for some of it, but for the most part, you’re still going to have a responsibility for the structure, for the external, and many things that could become quite costly.

So you want to keep that in mind. Another thing is, some buyers, when they’re buying a business, They don’t want you as a landlord after the fact, okay? That doesn’t sit well with them. And we’ve actually had that happen a number of times, where someone would say I’m only going to buy this clinic if I can buy the real estate.

Seller, my client, doesn’t want to sell. And they’ll say I don’t want them as a landlord. So they either sell me the building or, I’m out. So we see that very often, and Something that also this is a changing element, but that’s why you always have to be on top of and have the right people around you that know what’s going on.

There are often very good programs within banking. For example, SBA has programs right now, that small business association for someone that doesn’t know that’s who funds the majority of chiropractic acquisitions. So they have programs that for qualified buyers, they are zero down on a building.

So I want you to hear that again because this is really important. If you go to for a conventional loan at, your TD Bank or Bank of America up the block because you want to buy A building to put your practice in. Most times you’re going to be required to put 20 percent down. So we’re talking about a million dollar building, which is not even that unusual these days, you need to come up with a couple hundred thousand dollars.

That’s a lot of money. Now think about it. If you could get that same building and you don’t have to put anything down. Zero. That is amazing. It’s also a very long term loan. It’s not five years, it’s not seven years. When you buy a practice, when someone buys a practice with the real estate, that term becomes 25 years.

So that really spreads out the servicing of that note. So now we have a buyer that’s buying, again, I’m just using examples here, a three quarter of a million dollar practice. They got a building for 1. 3 million, but they don’t have to put anything down on the building because they qualify for that program.

That’s amazing. Talk about using somebody else’s money. So that really creates a lot of incentive for a buyer to buy a building because how often do you have an opportunity to acquire a piece of real estate with zero down? Yes, there are people that are big real estate holders that probably get those opportunities.

But most of us, you and I, Joe Chiropractor, that’s not an opportunity we’re going to get. So that creates a lot of incentive for the buyer to purchase. And even then, a lot of times I have to school them when they’re still getting a little sticker shock 1 million, 1. 5 million.

And what you have to show them is here’s what the rent is you’re going to pay if you were to stay as a tenant. So now, yes, you’re paying more essentially, but then you have to sit with your accountant and go through what do I save on taxes, because most people will set up an entity to purchase that piece of real estate.

So now, Dr. Chiropractor pays the entity rent and there’s all kinds of tax positions on that. And you’re building equity, especially if you’re a younger doc. What a great way to walk into starting to build equity for your entire future. So there’s a lot of elements at play, but I will say probably 80 percent of the time when we have a building that’s owned by the seller of the clinic, we also sell that building.

Most people see their way clear, but That it is the most logical thing to do. And sometimes I understand it takes a little while to get there because of advice you’re getting or because you think, again, as a landlord, you’re going to get all this passive income. But, you also get the headaches and anyone that’s ever been a landlord that’s ever had rental property knows, yes, you can make money.

But there are also headaches that go along with that you can’t avoid. So it’s something that definitely has a lot of elements to it and you really have to consider what works best for you. But probably about 30 to 40 percent of, not 40 percent, 30 35 percent of the clinics we represent for sale will have real estate and probably Upwards of 90 percent of those, the real estate gets sold.

Usually if the real estate isn’t getting sold with the clinic, it’s typically because there’s just too, again, like I said in early on in this chat, there’s just too big a discrepancy from someone that can afford a clinic for a few hundred thousand dollars. And they happen to be in a building that’s a million dollars.

The other thing you always have to be aware of that can be specific to your particular structure and where your real estate is are there certain guidelines or regulations? Obviously, if it’s a freestanding building, there’s a lot less regulations. If it’s within more of a condo or co op system that you’re in, maybe a medical complex, you really have to read those laws of what the requirements of a buyer are.

So that’s important to know. In a private home, that you have your clinic within your home, you often have to check the community, sometimes have regulations, especially if there’s any kind of HOA that the person that is buying that and going to continue to to provide service through that business, the chiropractic clinic, they actually have to live there.

They can’t like be a landlord and rent it out. A lot of different variables, just do your homework. I’m always happy to help if someone’s not sure exactly, how their real estate should or could work into the deal, you can just call me. I’m happy to just chat through it with you and give you my advice.

Obviously, I can’t give you legal advice or financial advice, but again, sometimes You know, your lawyers and your accountants, although well intentioned, don’t understand how it can benefit a deal and can make things go much smoother and can often get your clinic sold quicker. So there’s just a few tidbits for you to really be aware of that when we talk about this topic of selling you real estate with your clinic, there’s obviously a lot of things to consider, some pros, some cons.

You think through it, you talk through it, and you probably come up with the best scenario. I hope that was helpful. I hope I’ve shared some information with you that’s important. Remember, you can always reach out to me. Always here for a chat. I’ll always take a phone call. That’s it for me for today.

I am Dr. Randi Ross from CEO of Premier Practice Consultants. I want to thank you for spending some time with me today. And as always, I want to thank ChiroSecure for inviting me to be here.