What Are Your Options to Buy a Medical Practice Building?

Buying the building your medical practice operates from usually means a commercial property loan, not a business loan in the everyday sense. At TM Finance Group, we work with Gippsland professionals who are ready to stop paying rent and start building equity in the premises their patients already know.

Drouin sits in West Gippsland. If you are a GP, dentist, physio or allied health owner thinking about buying your premises, this article explains how lenders look at the purchase and what to prepare.

What Type of Loan Do You Need to Buy a Medical Practice Building?

A secured commercial property loan is the usual choice for buying practice premises, because the building itself is offered as security. Our commercial loans page covers this kind of lending in more detail.

The main trade-off is that your property, and sometimes other assets you own, is tied to the loan. If repayments cannot be met, the lender can sell the security. Commercial lenders assess the business financials, the property and the borrower together, so preparation matters. A broker can compare options from lenders across Australia and match them to your situation.

It helps to separate this from a general business loan used for equipment or working capital. Buying a building is a property decision, and lenders treat it that way.

How Do Lenders Assess a Medical Practice Purchase?

Lenders mainly want to see that the practice earns enough to cover the repayments. They look at your business financial statements, your personal income and the property being bought.

One measure you may hear about is the debt service coverage ratio. It compares the income available to the debts you need to pay. Each lender sets its own approach, so the same practice can get different answers from different lenders.

If you own the practice through a company or trust, or draw income in a mix of ways, your paperwork needs to tell a clear story. Our page on self employed loans explains how lenders read income for business owners. You can also check your borrowing capacity before you start looking at buildings.

Should You Choose a Variable or Fixed Interest Rate?

A variable interest rate moves with the lender's pricing, while a fixed interest rate stays the same for an agreed period. Neither is right for everyone.

With a variable rate, repayments can rise or fall, and some loans allow extra repayments or a redraw facility. With a fixed rate you know your repayment for the fixed term, but break costs may apply if you exit early, and extra repayments are often limited. Many borrowers split the loan, fixing part and keeping part variable, depending on the lender and loan structure.

Interest-Only or Principal and Interest: What Does the Difference Look Like?

Interest-only repayments are lower in the short term, but you do not reduce the loan balance during that period. Principal and interest repayments cost more each month, but the debt shrinks.

Consider two GPs who run a practice in Drouin and currently pay rent. They want to buy the building and are comparing two loan structures. Their broker sets both out using an illustrative interest rate of 6.75% p.a., so they can compare them fairly. Per $100,000 borrowed, over 25 years:

• Principal and interest repayments are about $691 per month.
• Interest-only repayments are about $562 per month.

The interest-only option looks lighter, so they consider five years of interest-only repayments to ease cash flow while the practice grows. Then they check what happens afterwards. After five years, the loan moves to principal and interest over the remaining 20 years. At the same illustrative rate, that repayment rises to about $760 per month per $100,000 borrowed, which is higher than the $691 they would have paid from day one.

The outcome is a decision made with open eyes. They choose principal and interest on most of the loan, because they would rather not face a repayment jump later. They keep a smaller portion interest-only to leave room for fit-out costs. The lower early repayment was real, but it came at the cost of a larger repayment later and no reduction in the balance for five years.

These figures are illustrative only. Actual repayments depend on your lender, deposit and loan structure, so use a loan calculator and speak with us about your own numbers.

What Should You Prepare Before Applying?

Start with a clear picture of how the practice earns and what it can afford to repay. Lenders will want to understand the business, the property and you as the borrower.

In practice, that means having recent financial statements ready and a clear idea of the deposit and costs you will cover from your own funds. If you plan to buy through a company, trust or self-managed super fund, speak with your accountant first, because ownership structure can affect both the loan and your tax position. Tax outcomes depend on your circumstances, so get advice from your accountant before you commit.

It also pays to think about the lease. If you are buying a building that has existing tenants, or you plan to lease part of it to another practitioner, lenders may consider that rental income when assessing the loan. How much weight they give it varies.

Is It Worth Buying Your Practice Premises?

Buying the building can give you control over your premises and a long-term asset, but it adds debt and ties up capital that could go back into the practice.

If the practice needs new equipment or a fit-out, you may need to balance that spending against the property loan. Some owners look at separate asset and equipment finance so the building loan stays focused on the property. If your loan is already in place and the terms no longer suit you, a loan health check can show whether your structure still fits.

The right answer depends on your cash flow, your plans for the practice and how long you expect to stay in the premises.

If you are thinking about buying your practice building in Drouin or elsewhere in Gippsland, our team would love to talk it through with you. Call one of our team or book an appointment at a time that works for you.

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