Selling a dental practice is a complex transaction, but adding the real estate – especially a home office dental practice can introduce unique, time-consuming hurdles. Dr. Gary DDS, shares crucial insights on the common difficulties faced by sellers who want to package their practice and residential real estate together. If you’re planning your dental practice transition, understanding these challenges and preparing years in advance is essential to maximize your sale price and avoid costly delays.
The Core Problem: Why Buyers Shy Away
While owning a home office provided great financial write-offs and a minimal commute for you, it often presents a major deterrent for potential buyers.
Difficulty #1: Blurring the Lines Between Home and Work: The greatest difficulty is a lifestyle preference: most younger doctors do not want to live where they work. They seek a clear separation between their professional and private lives. Dr. Gary estimates that only about 2-3% of potential buyers are interested in purchasing both the practice and the home office real estate. Waiting for this small pool of buyers can take forever, adding years to your transition timeline.
Difficulty #2: The “Upside-Down” Value A tricky financial issue arises when the value of the real estate is significantly greater than the annual gross of the practice (e.g., a $1 million building with a $400,000 practice gross). This “upside-down” scenario creates a cash flow problem for the buyer, making the combined asset financially unappealing and nearly impossible to finance.
Solution 1: Split the Assets – The Variance Challenge
The most effective solution to these difficulties is to separate the practice from the real estate. This means the seller maintains ownership of the real estate and becomes a landlord, offering the new doctor a long-term lease.
Difficulty #3: Zoning and the Need for a Variance: However, in many municipalities, local zoning ordinances and “grandfather clauses” require the owner-operator to live in the home portion of the property. To convert the residential unit into a rental for a non-owner, you must apply for a variance.
This is where the timeline extends dramatically. The variance process is time-consuming, costly (in attorney fees), and requires the right legal expertise to navigate the town board.
Difficulty #4: Potential Neighbor Complaints: Even if the town board approves your variance, a complaining neighbor can dramatically wear out the process and further extend your timeline with legal issues. This often means a process that normally takes a year is easily extended.
The Proactive 2-Year Solution: Dr. Gary DDS strongly advises starting the variance application process two years before you plan to sell the practice. Assume that the practice sale will take one to two years, and the variance will take another year, or more. By initiating the variance early, you make your dental practice much more competitive for a larger buyer pool. It acts as an insurance policy if you find a buyer who wants both the home and the office before the variance is approved, that’s great, but you haven’t wasted time waiting for a rare event.
Difficulty #5: The Cost of Delay and Disability
Waiting for that perfect, rare buyer exposes you to significant risk. Dr. Gary emphasizes the high volume of disability cases he encounters. Unexpected illness, injury, or disability can force a dentist to close their office immediately.
In a rushed situation, the only remaining alternative is to sell the patient records separately. This results in a massive loss of equity, as records typically only fetch 20-30 cents on the dollar, costing the seller 65-75% of the practice’s total value.
Conclusion: Prepare Now for Your Future Transition For dentists operating a Home Office Dental Practice, proactive planning is paramount. The best path to a successful and profitable sale is to assume you will need to separate the assets, apply for the necessary variance early, and thus make your practice appealing to the widest possible market.
