owners who would like to lease or sell. Because of time constraints, a broker may focus on showing clients his or her listings first, rather than other properties for which he or she will be required to split a commission. If you are considering working with a broker, it is important to understand whom he or she will represent and the range of the listings that he or she will show you.
Occasionally the real estate agent or broker finds an interesting dental office space, but the developer’s agent, preferring to keep the entire commission, may insist on dealing with the dentist directly. Don’t do it alone! Many commercial realtors or brokers will still work for you behind the scenes for an hourly rate. They won’t get a split commission, but you will still get their expertise to secure the fairest lease or purchase agreement possible. Often the total hourly cost may be recouped less than six months into the lease or purchase agreement due to various concessions that your agent may secure.
Other important terms in your lease or purchase agreement may involve the following:
Signage
Tenant improvement allowances
A covenant of exclusivity
The lease term
Contractors with dental office experience from which to choose for tenant improvements
Financial Lender
Two of the most common sources for dental loans are banks and health care finance companies. There are many differences.
Most banks offer a variable floating rate, a fixed percentage over the prime rate, which will fluctuate with the prime rate. Health care finance companies, on the other hand, offer a fixed rate with simple interest. Health care finance company rates will be initially higher than those from a bank. When you assume the risk, with a variable floating rate, the bank is covered. When health care finance companies assume the risk, with a fixed rate, you’re covered. Your payoff with a fixed rate is the security that your monthly payment won’t change.
Banks will often ask for a 10 to 20 percent down payment of the amount borrowed. Health care finance companies require little or no down payment. Banks typically ask for collateral, such as a home or property. In most cases, health care finance companies will use the dental equipment or practice as collateral.
Bank loans and most health care finance companies can tie up your credit line for future purposes, such as personal loans. Because there are exceptions to this rule with some health care finance companies, check to see if any are willing to keep business and personal credit lines separate, as long as you don’t default. If you decide later to purchase a home, for instance, your business loan will not appear on your credit report.
Banks add points to cover closing costs, attorney fees, etc. Closing costs will increase the bank’s adjusted annual percentage rate (APR) when compared to a fixed rate. Health care finance companies have a minimal fixed-rate filing fee.
Health care finance companies have experience in dental loans. They know that only a small percentage of dentists default on their loans. Commercial loan bankers view you as “new business,” and their default rate for all new businesses is very high. As a result, funding a bank loan can involve significant red tape and paperwork. Funding with a health care finance company is typically less burdensome.
When financing a fixed-rate mortgage, by law the lender must provide you with a “truth in lending statement,” which explains the adjusted annual percentage rate (with closing and other costs factored in). What’s more, it clearly explains the total cost over the life of the loan. When banks offer a variable floating rate, they are unable to tell you what the total cost will be because it’s impossible to predict interest rates. Health care companies with fixed rates can tell you exactly what your total cost will be. However, they are not required to and generally won’t volunteer the information. So insist on it! This becomes even more important if you are offered, for instance, a 15-year loan as opposed to a standard 12-year loan. The monthly payment will be lower for the 15-year loan, but at what cost?
Banks will often ask for a 10 to 20 percent down payment of the amount borrowed. Health care finance companies require little or no down payment. Banks typically ask for collateral, such as a home or property. In most cases, health care finance companies will use the dental equipment or practice as collateral.
Architect/Designer
All architects are not equal. Some offer a wide array of services, but others don’t, with resulting disparities in pricing. Hiring the cheapest architect may end up costing more. The dentist may save several thousand dollars up front with a less expensive architect, but may spend many times that amount before the project is finished — all because certain important services aren’t included in the architect’s fee, which leaves the dentist vulnerable at critical stages.
When comparison shopping, ask for a fee that includes these minimum architectural services:
Creating a “complete” set of construction documents
Obtaining a permit from your municipality to begin construction
Creating a custom “dental equipment specification sheet” with your dental equipment consultant or supplier
Designing cabinetry for your office
Monitoring the contractor bidding process
Completing the design phase for your new office
Creating a Complete Set of Construction Documents
Any architect you hire will create a set of construction documents. The question is whether they are “complete.” I recommend that you pay the architect to create a fire protection plan (sprinkler system) as part of your construction documents. Many don’t include this service in their fee, relying instead on the contractor to produce it. You’re going to have to pay someone to create it, so the cost is a wash, but if the architect includes it in your construction documents, then you get city approval prior to beginning construction. If the contractor has to produce the fire protection plan after construction begins, he or she must submit it to your municipality separately for permit, which may cause a delay of several weeks.
Any architect you hire will create a set of construction documents. The question is whether they are “complete.” I recommend that you pay the architect to create a fire protection plan (sprinkler system) as part of your construction documents.
Obtaining a Permit from Your Municipality to Begin Construction
If you hire an architect who is licensed in your state, he or she will send the completed construction documents to your municipality to obtain a permit to begin construction. After review, the architect will receive the initial “city comments” from the planning board. These comments are typically questions or concerns that the city planners want your architect to address before they issue a permit. The architect will address these comments and resubmit for permit. The city will then respond either by issuing your permit or with more comments. You should expect your architect to continue addressing the city’s comments in a timely manner until the permit has been received. The architect only occasionally receives city approval after the first submission.
If
