When purchasing or constructing a building for your dental practice, you'll encounter a financing landscape that differs significantly from practice acquisition loans. Understanding these differences can help you make strategic decisions about your real estate investments and long-term wealth building.
How Real Estate Loans Differ from Practice Loans
Practice loans and real estate loans operate under fundamentally different models. While practice acquisition loans often provide 100% financing with no down payment required, real estate loans follow traditional commercial lending standards. Banks typically finance 80-85% of a property's value, requiring you to provide a 15-20% down payment upfront.
What makes dental real estate financing distinctive is its flexibility. Unlike most commercial situations, you can structure your real estate loan separately from your practice loan—even when purchasing both simultaneously. This separation creates valuable strategic options for financing your dental business.
Understanding Lending "Position"
The concept of lending position is critical to understanding how dental real estate financing works. When a bank provides a loan, they take a "position" on specific assets, which determines their rights if you default.
In dental financing, this typically works as follows:
Practice loans hold first position on practice assets: equipment, accounts receivable, patient lists, and goodwill
Real estate loans hold first position on the property itself
This separation of collateral enables you to use different lenders for each asset type
Covering Your Down Payment
While real estate loans require down payments, you have several options for meeting this requirement:
Traditional Cash Down Payment
Use personal savings to cover the 15-20% down payment. This is the most straightforward approach and gives you immediate equity in the property.
Seller Financing
The property seller may agree to finance part of the purchase price, typically in second position behind your primary lender. For example, on a $1 million property purchase, you might structure:
$800,000 (80%) from a bank in first position
$200,000 (20%) from the seller in second position
Practice Equity Financing
Some lenders allow you to leverage existing practice equity toward your real estate down payment. This option works particularly well for established practice owners looking to purchase their building after years of successful operation.
Why Separate Financing Can Work in Your Favor
Using different lenders for practice and real estate offers several strategic advantages:
Refinancing Flexibility – You can refinance either loan independently when interest rates drop or market conditions improve, without affecting the other.
Risk Management – Keeping practice and real estate debt separate provides additional asset protection and financial clarity.
Investment Strategy – Real estate can be held in a separate legal entity for tax advantages and estate planning purposes.
Competitive Terms – You can shop for the best lender for each loan type rather than accepting a package deal from a single institution.
When to Purchase Real Estate
Timing matters significantly in dental real estate acquisition. Established practices can generally pursue property ownership whenever market conditions align with their goals. Startup practices face greater challenges—most lenders avoid financing real estate for startups due to heightened risk.
Once your practice demonstrates strong production, consistent profitability, and stable cash flow, real estate acquisition becomes more accessible. Most lenders want to see at least 2-3 years of successful operation before considering real estate financing for newer practices.
Building Long-term Wealth Through Real Estate
Real estate ownership represents a powerful wealth-building component of your overall financial strategy. The ability to use separate lenders for practice and real estate helps you optimize this strategy by:
Securing the most favorable terms for each loan type
Maintaining flexibility for future practice transitions or sales
Building retirement assets independent of your practice value
Accumulating equity in two distinct appreciating assets simultaneously
Making the Right Decision for Your Practice
Before pursuing real estate financing, evaluate these key considerations:
Your current financial capacity for a down payment
The strategic value of ownership versus leasing in your market
Local commercial real estate trends and property appreciation potential
Your timeline for practice ownership and eventual exit strategy
Anticipated practice growth and future space requirements
Keep in mind that real estate ownership, while potentially valuable, isn't essential for practice success. Many thriving dental practices operate in leased facilities. Your decision should align with your broader professional objectives and personal financial goals.
Moving Forward
The flexibility of separate real estate financing in dentistry offers unique advantages. When understood and applied strategically, it can help you build both a successful practice and a valuable real estate portfolio. Consider partnering with financial advisors experienced in both dental practice management and commercial real estate to develop the optimal financing strategy for your specific situation.