Buy vs. Lease Your Medical or Dental Office in SE Michigan

By: Nick Zagar | CEO & Managing Director of Mirlo Real Estate Partners

Short Version:  If you have at least 7 years left in your career and a stable patient base, considering your options to buy makes sense. There are great financing options available for healthcare practice owners – including a 0% down payment – so, it is definitely worth connecting with healthcare-specialty lenders to explore the possibilities for your situation. Bottom line is, if the submarket is right and you’re in the right place in your career, buying typically beats leasing on a 10-year horizon in SE Michigan.

Since 2005, I’ve successfully negotiated over 1,000 commercial real estate transactions, and for nearly a decade, I’ve focused on representing healthcare practice owners. Dentists, veterinarians, optometrists, therapists, you name it, these are my clients in Southeast Michigan.

I created this guide to help with the most common strategic decision:  to buy or to lease. There is no universal answer, but there is a framework.

The wrong way is to compare the monthly mortgage payment to the monthly rent. That ignores the tax treatment, equity build, opportunity cost, practice or business valuation impact at sale, and where you are at personally in your career.

The right way to go about this question is to model 10-year total cost of occupancy under both scenarios, including these 3 factors:

1. Career Stage – How many years until you plan to sell your practice or retire?
   1. 1-5 Years, it’s best to lease. Buying real estate takes 7-10 years to capture appreciation and your capital is more valuable inside the practice versus tied up in the real estate. Instead, focus on the practice’s value by building that patient base, refining your operations, and getting to a predictable EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). Selling the practice and real estate together is difficult for the buyer’s financing. If you still want passive income, buy an investment property instead.
   2. 5-15 Years, buy if the submarket is right. This is a high-leverage window where the loan financing can still build equity and you still have enough career runway to capture appreciation.
   3. 15+ Years, buy if you’re financially established, and the building has a good cash flow. Otherwise, wait and stick with leasing while you focus on the business of your practice.
2. Desired Flexibility – How confident are you with your 15-20 year trajectory? In short, leases end. You will have more flexibility with leasing, and that is valuable to some practice owners. If the neighborhood shifts, demographics change, your practice grows, or you want to make an unexpected career change, a lease lets you move with 12-24 months notice. However, some see property ownership providing more control, and selling a building could take about 6-18 months, but with the risk you may not get the price you want.
3. Finances – What is your available capital? Down payment aside, if you buy, you’ll need to cover closing costs, immediate improvements, and a working capital cushion. And if buying is going to drain your practice’s emergency reserves, the practice – your real money maker – suffers. However, I do want to go into more detail about some financing basics:
   1. 0% down is on the table. Several banks specialize in lending to healthcare practice owners and offer 100% financing – no down payment required. This can apply to both SBA and conventional loan structures. These lenders have been particularly active in SE Michigan:  Bank of America Practice Solutions, Live Oak Bank, US Bank Practice Finance, Huntington Practice Finance, and Provide (a division of Fifth Third Bank). Underwriting hinges on you being a practicing healthcare professional with strong credit and stable practice cash flow as an alternative to a 10-20% down payment. This can really change the calculus if you’ve been working on saving up $250,000 for a down payment; you may not have to wait at all.
   2. SBA 504 is worth understanding. The SBA 504 loan is widely used for healthcare owner-occupied real estate, and one of the biggest features is the SBA portion of the loan amortizes over 25 years. In comparison, a conventional loan typically amortizes over 20-25 years but with 5-10 year balloons that force you to refinance. The SBA’s 25 year amortization means lower monthly payments, no balloon refi risk on that portion, and rate stability for 25 years. However, the trade off is that SBA loans involve a CDC (Certified Development Company), more paperwork, and a 60-90 day closing timeline (a conventional loan would be 30-60 days). In Michigan, the active CDCs are Lakeshore 504, Michigan Certified Development Company, and Greater Michigan CDC. To be eligible for the SBA 504 loan, you must have:
      1. building that is owner-occupied (you must occupy 51% or more),
      2. for-profit business,
      3. tangible net worth under $20 million, and
      4. net income under $6.5 million.

So, let’s go over the basic economics of comparing buying to leasing:

In 2026, a typical 4,000-6,000 SF medical office building (including the buildout) in SE Michigan runs $1.5 to $3 million. This depends on the submarket, size, and condition of the building. Birmingham and Bloomfield Hills are going to be at the top of the range, while you’ll find less expensive opportunities in Western Wayne County and outer Oakland County.

Next, it’s important to understand your business is still going to be paying rent, but the payments will be going to another entity you control, rather than some landlord.

Here is how the cash flow would compare for a 5,000 SF building in a $40.00 per SF rent submarket:

• Lease scenario:  $40/PSF x 5,000 SF = $200,000/year in base rent + $40,000/PSF in NNN = $240,000 annual occupancy cost with 3% annual increases and no equity build.
• Buy scenario:
  • $2.5 million
  • SBA 504 loan
  • 10% down payment
  • 25-year amortization$185,000/year in debt service + $25,000 in property tax + $8,000 in property insurance + $15,000 in maintenance/services = $233,000 annual occupancy cost with a modest annual increase for property tax and equity building roughly $35,000-55,000/year via the principal paydown and appreciation.

The key takeaway is year one is roughly a wash on cash flow. However, by year 5, buying is materially cheaper, because the lease has escalated, while the loan payment hasn’t. By year 10, the gap is usually $40,000-70,000/year in favor of ownership, plus the accumulated equity of $400,000-700,000.

Lastly, I’ll touch on the tax implications. But note, this is not tax advice. Talk to your CPA.

For leasing, your full lease payment is deductible as a business expense. Leasing also makes your taxes much simpler.

For buying, your taxes are much more involved. You’ll be able to deduct your mortgage interest, depreciation, property tax, and operating expenses. The depreciation deduction is significant; a $2 million building can generate $50,000-100,000/year depending on the cost segregation approach. Commercial property depreciation traditionally depreciates over 39 years. However, if you do a cost segregation study, certain components can be accelerated to 5-15 years, which will increase that depreciation number.

Buying also gives you the ability to do a 1031 exchange when you sell the property. This section of the tax code allows you to defer capital gains taxes by reinvesting the proceeds of the sale into a new investment property within a certain timeframe.

Lastly, it’s worth mentioning that the Michigan Economic Development Corporation does not directly fund healthcare practice real estate, but several local economic development authorities can supplement with property tax abatements in certain districts.

FAQs:

• Should I buy or lease my dental office?
  Depends! We usually encourage dentists to consider both, but the decision usually comes down to where you’re at in your career, the amount of capital, and which submarket you’re searching in. Buying builds equity and gives you control, but it ties up a lot of capital. Leasing preserves capital and offers more flexibility, but it exposes you to rent increases with landlord control. For most younger dentists with growing practices, leasing usually makes more sense. For those in their 50s with mature practices, ownership becomes more attractive.
  How long does it take to close on a medical office building purchase?
  The timeline depends on financing. For an SBA loan, you’re looking at 60-90 days, and with a healthcare-speciality conventional loan, it’s about 30-60 days. But no matter what, plan for a longer timeline, because rushing can create expensive due diligence misses.
• Do I need a down payment to buy a medical office?
  Not necessarily. Healthcare-specialty lenders offer 100% financing to qualified healthcare professionals on both SBA and conventional structures. However, standard SBA 504 from a general lender is 10% down, and standard conventional is 20-25% down. Always consult a healthcare-specialty lender before assuming you need a certain amount for a down payment.
• Why is the SBA’s 25-year amortization a big deal?
  Conventional commercial financing usually has a 20-25-year amortization but with a 5-10-year balloon. This means you have to refinance the entire balance at the balloon date, which exposes you to rate risk and requalification. However, the SBA’s 24-year amortization on the 504 second mortgage is fully amortizing, meaning no balloon and no refi risk on that piece. This guarantees you predictable payments for 25 years.
• Can I use SBA 504 for a dental practice?
  Yes, SBA 504 is widely used for owner-occupant healthcare real estate. The loan covers the building purchase and some related improvements, plus some soft costs can be included too. The 25-year amortization on the SBA portion is a real advantage, and that’s the piece you can’t replicate with a conventional loan.
• Should I hold the building in the practice entity or a separate LLC?
  Always separate. Keeping the entities separate removes the practice liability from the real estate liability. This provides more simplicity and flexibility for the eventual sale of the practice. Talk to your attorney before closing on the building.
• What if my practice partner doesn’t want to buy?
  This isn’t uncommon, and there are options. The partners can buy their shares separately, or one partner owns the building and leases to the shared practice entity, or the building is owned by an outside investor – such as a family member. Each has different tax and operational implications, so talk to a financial professional to decide which structure works best for your situation.
• What if I want to sell my practice in 5 years, should I still buy the building?
  Probably not. Combining the sale of the practice with the real estate complicates the buyer’s financing and reduces your sale price flexibility. In this situation, we would recommend continuing to lease, then sell the practice and transfer the lease. If you already own the building, sell the practice, but keep the building you already own.
• Can I do a 1031 exchange on my medical office building?
  Yes, when you eventually sell the building. Section 1031 lets you defer capital gains taxes by reinvesting proceeds into another investment property within a strict timeline. Be sure to have a plan in place before starting the selling process.
• How does cost segregation work for a medical office building?
  Cost segregation is a tax study that reclassifies portions of the building (cabinetry, dental plumbing, finishes, etc.) to shorter depreciation periods, such as 5-15 years instead of 39. The result is significantly accelerated depreciation in early years, and for a $2 million medical office, the cost segregation strategy can generate $200,000-400,000 in additional first-year deductions. Doing a cost segregation study will cost $5,000-15,000, but can obviously be worth the investment. Talk to a specialty firm, since not every CPA does these.
• What’s a fair price per square foot for buying medical office space in SE Michigan?
  In 2026, the short answer is $250-400/PSF in Western Wayne County/Macomb County/outer Oakland, $325-500/PSF in most of Southern Oakland County, but $400-650 in Birmingham/Bloomfield, as well as Ann Arbor. Note there is a wide variation based on age, condition, and desirable features.

Southeast Michigan Healthcare Submarket Update 2026

Before I get into the submarkets, I want to point out a trend we are seeing for buyers:  former bank branches on busy roads. These are very popular with our dental and veterinary clients for a few reasons:

1. Signage- banks are built for visibility in high traffic areas. They already have large existing monument and facade signage – better than most multi-tenant buildings – along with the benefit of inheriting those signage rights.
2. Accessibility- these are single-story, ADA-compliant buildings with ground-floor entries and no shared lobbies. This is the ideal set-up for any healthcare office, because it is easier on patients, especially those with mobility challenges.
3. Parking- banks have a typical parking ratio of 5-8 spaces per 1,000 SF, and that is generous for a medical or dental practice. Healthcare use requires a lot of parking per zoning requirements, but a former bank will put you in the clear.
4. Pricing- believe it or not, but we’re finding we can get these buildings at a good price. With banks consolidating, they’re wanting to release the real estate at attractive market cap rates.

• Ann Arbor (Washtenaw County) is tight. The leased medical office space vacancy is under 6% in most clusters. This comes with landlords being very firm on base rent, but a little more flexible on Tenant Improvement Allowance (TIA) for long-term tenants, which healthcare tenants are. The toughest spots are:  Plymouth Road, State Street, and the South Industrial Corridor. Buying is even harder in this market and requires patience for that rare find. If you’re willing to go out to Dexter, Chelsea, or Saline, you’ll find better pricing.
• Northville/Novi/Plymouth is very actively constructing medical office space, but you’ll pay for it. Leasing is probably easier with landlords acting more competitively and higher TIA is achievable, whereas buying will price you at $400-600+ per square foot for a built-to-suit. If you’re price sensitive, look one ring out.
• Birmingham/Bloomfield has premium pricing for their strong patient demographics for both leasing and buying. You’re going to find aggressive landlords who want high base rents and offer lower TIA packages compared to other areas. And for owner-occupied opportunities, move fast or lose it, and expect to pay $400-650 per square foot.
• Royal Oak/Berkley/Ferndale is a great choice for growing and younger practices. It offers a younger demographic and makes for an easier startup market. For buying, there’s more available stock at around $300-450 per square foot, and for leasing, there’s more flexible landlords than Birmingham but a tighter market than Northville.
• Rochester Hills/Troy has a well-established medical office market with well-established landlords who’ve been in the industry for generations. This means it’s common to find relationships matter more here than just the economics, and there are no one-size-fits-all rules for both leasing and buying. Purchase prices here are around $325-475 per square foot.
• Warren/Sterling Heights/Shelby Township/Clinton Township (Macomb County) is very active for owner-occupant buildings, especially with former bank buildings. This submarket is very underrated, in our opinion. It is less dense, but that is part of the appeal. You get more for your money with less competition. We’re seeing buildings sell for $200-350 per square foot.
• Dearborn/Dearborn Heights, we’re finding, is very tough for buyers. Properties are going for well-above asking prices. You’ll have an easier time moving further to the west in Wayne County or plan to be patient.
• Canton/Livonia/Westland (Western Wayne County) behaves more like Oakland County with buying, but its landlords are more flexible. Some of the best base rents and TIA are achievable here, which is the most attractive for startups. Landlords are also offering more favorable terms for lease renewals here.
• Detroit Core has a different playbook than the suburbs, because the market is mostly controlled by the large hospital systems. This means the lease terms are more standardized with not as much room for negotiation. If you’re buying, you’ll find some of the friendliest pricing at $250-375 per square foot, which is a good value for buyers who want suburban density without the Oakland County premium price tag.

Talk To Me

If you’re weighing your options, trying to decide if leasing or buying makes the most sense for you, or if your goal is to become a property owner, connect with us! Set up a 30-minute call to go over your situation. We offer a buying vs. leasing comparison for our clients deciding on the best path to take.