If you own the real estate where your veterinary practice is located, you may be wondering how selling your practice will impact your current situation. There are really three ways to go about dealing with real estate as you approach the sale.
Leasing
You may decide that you wish to lease the property to the new practice owner for a period of time. You will retain ownership of the land and continue to receive monthly rent. This can be a great way to go about things if you believe that real estate values in your area are going to increase in the next few years. You can generate some profits for yourself during the term of the lease, and eventually sell the property for an even larger sum. The obvious risk is that the new owner could decide to move the practice elsewhere, or go out of business. This would leave you with a highly specialized building that may be difficult to lease to any other type of tenant.
Selling
Some property owners are afraid it will be too difficult to sell their property and their practice together. The idea is that the new owner would have to take out a loan for the price of the practice plus the real estate, which may push the loan beyond what they can afford. In some cases, this may be true, but in reality, appraisers include the cost of occupying the building when they evaluate the business. Whether that means the cost of leasing space or buying, this is built into the appraisal upfront, so it should not throw the numbers totally out of whack.
Other Alternatives
If you want to stay in the real estate rental business, but you don't believe that you can keep the veterinary practice building leased long-term, you may decide to do a 1031 exchange. A 1031 exchange allows you to sell your existing real estate, put the proceeds toward a new commercial building, and avoid paying capital gains tax on the sale. While this practice may sound complicated, once you've mastered it, it can be highly lucrative. It will allow you to divorce yourself from the veterinary practice building at the time you sell, while still keeping your profits safe from taxes. It also leaves you plenty of opportunities to buy a more general use commercial space that you can keep leasing.
These are your three best options if you own your real estate currently and are getting ready to sell your veterinary practice. It is usually best to speak to your potential buyer first and gauge their interest in buying the building before you make a decision. You should speak to a tax specialist before you attempt a 1031 exchange as there are some rules that need to be observed to successfully avoid the capital gains tax.
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