When starting out your birth center, first thing people always want to do it pick out the building and colors of the birth rooms. There is so much more to running a midwife business than that. When considering a birth center purchase or renting for a while, many things needs to be considered. Long term, purchasing is almost always the better option. Some people’s financing makes it that renting is only option in beginning. Have you ever considered a rent to own? It is the best of both option.
You can give a small down payment to current owner (much less than if bank required around 20% down) and then part of monthly payment goes towards principal. You can also do what is called seller’s financing. It is similar to rent to own, but current owner becomes your bank directly and would need to go through foreclosure process if you stopped paying. Please seek legal advice and know your specific state’s rules about commercial real estate purchasing. Some real estate strategies work differently in each state.
Especially when starting a birth center practice, the midwife business typically has 7-9 months before women deliver. There may be some late transfers, but most of your prenatal care will start when the woman is around twelve week gestation. That is a long time to pay birth center rental or loan payments. With seller financing, you can get really creative with terms of the contract if person is motivated. You can ask owner to have you sign paperwork for purchase, but not start loan payments for 6-12 month after paperwork signed.
With my birth center, owner was very motivated and a chiropractor. His building was on market for over a year and very interested in any offer. I explained to him what I wanted to create in his building, gave him a 5% down payment and made terms that first six months of agreement I would just pay taxes and insurance on building. That really helped my overhead start up costs. He was very negotiable and made it easier to create terms that were in my favor. I signed two agreements: one for purchase in one year and other for lease that had a portion of rental rate go towards down payment of building.
We extended contract additional year and purchased building year two into practice opening and didn’t need to bring any down payment to the bank for purchase since I had already given 5% down at very beginning and my monthly payments had a portion each month go towards purchase directly. It was a very smooth transition. I did my inspection before signing the initial contracts and bank used that as inspection for closing on loan. Fees for closing were minimal and everyone was happy.
The point of this story is to not let idea of purchase immediately disappear from your business plan with the illusion that “you don’t have the money.” There are always people in the community wanting a midwife and birth center to open. With creating a non-profit organization, there can be fund raising and tax write off donations to your practice for helping get building purchased and rehabbed. There are so many possibilities, just allow your mind to be create and dream big!
Purchasing gives you the rights to not have to stress about relocating if owner changes mind about you being there. If purchase is in business plan, please choose carefully your building with short term and long term vision in mind.
When looking at the birth center location, consider size and number of birth rooms that will be present. Are you short term and long term going to be small and more private, then look for a space around 2,000 sq ft? If you want something small and option to grow, it might make more sense to rent a space while saving up the money to purchase your final home in 5-10 years once your practice has grown.
Maybe purchase a large building and sublease other aspects of building to cover your actual space in area knowing that growth is an option. I like this option the best, because the purchase can literally pay for itself with other tenants if you don’t mind being a landlord midwife.
Another concern with leasing is insecurity of permanent location if you aren’t ready to move yet. Will your landlord be pressured when your lease is up to not renew? What is your zoning for the locations you are looking? Do you need a special zoning permit? Always get in writing the zoning of the building you are looking into and that permission is given for a birth center to be located there.
I have seen many midwives get verbal confirmation from zoning office, but local hospital finds out about birth center opening and “zoning changes.” It can be as simple as an email or written mailed letter with Mayor signing it stating birth center is allowed at that location. My local town thought I was nuts asking for that letter, but I knew the local hospital would fight me starting in their area.
Leases are great if you are using birth center as initial starting practice and want to transition to a hospital based practice with time. There are some communities that aren’t used to midwives and starting private on your own near hospital with transport rights is a great starting point to get a midwifery team in place. Just know your short term and long term goals with your practice. Know your political climate, plans of local hospital with midwifery, and how a win-win collaboration can be created with your birth center.
Biggest advantage of leasing is lower start up costs for midwife business. Especially if you know your practice will always have a birth location of a birth center, long term purchase is a better option. Lease with first purchase rights is nice, because it doesn’t mean you have to buy. It just means if building comes for sale, your contract puts you at first legal rights to purchase. Typically market value made by an appraiser. If current is given a written offer, then purchase would be that same offer level. First purchase rights just gives you power over future opportunity.
BIGGEST advantage with purchase versus leasing, building owners get great tax deductions from their business that tenants leasing don’t. Depreciation is one of the big tax deductions business owners get for purchasing real estate, birth center. Over the next 27.5yrs, you will be able to equally write off sales price of the building for “wear and tear” on the building. Especially a big purchase will really help out your business income over the next 27.5yrs of the business being owned and operated.
For example, if you purchase building for $1,000,000. Take that amount and divided it by 27.5 (years for depreciation). That comes out to $36,363.64 and is used to off set income from business (money you don’t have to pay taxes on business collected). Talk with your accountant about other great tax deductions present with commercial property ownership.
That is by far my BEST secret about owning versus purchasing your birth center. If you can make purchase a possibility, I would strongly encourage you to find a way to make it happen. Your business’s success will be strong owning the midwife practice location.