Most medical practice owners who own their building treat it as a separate decision. Sell the practice, keep the building, collect rent. Sometimes that is the right call. For many sellers, though, packaging the real estate with the practice produces a higher total number, a cleaner exit, and a buyer who is easier to finance.
Here is why it works, when it does not, and how the deal actually gets done.
Why it works for the buyer: the loan
The whole case rests on one lending fact.
When a buyer borrows to purchase a medical practice, an SBA 7(a) loan on the business alone amortizes over a maximum of 10 years. Commercial real estate on the same program amortizes over up to 25 years. When one loan covers both, the lender blends the two terms by the share of proceeds going to each, and if 51 percent or more of the loan goes to the real estate, the entire loan can run 25 years.
Longer amortization means a lower payment for every dollar borrowed. As an illustration at a 10 percent rate, a $1,000,000 loan costs about $158,600 a year on a 10-year schedule and about $109,000 a year on a 25-year schedule. The same cash flow carries roughly 45 percent more debt at 25 years. A blended loan lands somewhere between the two.
That does three things for the buyer:
- Lower monthly payments. The practice’s cash flow covers debt service with more room to spare, which is exactly what the lender’s coverage test is looking for.
- A higher price becomes fundable. Because the payment is lower per dollar borrowed, the buyer can support a larger loan on the same earnings. That is what allows the seller to ask for more and still find a buyer who can close.
- Control. The buyer owns the walls. No rent escalations, no landlord who can decline to renew, no risk of losing the location the patients know. Every payment builds equity instead of paying someone else’s mortgage.
Why it works for the seller
One buyer, one closing. Two assets, one negotiation, one set of documents, one closing date. Compare that with selling the practice, then spending another year marketing a building whose value now depends on a tenant you did not choose for that purpose.
A higher total number. The financing math above is not abstract. If the buyer’s monthly payment is lower, the buyer can pay more, and the seller captures part of that difference.
No accidental landlord. Many medical practice owners sell the practice and keep the building “for the income.” Then the new owner’s practice struggles, or relocates, or asks for rent relief, and the retirement asset becomes a management problem. A purpose-built medical suite is expensive to sit empty and expensive to convert.
A clean break. When both assets transfer, you are done. No tenant calls, no roof, no property tax appeals.
When it does not work
This is a good idea in general. It is not always a good idea.
There are fewer buyers at the combined number. A physician buying a practice for $1.2 million is a large pool. A physician buying a practice and a building for $2.7 million is a smaller one. Strategic buyers, the groups acquiring multiple practices, generally do not want to own real estate at all. They lease. So bundling shrinks the buyer pool and usually lengthens the timeline. It can still be the right move, but you should go in knowing that.
The building is worth more than the practice can carry. If market rent on your building is higher than the practice’s earnings can support, the bundle penalizes one asset or the other. In that case the building should be sold on its own to a real estate investor and the practice sold separately with a lease the practice can afford.
You genuinely want the rental income. A long, well-written lease to a strong tenant is a legitimate retirement asset. If that is your plan, the lease needs to be drafted for that purpose, with the term, escalations, and maintenance obligations of a real investment property, not a handshake with the buyer.
Taxes. The building and the practice are taxed differently. Depreciation recapture, capital gains treatment, and the option of a like-kind exchange on the real estate all change the after-tax answer. Talk to your CPA before you decide how to package the sale, not after the offer is signed.
Timing: the lease is the hinge
Every version of this deal runs through a written lease. The lease can be created as part of the transaction itself: the buyer of the practice signs it at closing, and the building is then sold with that lease attached. What matters is what goes into it. Two rules:
Set the rent at market. Rent above market inflates the building’s value and deflates the practice’s earnings. Rent below market does the reverse. Buyers and lenders normalize it either way, so an off-market rent just creates a negotiation you will lose. Set it at market and let each asset carry its own weight.
Match the lease term to the financing. SBA lenders want the lease term, including renewal options, to run at least as long as the loan. A 10-year practice loan means a lease with 10 years of term and options. A lease with three years left will stop a financed buyer cold.
What should be settled before the practice goes to market is the structure: which of the three paths below you are running, and the tax planning behind it. The lease itself can follow the buyer.
The three ways it actually happens
Path 1: Sell the practice and the building to the same buyer
One buyer purchases both, in one closing, with one blended loan. This is the ideal scenario and the one the financing math above was written for. The buyer gets the lowest payment per dollar borrowed and full control of the location. The seller gets the highest total number and the cleanest exit. The only cost is that this buyer is the rarest of the three, so we run Path 1 with the other two ready behind it.
Path 2: Sell the building first, lease it back, then sell the practice
You sell the building to a real estate investor and sign a long-term lease as the tenant, typically 10 to 15 years, triple net. Then you sell the practice with that lease in place.
This is the shorter timeline. A medical office building with a long lease and a credit-worthy tenant is a liquid asset. Real estate investors price it on the lease income and there are many of them. Once the building is sold, the practice goes to market with a fixed, known occupancy cost, and it goes to the full buyer pool, strategic buyers included.
Two things to get right. First, the rent you sign sets both prices, so see the rule above. Second, the lease must be assignable to the practice buyer without the landlord being able to refuse unreasonably. Otherwise the investor you just sold to gets a veto over your practice sale.
Path 3: Sell the practice and the real estate separately
You find the buyer for the practice. At closing, that buyer signs a lease on the building as the new tenant. Then you sell the building to a real estate investor with the new lease attached, or keep it as an income property if that is the plan.
This is the longer timeline, because the building sale waits on the practice sale to produce the tenant. The upside is that the practice buyer is now the tenant, which is exactly the tenant a medical office investor wants to see.
Whichever path you take, sell the real estate with a lease on it
An empty medical building sells on square footage. A leased one sells on income. Whichever path you take, the building goes to market with a lease attached, never vacant, never month to month. This is the one rule that holds in every version of this deal.
How we run it
Platano Advisors is a licensed Florida real estate brokerage as well as a healthcare M&A advisory firm, so the practice and the building can be listed and sold under one engagement. We underwrite both assets before listing, set the rent where the lender’s math and the investor’s math agree, draft the lease to support financing, and then decide with you which path fits your buyer pool and your timeline. When the answer is “keep the building,” we say so.
Frequently asked questions
Does bundling the building always raise the price?
No. It raises the price a financed buyer can support, because the loan amortizes over a longer period. Whether that shows up in offers depends on whether the buyers in your market want to own real estate. Individual physician buyers often do. Strategic buyers usually do not.
Can a buyer use one SBA loan for the practice and the building?
Yes. The SBA 7(a) program allows a single loan for both, with a blended maturity weighted by how much of the loan goes to each. If 51 percent or more goes to the real estate, the loan can run 25 years.
What rent should I put in the lease?
Market rent for comparable medical space in your area. Not what the practice has been paying you, and not what would make the building look most valuable.
What if the buyer only wants the practice?
Then you sell the practice with a long lease to the buyer, and you either keep the building as an income property or sell it to a real estate investor with that lease in place. That is Path 3 above.
How early should I start?
Decide the structure and do the tax planning before you list. The lease itself does not need to exist before the sale. It can be signed as part of the transaction with the buyer of the practice.
