Sell your practice but keep the property: what are the benefits?
When it comes to retiring or moving into new avenues, principal dentists are met with a number of choices. It can be hard to let go of a business that you have spent years investing time, energy and care into making success. However, outright selling isn’t the only option.
In fact, there is an easy way to ensure that your business continues to be an investment for you even after you sell it – selling the business but retaining ownership of the property. In fact, you can generate a significant amount of revenue this way, which can be put towards retirement plans and other areas that you wish to invest in.
To look at it in basic terms – property will always have value. Of course, the monetary value of your property will depend on the location, size and other aspects, but as commercial properties are highly desirable, especially for essential services such as dentistry, its value is likely to continue growing.
The rising worth of commercial properties is influenced by the general inflation of property prices over the years. For example, in 1950, the average commercial property cost £1,891 (equivalent to £65,224 in today’s currency). Fast-forward to 2021, and the average commercial property price now stands at £231,215 – a considerable sum that, in itself is a good nest egg.
However, one very sensible option to pursue is to use this property to generate more income. By selling only the business and retaining the ownership of the property itself, you can easily earn yourself a considerable sum of money through rent alone.
The UK average rental yield is 6.2%. Bearing this in mind, a typical £550k commercial property would bring in £310k of income over a ten-year period. This figure is without calculating the potential for continued inflation, but if the property market does continue to grow at the same rate, by 2031 your £500k property will be worth £1,027,000, with the ten-year yield equalling £837,000.
Although this money will be taxed, it is effectively pure income. As such, depending on the yield of your property, you could be earning a reasonable salary without having to put in any work.
But what about acting as a landlord? You may think that renting out a commercial property entails being constantly on call to replace windows, fix boilers and all of the other tasks that apply to renting out a residential property. However, under a commercial lease this is not the case. The vast majority of commercial leaseholds put the onus of maintenance on the individual who is renting the business space, meaning that they are responsible for the upkeep of the property alongside utility expenses and other business-running costs.
So, what to do with this added income? Investing the money in a Self-Invested Personal Pension (SIPP) is a particularly smart idea. A SIPP allows you to manage your own investments and make changes and additions to these as regularly as you like. Due to this flexibility, a SIPP offers individuals a number of choices, and you can invest in a wide range of assets. As with any financial move, it’s paramount to enlist the advice of an experienced financial adviser with understanding of your particular needs.
MediEstates, working closely with the rest of the Henry Schein group, offers principal dentists practical, tailored advice that will help them navigate selling their business but retaining the property, as well as supporting the follow-up investments. With years of experience working directly with the dental industry, the team has a unique understanding of the market and will always work with you to ensure that any financial goals are met.
To find out more, please contact the team today.
For more information, contact MediEstates on 01332 609318 or