Market Prices of Dental Practices – A Closer Look
“What are practices going for?” I get asked this question a lot. I like to ask the following question back. Are you buying a house to live in or a rental unit? This of course usually gets me a confused look, as the person asking me this is looking for a practice and not a property. Let me explain my analogy.
A residential house is a non-cash producing, market-based asset. Its value is largely determined by the resale value of similar houses in the area. Most of the big purchases we make in life are in this category. Paying ten percent too much for such an asset usually is a bad move. Being a good shopper really pays off.
Conversely, let us look at a rental unit. Actually, let us look at two rental units. Both units are very similar on a physical basis and are two blocks apart. Unit one is selling for $250,000. Unit two is selling for $300,000. Unit one is the better deal, right? What if I told you unit one ends up losing $100 a month after everything is paid for? What if I told you unit two ends up making $200 a month after everything is paid for?
If you approached the rental unit only worried about the asking price, you are looking at the wrong numbers. If you are looking at practices only based on asking price based on a percentage of gross collections, you are doing the same thing. I have seen practices selling for 50% of gross collections that are overpriced. I have seen practices selling for 90% of gross collections that are a steal.
My advice is to not go it alone. Seek out qualified transition specialists. Find the practice that enriches your future.