9 Tips for Buying a Medical Office Building

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Even as a global pandemic moved most medical services online, making the future of medical facilities uncertain, investing in medical office real estate is still considered a stable investment that is more resilient to shifts in the market. While not completely “recession-proof,” investing in a medical office building (MOBs) can add depth and strength to a real estate portfolio. Here are nine tips for buying medical office real estate.

Medical building investment vs. traditional real estate

Even as patients switched to telehealth for safety during the pandemic, 95% of medical facilities continued to pay their rent (as opposed to 85% of other businesses), anticipating a return to future in-person care. 

And although traditional real estate remains a good investment, medical building investments consider the aging population in the U.S. There is no shortage of need for healthcare and its associated services, and the increase in insured people means more people of all ages are seeking medical care services.

Someone holds the arm of an elderly person squeezing a ball.

Unlike traditional real estate, medical office buildings, including urgent care centers and micro-hospitals, remain an investment largely immune to even subtle shifts in the market.

Potential roadblocks

Another major difference from investing in traditional real estate, medical building investments may face two critical hurdles: permits and regulations.

Permits are standard for buildings, but medical office building permits can be more complicated. These also need to consider:

●      Local zoning laws

●      Potential hazardous waste situations

●      Traffic impacts

In addition, medical facilities that operate after hours may face resistance from community members who do not want flashing ambulance lights and sirens, or excessive traffic after dark. This can make getting the proper zoning permits more challenging.

Once permits are in place, regulations kick in. Medical office buildings that operate in conjunction with another healthcare service facility or with the state are rigorously regulated and required to meet specific criteria for operation. If you change anything about the facility or services it offers, getting regulatory approval can take up to a year or more. Keep that in mind when deciding what type of facility to invest in.

Desk-level view of a reception desk with teeth models and a tissue box on in view.

Investment strategies

There are a few different investment strategies that work for medical offices:

●      Healthcare Real Estate Investment Trusts (REITs): Instead of buying an office outright, investors in REITs purchase a share of an office building or hospital for sale. They then receive a dividend of the lease profits.

●      Joint ventures: Joining forces with other investors or investment groups helps spread the burden (and also profit) of the purchase. This is most common when a group of doctors invest in their own building and are more involved with daily operations.

●      Individual investors: High net-worth investors might just purchase MOBs outright, but less experienced real estate investors have opportunities to invest as well. It is possible to leverage existing equity in a personal home or other investment property for investing in medical office real estate. This type of investment has the greatest risk but also offers the highest potential rewards.

Nine tips for medical office real estate investment 

1. Start with setting goals

What is your ultimate goal when it comes to investing in medical office real estate? To add diversity to your portfolio or to capitalize on the boom in demand for medical facilities? Do you want quick, small profits or slower, long-term growth?

Defining your goals at the beginning helps guide your ultimate strategy.

Two woman walk down stairs outside with face masks on.

2. Location, location, location

One critical factor in evaluating a medical office for sale that’s consistent across real estate sectors is the importance of location. This remains one of the key points to consider when evaluating a property. Visibility, local competition, and potential collaboration with other medical professionals are important.

3. Maximize the square footage

Make sure the space is large enough for its intended use, as well as any expansion that might occur in the future. Even if the property is not a standalone, consider properties with the potential for ownership in the future.

You’ll need to consider things such as:

●      How many healthcare providers the space can accommodate

●      The number of parking spaces for patients and families

●      Existing space for imaging, surgery centers, and labs (or space to expand)

●      Layout and space in the waiting room

4. Examine its current and future use 

Take a good look at how the potential investment is utilized. Keep in mind that the current use might be restricted if the building and its technology are decades old. If you want a modern facility, updating old systems may be a critical step that adds to the expense of the investment (but can also increase profits once you’re up and running).

Figure out what technology will add to your investment — and which will eat into your profits.

Front of Mayo Clinic building.

5. Consider a franchise

If it’s difficult to shoulder the burden of a solo investment in medical real estate, consider a franchise. Franchisees get support from an already-established medical business and don’t need to forge their own path. This might be a good option for newbie investors looking to minimize their risk.

6. Look for off-market properties

Off-market properties can be a great commercial real estate investment — if you know how and where to find them. These properties may be quietly sold due to death, divorce, or other sensitive reasons that require discretion.

7. Make sure the numbers line up

Investment property calculators can help you understand the costs involved — and the potential profits on your investment. It’s critical to crunch the numbers before investing to avoid any unpleasant surprises once the deal is done.

8. Coordinate the money

Some investors use specific investment property loans or leverage their existing equity to make new investments. However you proceed, get your financing in order before you make an offer.

Green sofa chairs in a waiting area with floor-to-ceiling windows.

9. Don’t waste resources on fees

Fees can take a big chunk out of your profits, starting with realtor commissions. Closing costs are a big part of your out-of-pocket outlay, so minimize your initial outlay by finding flat-fee real estate brokers.

How to decide if medical office investing is right for you

Medical office investing means asking the right questions to make sure it’s the best choice for your portfolio. If the answer is “yes,” it’s time to start the search for the perfect property!

Headshot of blog author Ben Mizes

Ben Mizes is the Co-Founder and CEO at Clever Real Estate, the nation’s leading real estate education platform for home buyers, sellers, and investors.

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