Leasing is the lowest-capital, fastest path. Building gives you control and equity at the highest cost, and I plan 18 to 24 months for it. A medical office condo sits between the two. In the Alithos planning model, a 5-operatory office costs about $933,500 leased at standard finish and $1.45 million built ground-up, before land. The deciding test: which path's required production increase can your practice carry at the 1.25x coverage lenders commonly look for?
Your office is one of the largest fixed costs your practice will ever carry, and you only get to reset it every so often. The worst way to make this decision is standing in a beautiful shell space with a broker. The best way is a three-column spreadsheet, built before any tours.
How do leasing, buying a condo and building compare?
Each path trades capital and speed against control and equity. Here is the honest version, before any numbers.
| Factor | Lease | Buy a condo | Build ground-up |
|---|---|---|---|
| Capital needed | Lowest: build-out, equipment, working capital | Middle: unit purchase plus build-out | Highest: land, shell, build-out, site work |
| Speed to opening | Fastest, if the suite fits | Middle: purchase, then build-out | Slowest: I plan 18 to 24 months |
| Control | Landlord sets most rules | Association and CC&Rs set many rules | Full, within zoning and code |
| Equity | None in the real estate | Yes, in your unit | Yes, in land and building |
| Flexibility to move or grow | Highest at lease end | Lower: sell or lease out the unit | Lowest: you own a single-purpose building |
| Main risk | Rent escalations, renewal and relocation terms | Dues, special assessments, a thin resale market | Budget and schedule overruns, carrying a site |
| Tax treatment (education only) | Rent is an operating expense; your improvements are depreciated | Building share depreciated; land is not | Building depreciated over 39 years; land is not |
Lease is how most practices open. You fund the finish-out, partly offset by a tenant improvement allowance if you negotiate one well, and your rent never builds equity. Leases hide their real costs in clauses: escalations, CAM charges, restoration obligations, renewal and assignment terms. A lease that reads fine in year one can be expensive by year ten. The dental office lease guide walks through those clauses.
Build is the highest commitment. You buy land, build a shell, then build the dental interior, and you carry the site until you open. In exchange you control the building and pay down your own mortgage instead of a landlord's. One caution: many of the people at the table in a ground-up project are paid in proportion to its size. Nobody is paid to keep it small except you.
Condo sits between. You own your suite and build equity without buying land, but you add association dues and give up control of the building's common areas and future.
What does each path cost?
The Alithos estimator assumes the same practice in both cases: 5 operatories at 500 sq ft each, standard finish, $42,000 of equipment per operatory, a $60,000 imaging package (sensors and pano), and $85,000 of working capital. The only change is the construction rate: $170 per sq ft for a standard lease build-out and $340 per sq ft for a standard ground-up build. Cabinetry (10%) and soft costs (12%) are figured on construction, so they move with it.
| Line item | Lease, standard | Ground-up, standard |
|---|---|---|
| Square feet (5 ops x 500) | 2,500 | 2,500 |
| Construction | $425,000 ($170/sq ft) | $850,000 ($340/sq ft) |
| Equipment (5 x $42,000) | $210,000 | $210,000 |
| Imaging (sensors + pano) | $60,000 | $60,000 |
| Cabinetry (10% of construction) | $42,500 | $85,000 |
| Soft costs (12% of construction) | $51,000 | $102,000 |
| IT + furniture ($45,000 + $3,000/op) | $60,000 | $60,000 |
| Working capital | $85,000 | $85,000 |
| Total (point estimate) | $933,500 | $1,452,000 |
| Planning range (+/-5%) | $887K-$980K | $1,379K-$1,525K |
| Monthly payment (15 years, 8.25%) | $9,056 | $14,086 |
| Annual payment x 1.25 coverage | $135,844 | $211,297 |
Two things are missing from the ground-up column on purpose. Land is not included, and neither is rent, because you are not paying any. The lease column also leaves out rent and any TI allowance that would reduce your build-out. That is why the four-number test below matters more than the totals.
How do those rates compare with the market? A 2026 guide from a dental law firm puts leasehold build-outs at $150 to $350 per sq ft and ground-up projects often at $400 or more [10]. The model's lease rate sits inside that range. Its ground-up rate is on the conservative side, so your market may run higher. For the full breakdown, see dental office construction cost per square foot, and size the footprint from production first with how much space you actually need.
A condo is not in the model because the purchase price depends entirely on the building and the market. Treat it as a unit price (paid once, usually financed) plus a lease-style build-out, plus monthly association dues.
Every figure in the table is an Alithos planning assumption, not survey data or a bid. Run your own operatory count and finish level in the cost estimator, or see the full scenario table on the benchmark.
Which four numbers decide it?
For each path, the model needs four numbers:
| Input | What it captures |
|---|---|
| Total capital cost | Everything from shell to signage, per path |
| New monthly facility cost | Debt service or rent, plus utilities, taxes, insurance and maintenance |
| Required production increase | What the new fixed cost demands of the practice, plus about 15% variable cost coverage on that increase |
| Debt-service coverage | Practice cash flow divided by total debt payments (lenders often fold in personal debts and living costs); many lenders look for at least 1.25x |
The 1.25x figure is a common lender benchmark, not a universal rule. A dental lender writing in ADA News describes it as a guideline rather than a strict minimum [8]. Test your own numbers in the DSCR calculator.
The decision usually isn't "which building do I like." It's "which path's required production increase is realistic for my practice in my market." A build that demands a 38% production jump from a practice growing 6% a year isn't a dream. It's a margin call with a lobby.
What is the required production increase?
This is the number I care about most. It answers one question: how much more does the practice have to produce each year just to stand still under the new facility cost?
Required production increase = added annual facility cost / (1 - 0.15)
The 0.15 is the planning allowance for variable costs (supplies, lab and the like) that rise as production rises. Each new dollar of production only keeps about 85 cents toward the facility.
Here is one worked example comparing the two model paths for the same 5-op practice. The rent, land and owner costs are example inputs I picked for illustration, not market data or a quote.
| Annual cost | Lease path | Build path |
|---|---|---|
| Project loan payments (model, 15 years, 8.25%) | $108,675 | $169,037 |
| Rent (example input: 2,500 sq ft x $25/sq ft/yr) | $62,500 | n/a |
| Land loan (example input: $500,000 land, same terms) | n/a | $58,208 |
| Owner costs: property tax, insurance, upkeep (example input) | n/a | $30,000 |
| Annual facility-related cost | $171,175 | $257,245 |
The build path adds $86,070 a year. Divide by 0.85 and the practice needs about $101,259 more production per year to carry it. On an example practice producing $1,000,000 a year, that is roughly a 10% increase, every year, before any growth goes to you. For context, the ADA Health Policy Institute reports average gross billings of $965,660 per private-practice general dentist in 2025 [11].
The $25 rent is close to the national average JLL reported in 2026 for medical office space, in the mid-$20s per sq ft per year, with new developments leasing above $40 [9]. The example treats that rent as covering the building's taxes, insurance and upkeep. If your lease is triple-net, add those charges to the lease column too, which narrows the gap. Your market and lease structure will differ, so replace every example input with your own.
Two honest adjustments. First, part of each ownership payment is principal, so you are building equity. That is real, but it is not cash, and the bank still wants the full payment every month. Second, real estate loans often run longer than 15 years, which lowers the payment. On the same $500,000 of land, a 25-year term at 8.25% drops the payment from about $4,851 to about $3,942 a month. Model the actual terms you are offered. The dental loan payment calculator does that part.
How does timing change the answer?
These decisions have long runways. I recommend starting a land purchase 18 to 24 months ahead, a lease-versus-purchase decision about 12 months ahead, and a lease renewal 9 to 12 months ahead. The single most expensive sentence in dental real estate is "our lease is up in 60 days." Negotiating leverage belongs to whoever isn't out of time, and negotiations begin with the first phone call, not the first offer.
Timing also changes the math. A build that opens a year later than a lease is a year of production you don't have, and a year of carrying land and construction interest. If you are moving an existing practice, the relocation guide covers how to keep production running while the new space is built.
How are the tax treatments different?
This section is general education, not tax advice. Rules change, states differ, and your facts matter, so confirm everything here with your CPA.
- Rent. Rent on a lease is generally a current business expense.
- The building. Under federal rules, a nonresidential building is generally depreciated straight-line over 39 years. Land is not depreciable, per IRS Publication 946 [1]. When you buy or build, how the purchase price is split between land and building matters.
- Interior improvements. Qualified improvement property, which covers most interior improvements to a nonresidential building, is treated as 15-year property. It can also be elected as Section 179 property, along with roofs, HVAC, fire protection and alarm systems, and security systems [1]. Whether the tenant or the landlord owns the improvements changes who takes the deduction, so ask your CPA before you sign the lease.
- Equipment. Dental equipment is generally eligible for Section 179 expensing. For tax years beginning in 2026, the federal limit is $2,560,000, reduced dollar for dollar once qualifying purchases exceed $4,090,000 [2]. 100% bonus depreciation is now permanent for qualified property acquired and placed in service after January 19, 2025 [3].
- California. Per the FTB's instructions for 2025 tax years, California limits Section 179 to $25,000, phasing out above $200,000 of purchases, and does not follow federal bonus depreciation [4]. Other states have their own rules.
Faster depreciation is mostly a timing benefit. It lowers taxes now and leaves less basis to depreciate later. It is a reason to plan, not a reason to buy. The Section 179 calculator shows the federal math for illustration.
What should you know about medical office condos?
A medical office condo is a suite you own inside a building with shared common areas, run by an owners' association. It can work well for a practice that wants equity without the cost and time of land and a shell. It also comes with three things a lease or a building doesn't.
- Association dues and assessments. Dues pay for common areas, shared systems and the building's insurance and upkeep. Ask for the budget, the reserve study and the history of special assessments. A thin reserve today is a special assessment later.
- CC&Rs and rules. The covenants, conditions and restrictions can limit use, signage, hours, roof equipment and changes to plumbing and walls. A dental suite needs plumbing to every operatory, a mechanical room for the compressor and vacuum, and often X-ray shielding. Confirm in writing that the rules allow all of it. Your attorney should review the CC&Rs before you sign.
- Resale and exit. The buyers for a dental-ready suite are a narrow group. When you sell the practice, you may sell the unit with it, lease it to the buyer, or hold it as an investment. Plan which one before you buy. Ask your lender early whether it finances medical condos and on what terms.
Price a condo the same way as the other two paths: unit price and its loan, build-out and its loan, dues, taxes and insurance. Then run the same required production test.
How do you finance owning a dental office?
The SBA has two programs that commonly come up for owner-occupied real estate. SBA 504 loans run from $25,000 to $5.5 million, with 25-year terms for real estate and a borrower contribution of at least 10% of project cost. They are for real estate and major fixed assets, not working capital [5]. SBA 7(a) loans go up to $5 million, with terms up to 25 years for real estate and generally up to 10 years for equipment and working capital [5].
Rates move. In the Federal Reserve's October 30, 2026 H.15 release, the bank prime rate was 7.00% [7]. The SBA's maximum variable rate on a 7(a) loan over $350,000 is prime plus 3.0% [6], about 10.0% at that prime rate. That is a ceiling, not a typical rate. Dental-focused lenders also offer conventional practice and real estate loans with their own terms. The 8.25% in the Alithos model is a planning assumption between those two markers, not a quote. The dental practice financing guide covers lenders, terms and what goes in a loan package.
I'm not a lender, broker or CPA, and I don't place loans. What I do is build the projections a lender will ask for, so you walk in knowing your own coverage ratio.
When does each path win?
Lease wins when
- You are opening your first practice and want to protect working capital.
- Your production history is short, so coverage is thin.
- A good suite exists now in the right location, ideally second-generation dental or medical space.
- You want the option to move or expand in 5 to 10 years.
Condo wins when
- You want equity but not land, a shell and an 18-24 month timeline.
- The CC&Rs allow dental use and the reserves are healthy.
- The unit plus build-out passes the required production test with room to spare.
Build wins when
- You have an established practice with steady production and strong coverage.
- Nothing suitable exists to lease or buy in your market.
- You plan to stay for the long run and can wait 18 to 24 months.
- The required production increase is well inside what the practice already does. See the guide to building a dental office for the full sequence.
Model all three paths before touring anything. It costs a few weeks and buys you the one thing no broker, dealer or lender can sell you: the ability to walk away from the wrong deal. The three-path model is part of the Budget Plan ($7,500-$10,000 flat fee, scope set in writing), built on your production, not a hypothetical. If you only need a go / no-go first, the Feasibility Check is $2,500 flat and credits toward the Budget Plan. I'm not a contractor, architect, broker or attorney, and I'm paid by you alone.
Build vs lease FAQ
Is it better to buy or lease a dental office?
Neither is better in general. Leasing needs the least capital and opens fastest. Buying or building adds control and equity but costs more and takes longer. The better choice is the path whose required production increase your practice can carry while keeping debt-service coverage near the 1.25x many lenders look for.
How much more does it cost to build than to lease?
In the Alithos planning model, a 5-operatory office at standard finish costs about $933,500 in leased space and about $1,452,000 built ground-up, before land. That is about $518,500 more, or about $5,030 more per month on a 15-year loan at 8.25%. Land, rent and owner costs come on top and depend on your market.
What is a medical office condo?
It is a suite you own inside a building with shared common areas, governed by an owners' association and its CC&Rs. You build equity without buying land, but you pay association dues, may face special assessments, and need the rules to allow dental use, plumbing and equipment.
Can I lease first and buy a building later?
Yes, and it is a common sequence. Leasing first lets the practice build a production history, which strengthens a later loan application. Negotiate renewal options and a reasonable exit in the lease, and start planning a purchase well ahead of the lease end.
How long does building take compared with leasing?
I plan 18 to 24 months for a ground-up build, starting from the land search. A lease build-out is usually much faster when a suitable suite is available, but I still recommend starting the space search a year or more before you need keys.
Can I deduct leasehold improvements faster than a building?
Often, yes. Under federal rules a nonresidential building is generally depreciated over 39 years, while qualified improvement property is 15-year property that may qualify for Section 179 or bonus depreciation. Who owns the improvements and your state's rules matter. This is education, not tax advice, so confirm with your CPA.
Sources
- Internal Revenue Service, Publication 946, How to Depreciate Property (2025). irs.gov
- Internal Revenue Service, Rev. Proc. 2025-32 (2025). irs.gov
- Internal Revenue Service, Notice 2026-11, Interim Guidance on Additional First Year Depreciation (2026). irs.gov
- California Franchise Tax Board, 2025 Instructions for Form FTB 3885A (2025). ftb.ca.gov
- U.S. Small Business Administration, Terms, conditions, and eligibility (accessed 2026). sba.gov
- U.S. Small Business Administration, 7(a) loans (accessed 2026). sba.gov
- Board of Governors of the Federal Reserve System, H.15 Selected Interest Rates (2026-10-30). federalreserve.gov
- ADA News, "Ask the Expert: How much debt is too much when buying a dental practice?" (2026). adanews.ada.org
- JLL, Medical outpatient buildings ready for active 2026 despite policy headwinds (2026). jll.com
- Dental & Medical Counsel (A. Oromchian), A Dental Lawyer's Guide to Your Dental Office Build-Out (2026). dmcounsel.com
- ADA Health Policy Institute, Dental practice research, 2025 Survey of Dental Practice (2025). ada.org
- Alithos Advisory, cost estimator and benchmark table, planning assumptions (2026). alithos.co/#benchmark
Rent, land, owner-cost and production figures in the worked example are example inputs for illustration, not market data or a quote.
This post is general education about dental office real estate decisions, not legal, tax, real estate or investment advice. How we research and update this page.
For a first pass, run the cost estimator with the lease and ground-up paths side by side. When you want all three columns built on your production, book a free Project Fit Call.