I hold a Texas real estate license and run a commercial brokerage alongside this firm, so I read these deals twice — once as a practice sale, once as real estate. Most buyers read them once, and the second reading is where the money hides.
In most practice sales the seller owns the building. That turns one negotiation into two: what you pay for the practice, and what you pay to occupy it. Sometimes there’s a third wrinkle — the seller executed a sale leaseback years ago and you inherit whatever lease came out of it.
Buyers arrive braced for the first negotiation and show up to the second with nothing, treating rent like the utility bill — a number that arrives rather than one you set. It isn’t. Rent is a term of your purchase, and over the life of a lease it’s usually the most expensive one in the file.
The Rent Number Is Part of the Purchase Price:
Here’s the move that costs first-time buyers the most, and it usually isn’t sharp practice — a retiring seller wants income, not a lump sum taxed in one year. Either way the effect on you is identical. Write the lease above market and the practice’s earnings fall by the overage, so it sells for less and you feel like you caught a break. You didn’t. You took a discount once and agreed to pay the difference every month for twenty years.
What That Looks Like in Dollars:
Take a 4,000-square-foot building where market rent runs $22 a foot. The seller’s lease says $30 — $32,000 a year of overage. Practices trade on earnings, so that $32,000 comes off the price once — call it $160,000 at a five-times multiple. Over a twenty-year lease the same $32,000 costs you $640,000. The seller also holds a building that appraises higher, because its income is higher.
You got $160,000 today. He got the rest, spread out. Even discounted back to present value the gap is wide, which is why buying a veterinary practice without pricing the lease is half an analysis — the two numbers move against each other, and only one shows up in the listing.
So get an independent opinion of market rent before you counter — not the seller’s, not the listing’s. Then check whether the rent in the P&L matches the lease you’re handed.
The Seller Usually Keeps the Building:
Usually he keeps it and leases it to you — the arrangement above. Sometimes you buy both: two loans, two closings, one decision. Occasionally you inherit the lease from an earlier sale leaseback, where he sold to an investor and stayed on as tenant. You aren’t executing that deal, you’re assuming its terms — negotiated by someone whose interests weren’t yours.
The Mortgage Often Beats the Rent:
This is where how to buy commercial real estate stops resembling the practice loan. The building goes on separate paper with a different shape.
SBA 504 financing exists for owner-occupied commercial property: roughly 50% from a bank, 40% from a Certified Development Company at a long-fixed rate, 10% from you. Terms run to 25 years, and you must occupy at least 51%. The practice loan amortizes over ten.
Longer amortization and a fixed rate on the largest piece mean the mortgage often runs below the rent it replaces. I’ve watched buyers rule out the real estate on the down payment alone and never run the monthly. Run it — the building is often the cheaper half of the deal and the only part that pays you back.
When the Seller Is Also Your Landlord:
Leasing from the man who just sold you his practice feels collegial, right up until you’re negotiating renewals with his children. Put it in writing now. The terms that decide your outcome are unglamorous: initial term, renewal options you control, escalations, and the one everyone forgets — assignment rights.
Treat commercial lease negotiation as part of the acquisition, not paperwork that follows it.
Twenty Years Out, You’re the Seller:
That assignment clause is your exit. If you can’t hand the lease to your own buyer, you’ve capped what the practice is worth before owning it a day. Own the building and the arithmetic reverses: sell the practice to a young associate and keep the building or sell both and collect twice. Every retiring seller you’ll negotiate against made that choice decades ago.
The Problems Vet Buildings Hide:
Vet buildings hide expensive problems: aging HVAC, radiology shielding that may predate current state requirements, kennel drainage, accessibility. On that last one, the Department of Justice is explicit: landlord and tenant are both public accommodations, both fully liable under Title III. A lease can allocate who pays. It doesn’t move your liability.
Frequently Asked Questions:
Q1. How do I know if the rent is above market?
A commercial broker or appraiser can tell you in days. Cheapest diligence you’ll buy.
Q2. Do I need two down payments?
Essentially yes — roughly 10% on each. Budget both before you fall for a listing.
Q3. The seller won’t sell the building. Is that a dealbreaker?
No. It makes the lease your negotiation instead.
Final Thoughts:
The building isn’t a footnote to veterinary practice ownership — it’s half the transaction and most of the fixed cost. Firms handling veterinary practice transitions model both, and buyer representation worth paying for reads the lease as closely as the tax returns. Price the rent before you price the practice. In the other order you’ll never see what it cost you.
