Should You Sell the Building Too? Real Estate Strategies for Dental Practice Owners in the Southeast
You've spent 20 years building a thriving dental practice in Marietta. The equipment is paid off, your patient base is solid, and you're finally ready to think about your exit strategy. Then someone asks the question that stops you cold: "What are you doing with the building?"
If you own the real estate where your practice operates, this isn't just a side note to your transition plan. The decision about your building can significantly impact both the sale price you receive and your long-term financial picture. For dentists across Georgia, Tennessee, Alabama, and the Florida Panhandle, this choice deserves the same attention you'd give to any major treatment plan.
Here's the thing: there's no universal right answer. What works for a dentist in Nashville with a standalone building might not make sense for someone leasing space in a Birmingham medical plaza. Let's break down your three main options and what each one really means for your wallet and your future.
The All-In Approach: Selling Your Practice and Real Estate Together
Selling everything at once feels straightforward. One buyer, one transaction, one closing date. You hand over the keys to both the practice and the building, then head off into the sunset.
The upside: You walk away completely. No more property taxes, no maintenance calls about the HVAC system, no concerns about finding a tenant if your buyer doesn't work out. For many years, this was the standard approach when most dental practices were purchased by individual buyers.
The downside: Here's where it gets tricky. Most DSOs and many modern buyers don't want to purchase real estate because of their financing structures and investment mandates. By insisting on selling both together, you're limiting your buyer pool. That single buyer who wants both your practice and your building? They might exist, but they're harder to find.
The financial picture gets complicated too. Remember all that depreciation you've been taking on the building? When you sell, you'll face depreciation recapture, potentially turning a much larger portion of your profit into taxable income. If you bought the building for $500,000, took $250,000 in depreciation, and now sell it for $1 million, you're looking at capital gains on $750,000, not $500,000.
This approach works best when you want simplicity above all else, or when your practice and building are so intertwined that separating them doesn't make sense. Maybe you built a custom facility that would be tough to repurpose, or you're in a small market where the next dentist really does want both pieces.
Playing Landlord: Keeping the Building and Collecting Rent
What if you sell the practice but hold onto the real estate? Suddenly, you're a landlord with what should be a reliable tenant.
The appeal is obvious. Selling your property allows for a full exit, but leasing it out means you retain ownership and generate passive income. That monthly rent check keeps rolling in while someone else handles the daily stress of running a dental practice. You've also got a valuable asset that might continue appreciating, especially in growing areas across the Southeast.
But "passive income" isn't always as passive as it sounds. Air conditioning units fail. Roofs leak. Parking lots need resurfacing. Even with a triple net lease where the tenant covers most expenses, you're still the one getting the call when something major breaks down. And if your buyer struggles or closes the practice, you're stuck finding a new tenant for a specialized dental space.
According to industry research on practice real estate owners, more than 80% of practice sellers divest the practice's real estate within four years of selling the practice, with most not originally considering that option. That's a telling statistic. Many dentists think they want to be landlords until they actually experience it.
This strategy makes the most sense when you're genuinely interested in real estate investing, you've got a solid buyer who you trust to be a reliable tenant, and you're not ready to completely cash out. The lease terms matter tremendously here. Commercial real estate leases commonly span 10 to 15 or even 20 years, providing the long-term stability that both DSO investors and real estate investors look for. Your buyer will likely need at least a 5-year term to secure financing.
Before you go this route, talk with DDS Match South about structuring a lease that protects you while making your practice attractive to buyers. Getting those terms right from the start prevents headaches later.
The Sale-Leaseback Option: Best of Both Worlds?
Here's a strategy that's gained serious traction in recent years: sale-leaseback arrangements. In this approach, the property owner sells the real estate and receives cash at closing while the practice continues operating as a tenant under a long-term lease.
Think of it this way. You sell the building to a real estate investor or specialized fund, pocket the cash, but immediately lease it back for your practice. Then, when you sell the practice itself (whether that's the next day or in a few years), your buyer steps into an already-established lease with clear terms.
Why DSOs and private buyers like this: They get predictable occupancy costs without tying up capital in real estate. DSOs have become the primary acquirers of dental practices, but because of bank covenants and private equity investor mandates, buying real estate is not in the scope of what they do. A clean lease arrangement solves that problem.
Why sellers like this: You access the equity in your building right now rather than waiting until you're ready to fully retire. There are significant tax advantages because dentists can roll equity into real estate funds, and that equity is not taxed if not received as cash. You're also separating two major transactions, which can actually maximize the value of both.
According to industry data, there were $16.9 billion in sale-leaseback transactions in 2023, with $1.4 billion in medical real estate. This isn't some experimental strategy anymore. It's becoming standard practice.
The catch? There's the psychological concern some dentists have about no longer owning their practice and real estate. But as one expert put it, Coca-Cola doesn't own the buildings where they bottle soda. The question is whether ownership of the building is actually important to operating your practice, or if it's just what you're used to.
For this to work well, you need the right lease structure. The gold standard lease structure in commercial real estate is the triple net (NNN) where the tenant pays for all expenses to operate the property, including property taxes, building insurance, and common area maintenance. The lease should also include modest annual increases and a long enough term to be attractive to real estate investors.
Tax Moves That Can Save You Serious Money
Let's talk about two tax strategies that come up when you sell dental practice and real estate Georgia Tennessee dentists should understand.
The 1031 Exchange: This lets you defer capital gains taxes by rolling the proceeds from your building sale into another investment property. Section 1031 exchanges are a powerful way to defer or in some cases eliminate tax liability. The rules are strict though. You've got 45 days to identify a replacement property and 180 days to close on it. The replacement property also needs to be equal or greater value, and you can't touch the proceeds during the exchange.
This can work beautifully if you're selling your Chattanooga practice but want to buy a rental property near your lake house. It doesn't help if you want to use that cash for retirement expenses right away.
Depreciation Recapture: We mentioned this earlier, but it's worth repeating. The depreciation you've taken against the building all these years has reduced your tax basis. When you sell, the IRS requires depreciation recapture, which means paying taxes on those deductions. Working with a tax advisor who understands dental practice transitions can help you structure the sale to minimize this impact.
The timing of when you sell the real estate relative to selling the practice can significantly affect your tax bill. This is where planning three to five years ahead of your transition really pays off.
Making Your Decision
So which path should you take? Here's a framework that might help:
Sell everything together if: You want complete simplicity, you're in a market where buyers typically want buildings, or your facility is uniquely suited to dental use and wouldn't easily convert to other purposes.
Keep the building as landlord if: You're genuinely interested in real estate investing, you have a trustworthy buyer who'll be a good tenant, and you want ongoing income but don't need the full cash out immediately.
Consider a sale-leaseback if: You're selling to a DSO or large group practice, you want to access your real estate equity now, or you're planning ahead and want to separate these transactions for maximum value.
The dentists who get this right are the ones who start planning early. DDS Match South works with practice owners across Georgia, Tennessee, Alabama, and the Florida Panhandle to think through these options well before listing your practice. Having that real estate strategy nailed down before you go to market makes the whole process smoother and often results in better offers.
Your building represents decades of equity and value. Take the time to handle this piece right, because the difference between strategies could easily mean hundreds of thousands of dollars in your pocket and your overall peace of mind heading into retirement.
Frequently Asked Questions
Can I sell my dental practice if I'm still paying off the building mortgage?
Yes, but you'll need to coordinate the payoff with the sale. Most buyers will want you to either pay off the mortgage from the sale proceeds or structure the transaction so the building transfers with a clean title. Your broker and attorney can help structure this so everything closes smoothly on the same day.
How long does a sale-leaseback lease typically last?
Most commercial real estate leases span 10 to 15 years, or even 20 years in some cases. Real estate investors need that long-term stability to make the numbers work, and practice buyers need to know the location is secure. If you're considering a sale-leaseback before selling your practice, make sure to build in enough time between when you set up the lease and when you plan to sell.
What if my practice is in a standalone building I built specifically for dentistry?
Specialized buildings can actually work well for sale-leaseback arrangements because they're purpose-built for dental use. Real estate investors who focus on medical and dental properties actively seek these out. The key is having a strong lease with a creditworthy tenant. Your unique building isn't necessarily a drawback as long as there's a solid operator in place.
Should I tell potential practice buyers about my real estate plans upfront?
Absolutely. Surprises about leases can derail deals or significantly alter a practice's value. Buyers want to know from the start whether you're selling the building, what the lease terms will be, or how the real estate situation will work. Being transparent prevents last-minute complications that kill deals.
Is it better to use a 1031 exchange or just pay the capital gains tax?
This depends entirely on your situation. If you have plans for the money that would generate better returns than another real estate investment, paying the tax might make sense. If you were going to buy real estate anyway, the 1031 exchange defers a huge tax bill. Talk with a CPA who understands dental practice transitions to run the numbers for your specific circumstances.
Can I sell the building to a family member and lease it back?
You can, but be careful. The IRS scrutinizes related-party transactions to make sure they're conducted at fair market value. You'll want proper valuations and arms-length lease terms to avoid tax complications. Also, if you later sell your practice to someone who needs to assume that lease, having a family member as landlord can complicate the transaction.
DDS Match South is here to assist you in selling your dental practice.
We can outline the exact steps you will need to take to sell your dental practice. Request a Complimentary Dental Practice Transition Assessment today to get started. We help dentists in Alabama, Georgia, Tennessee, and the Florida Panhandle sell their dental practices.
We assist with: