Lease renewals are the most common real estate transaction for healthcare providers. Unfortunately, they’re also the type of transaction where optometrists lose the most money. How can practice owners flip the odds to their favor and save money?
In this episode, Bethany is joined by Colin Carr, founder of CARR Realty, the nation’s leading provider of real estate services for healthcare professionals, as they dive into the critical topic of lease renewals for optometry practices.
Their enlightening discussion reveals a common pitfall: many optometrists unknowingly lose out on hundreds of thousands of dollars by not being proactive in the lease renewal process. As a seasoned expert in the medical real estate landscape, Colin reveals strategies that the landlords don’t want practice owners to know, including: starting negotiations at least 12 months in advance, using a healthcare commercial real estate agent, and knowing your market options, whether you plan to stay or relocate. Carr emphasizes that renegotiating, even with an existing renewal option, can yield significant savings and better terms.
This episode is a wealth of information for practice owners looking to get the upper hand and turn the tedious process of lease renewal into a win-win for their office space and their balance sheet.
November 22, 2021
Read the Transcription
Becca Starks: We have the ear with the students to hear what they’re looking for. They’re very, very few students that we’re working with, with the class of 2023 that will even consider an opportunity that is not private practice.
Dr. Bethany Fishbein: Hey, I am Bethany Fishbein. I am the CEO of The Power Practice and Host of The Power Hour Optometry Podcast. And I just want to first congratulate all of the new optometrists graduating this week from the optometry schools across the country. It’s such an exciting time. It doesn’t feel like that long ago since I and my classmates at New England College of Optometry in 1997 graduated. It goes fast. It’s really an exciting time. So congratulations, first of all, and this show is inspired by and dedicated to you and all of the people that you are hoping will hire you. Once you get your licenses and get out there into the world. So I’ve invited a guest, I have Becca Starks, Becca handles Enterprise Accounts and Operations for KMK Careers. And she’s here to help me sort out some of the things that today’s optometry students are looking for, and help educate some of the optometrists who are looking to hire young optometrists about misconceptions they may have or differing perceptions of this graduating class. So, Becca, thanks for doing this your second podcast ever. That’s awesome.
Becca Starks: Yes, thank you for having me. This is exciting.
Dr. Bethany Fishbein: Yeah, thank you. It’s an interesting time because we work with mostly established optometric practice owners. So most of the people that I’m speaking to day to day are employers of young optometrists, and they have this vision of what today’s graduates are like, and then I get the opportunity to speak with optometry students and recent grads and they’re not necessarily like that perception at all. So hopefully, you can help us bridge the gap a little bit.
Becca Starks: Yeah, absolutely.
Dr.Bethany Fishbein: So, talk about yourself for a minute here. I want you to just talk about KMK and KMK Careers because when I want to data on students, I knew you were the one to go to. And so I want all of my listeners to understand your involvement with young optometrists today.
Becca Starks: Yeah, absolutely. So KMK for those that don’t know KMK’s foundation is the KMK board review, which was started 18 years ago by Dr. Kyle Cheatham. And now fast forward 18 years we are inside of all of the 23 optometry schools nationwide. We have a team of optometrist instructors that traveled to all of the schools and we have a relationship with both third and fourth-year optometry students and 98, This is a big number to remember 98% of optometry students utilize KMK to pass their boards. So essentially we have a relationship with almost every single optometry student nationwide from the board’s perspective. And so we now have a new division of KMK specifically on careers which is just a natural extension of supporting those same students and finding their first career.
Dr.Bethany Fishbein: So you’re initially talking to these students when they’re students studying for boards. And then they hopefully pass boards and you know, move on and take more boards and pass those and move on. So what are the services that you’re providing for these students once they’ve graduated as doctors?
Becca Starks: Yeah, so it’s really fun. Personally, I am mostly an employee you’re facing so those that are looking for these candidates. However, we have a team of career advisors and all day long, they’re the luckiest ones in the world. They get to speak to these upcoming grads. So right now they are around the clock talking to those that are about to graduate here and a couple of weeks or maybe have graduated just recently. And uncovering what they’re looking for in a practice is really it’s a one-on-one relationship, so it’s totally free to students. They sign up to get a career advisor. They have calls with that career advisor to uncover what are they looking for what type of practice is it specific specialties, just anything that may be the true motivating factor as to why they want to go to a certain practice. And then essentially we play matchmaker so the career advisors speak to students all day long. I speak to employers all day long, and then we come together and get to build a bridge between the two and hopefully connect great candidates with a great opportunity.
Dr.Bethany Fishbein: Maybe it’ll be the next Netflix show after Indian matchmaking, Jewish matchmaking. It’ll be optometric career matchmaking. And be a celebrity.
Becca Starks: I think some of us would watch that, at least your listeners would probably enjoy that.
Dr.Bethany Fishbein: My husband and I would watch it so
Becca Starks: same.
Dr.Bethany Fishbein: So I mean, you’ve got a line of sight into exactly who today’s optometrists or today’s graduating class, today’s brand new optometrists are, can you give some facts and figures of what that class looks like?
Becca Starks: Yeah, so essentially, from a demographic perspective, it’s highly female. The data is showing 70% female and 30% Male.
Dr.Bethany Fishbein: 70?
Becca Starks: 70 Percent.
Dr.Bethany Fishbein: Wow.
Becca Starks: Yes. And there’s information I believe you are going to be able to put in the show notes. But there is a really robust report. I believe it’s lots and lots of pages. I don’t remember how many but there are highlights within that on pages nine and 10 that give a really good but really quick summary of demographics of this class, within gender within race. There’s even financial information about how many needed to have financial aid, that sort of thing, and some really detailed information even about by school breakdown.
Dr.Bethany Fishbein: Are you able to roll through some of the things in there that kind of stood out to you?
Becca Starks: So the biggest thing that stands out to me is female and how as you it shows kind of year over year how that transition has changed from much more female than male as it was in the past. Same thing with race, I believe I don’t remember how many years ago it was but just not too long ago. It was predominantly white for professionals graduating and now that’s shifted to highly other races, whether it’s Asian or black or other races that are included in that.
Dr.Bethany Fishbein: And what about the financial piece? Because I feel like that’s such a big topic for new doctors. Is this need to pay back student loans? Do you have any stats on the amount of debt that students are graduating with?
Becca Starks: Yeah, so the report itself shows 85% of students are utilizing some type of support financial aid, loans, and the average for a graduate right now graduating is about $200,000 in debt. So definitely it is.
Dr.Bethany Fishbein: That’s just from optometry school or that’s including undergrad debt?
Becca Starks: That’s actually a good question. We just get the stat of 200,000 and I assumed it was just optometry school. But that’s a good question.
Dr.Bethany Fishbein: So young, female, and any change in like age demographic? Or is it typically right out of college a year or two out of college starting into Optometry?
Becca Starks: Yeah, So typically, it is kind of a typical route straight out of undergrad and to optometry school. There is about of the 16-1700 graduates there are about 150 of those that are considered you know, like other avenues whether that would be part-time or returning back in at a later point in time.
Dr.Bethany Fishbein: Okay, so out of 1500 you’re talking about? Very typically, right? 1000 young, female, probably non-white doctors.
Becca Starks: Yeah.
Dr.Bethany Fishbein: If you had to say this is what’s typical. This is the majority.
Becca Starks: Yeah.
Dr.Bethany Fishbein: With debt?
Becca Starks: Yes. A lot of it.
Dr.Bethany Fishbein: Okay. So, when you talk to this typical doctor and are getting into the field of matching into a career of their dreams, what are they telling you that they want?
Becca Starks: Yeah. So it’s been interesting to learn that so the things that I came into this thinking people would want my background was actually at LinkedIn for five years before coming on to help launch this division of KMK and I thought it would be very different. I would think pay would exceed everything else. But, interestingly, location is the top deciding factor for these new graduates in determining which practice they want. Obviously, that is the hardest answer because no one can do anything about the location of their practice. But we can touch on this later. Kind of some ideas and tips for those to try to recruit folks into harder locations but definitely the location. Again, before and above pay even this work-life balance coming into play that is much more of a topic. Then I think it has been in years past. Not necessarily meaning, Hey, I want to come in and I want to never work. But this generation is much more just passionate about having that work-life balance of the work to live not live to work mentality. And so location, work-life balance, obviously pay, and structuring pay in a way that is understood to the candidate as well too. So being very upfront about what that pay is so that they know before even applying and putting that in a way that they understand what they actually can make because sometimes it can be hard with percent of production, knowing what that means.
Dr.Bethany Fishbein: So let’s go into those a little bit more and I want to just go back one to work-life balance because I think that’s probably the biggest misunderstanding between a doc maybe in their 50s and a doc in their 20s. This idea of working to live instead of living to work and it’s respectable and it’s necessary and mental health is important and it’s and life has to work for you. But these older docs, that was not their world. And so when I hear it, it’s complaints. They won’t work weekends, they don’t want to put in 40 hours. They’re asking for a four-day workweek. They’re like it’s coming across as we’re lazy. We’re not dedicated to the practice. We don’t want to be here we’re not going to work as hard as you and it. It creates a disconnect from the start like somebody interviewing, who says I don’t want to work every weekend. All of a sudden has all these judgments thrown on them that they probably don’t deserve. Do you see that with the docs that you’re talking to and you’re matching?
Becca Starks: Oh, absolutely. Yeah, it’s the same thing I hear to have. You know, that’s typically the demographic of employers that I’m talking to all day long to have, you know, they came out and maybe cold started or they came out and bought a practice and they’ve been doing it for 20-30 years and like. What?
Dr.Bethany Fishbein: Right and they remember, or maybe they’re still working 70 hours a week and they’re there, you know, every day in the practice and their day off there when the cleaning themselves because that’s what the owners do. How do you coach of 50-something and 60-something-year-old practice owners into understanding that it’s not laziness and it’s not to they don’t want to work?
Becca Starks: Yeah, so that is it is a big misconception of the students that it is laziness, and specifically, most students are expecting to work at least one to two Saturdays a month. So it’s not that they’re coming in and saying I only want four-day workweeks, and I’ll never work a weekend. They are expecting a true full work week and one or two Saturdays per month. To your question about how to coach an owner in that situation. I think it’s just taking a step back and looking really high level at your practice as a business and I’ve had this conversation with many owners of I don’t know why we are open Saturdays, honestly, we’ve just always done it and so determined are we doing this because it’s just always been done or when determining this because it is a true business need. And so same thing with later hours or that sort of thing. If it is a true business need 100% voicing that to a candidate that’s a friend and that’s that’s great, but there may be situations where again, it’s just we’re doing this because it’s been done forever. And actually, our patients wouldn’t mind if we didn’t have a late night or we had a late night instead of a Saturday or vice versa.
Dr.Bethany Fishbein: Do you think docs have like a little bit of that? It’s like that hazy mentality? Like I went through it I put in my time therefore you you need to.
Becca Starks: I think it could be a little of that. Me not being an optometrist. I have to tread lightly because I have not earned my dues. But in the conversations that I’ve had, I think it is a little bit of that at least.
Dr.Bethany Fishbein: Yeah, I worked weekends for 23 years. I’ve never missed it Saturday. I’ve never called out sick. And now I’m going to change my whole practice because this 24-year-old kid doesn’t want to work, like there’s that so what are the students are the new grads thinking about these practice owners, doctors who are in a different demographic from them because there’s got to be misconceptions going that way also.
Becca Starks: Yeah, I don’t get to hear a ton of the misconceptions from the student side. But I think there’s just both sides can teach each other something right like maybe that student can come in and show this business owner who’s been doing this forever, like, wow, I could totally do this differently. And, wow, I’m kind of relieved that you came in and brought up the idea of work-life balance because I as the business owner, really needed that, and wow, my life is different because of it and vice versa. There’s obviously so much that the practice owner can teach and pour into these new grad optometrists. But as far as misconceptions from them, I haven’t heard any to be honest.
Dr.Bethany Fishbein: I hear that they look at a private practice. They think they’re not going to be paid as much. So they’re thinking that not necessarily that the owner is cheap, but that it’s not. It’s not as profitable, therefore there’s not as much money in it for them. You didn’t mention the mode of practice. You talked about location, work-life balance, and pay. Are students coming out looking for commercial opportunities? Are they looking for private practice or looking for MD offices? I mean, obviously, students are looking for each of those, but what are you seeing most frequently?
Becca Starks: Yeah, great question. So motor practice is very important and private practice remains. Top of the list for I’d say close to 90% of the new grads.
Dr.Bethany Fishbein: Serious?
Becca Starks: Yeah, because I hear the same thing. I hear a lot from private practice owners that say that almost come to the call with me very nervous, like “Becca, what’s going on? Why might all the new grads want private equity and why do they want retail? And can I really afford to hire them? Because it sounds like they’re throwing all the money in the world with them.” And then it’s interesting because we have that ear with the students to hear what they’re looking for. They’re very, very few students that we’re working with, with the class of 2023 that will even consider an opportunity that is not private practice. So there’s just a handful of folks that have said all maybe look at private equity or retail, but the vast majority say I truly, truly, truly want to private practice and there’s even a really good group that says, “Not only do I only one a private practice, but I already know that someday I want to partner slash buy this practice as well.”
Dr.Bethany Fishbein: Do you think though that it’s, it’s like self-selecting a little bit because retail opportunities are so easy to come by? That they might not even consider needing to work with a company like yours? They just need to go on Ziprecruiter, Indeed, and type in optometrists job and the geography they want and they have their choice. Are you talking to them before they’re job-seeking?
Becca Starks: Yeah, so we actually start a process with them a year before they graduate. And so we have them fill out a profile with us it looks just like a LinkedIn profile, but it’s specifically for KMK, and go in and select all of the different types of practices that they’re open to. And so, we have both from the data from what they input on their profile and then they all have a one-on-one call with a career advisor as well. And so that’s where those points come from, both in the data they enter and then the conversations they have with a career advisor.
Dr.Bethany Fishbein: And is that when a student should be starting their job search is early in fourth year?
Becca Starks: Yeah, so we were really surprised in the timeline as well that a lot of students start having conversations about the fall before they graduate. So this class of 2023 they were starting interviews, October timeframe, and then a lot of them were during their Christmas break, timeframe holiday break, going on visits to practice owners. And then as soon as the New Year transitioned over there were many that were in contract. So definitely, Fall time is like you can feel good. About yourself being ahead of the game, wintertime is still very safe, you still have a lot of opportunity to be reaching out to candidates, and then as we enter into more of the springtime, a lot of I’d say probably half if not more of those that we’re working with are 100% in contract ready to go.
Dr.Bethany Fishbein: When you start working with them. Is there any issue with students who are starting the search and still haven’t passed their boards or won’t have the credentials to work when they graduate?
Becca Starks: Yeah, Yep. There is information from ASCO also about passage rates. And it goes into detail even of school by school, but it essentially shows year over year the decrease in passage rates, and I think we’re at about 70% passage rate, right now. 73%. And so there’s a huge population of students that don’t pass typically it’s part one where the struggle is and so there are some students that will even graduate and still have not passed boards. And another misconception there is, “Oh, these students are lazy or they’re not understanding the information, and I don’t want those students because they won’t be good doctors”. And completely not true. Those are students that could either be not very good test takers. These are also the population that came into optometry school right in the heart of COVID. There are some that have just had really rough life events around the time that it is to take boards and so but they are all great people that will be great doctors, they simply just need to pass this test. Many of them have had really great GPAs some of them have other degrees that help them with the practice management side and so it’s just a matter of getting past that one test or many of them.
Dr.Bethany Fishbein: And how does, how did they navigate that with the job contract like, will an employer sign something with a student who hasn’t yet passed boards?
Becca Starks: Yes, we are running into that actually part one. Board scores were just released this past week. And it was a lot of that there was a lot of celebration and there was a lot of sadness around those that didn’t pass. And the good news is, I don’t know that I’ve come across a single employer partner that we work with that isn’t at least open to the idea of bringing on someone that’s graduated in kind of a super tech role. It’s kind of how we position it to practice under that optometrist owner until they graduate and we even have some that say, “Hey KMK I know that you, as an organization, do great at coaching them and helping them after they fail boards.” I will even invest in that side of the house to ensure that they can pass boards not only to show that, hey, I believe in you and the hardest time in your life student but also that gains them a really loyal employee that again, is going to be a great doctor has just had trouble taking this one test.
Dr.Bethany Fishbein: Coming in as a super tech though, obviously, they’re coming in at a lower pay scale and they would come in as an optometrist, and they have those student loans. So let’s talk about compensation of obviously it’s going to vary around the country and regionally and how many hours and all of that but what is it that a new OD is looking for as far as the ability to earn money?
Becca Starks: Yeah, good question. So, specifically with this new grad population, the way that I kind of coach, the employer partners that we work with private practice owners is, a lot of times they’ll come into the call and say why pay 16% of production, but with this new grad population, they aren’t able to really wrap their brains around what that is, you could have a $1.5 million, your practice and they still just don’t, they can’t really understand that. And so the recommendation that we give is to at least have some sort of salary and we have information and concrete data on specific areas of the nation. So by all means, if, if we can support you in any way with that, I’m happy to to make sure that you’re competitive, but having some type of salary listed up front is what’s going to entice these new grad population because they can wrap their brains around 140,000. They can’t necessarily wrap their brains around 16% of production. And so totally understand, then obviously the argument private practice owner, I hear you what’s going on in your head is. “Well, I need to motivate them to work hard. Like if I just give them a salary, then what’s the motivation to work hard”, and so there’s been kind of this really nice avenue that we’ve taken with a lot of partners that’s worked well in that advertising a salary a little higher than you probably would have normally, but then decreasing to a really low percent of production, so that there’s some salaries that’s there that’s enticing to a new grad, but a lower percent of production. So for the first year only, so year one higher salary and lower percent of production, and then having that shift for year two and year beyond your two to a lower salary, higher percent of production. And so what that does is again, entices this new grad to apply, and even want to learn more about your practice because there’s a salary, but that little bit of percent of production will get them to realize in their first year of working well. I’m doing the math, and if I would have went on the percent of production, I probably would have made more than my salary. This is making sense this is motivating me to work harder. And then again, you can even have it in the contract that upon year two that shifts to a lower salary that’s guaranteed and a higher percent of production. So as they’ve gotten their feet wet, they’ve learned they’ve been mentored that first year shifting then into percent of production.
Dr.Bethany Fishbein: So you’re coaching your doctors to do a salary plus a percent of production?
Becca Starks: Yeah, that’s pretty typical.
Dr.Bethany Fishbein: And what about benefits and stuff like that is that important? Yes, it is important. Is that something that a brand new grad is going to give enough importance to that it’s going to help them decide one place versus another?
Becca Starks: Yeah, such a good question. So I’ll give both sides just agree very important. I would say the majority of private practice owners that we’re working with are offering some sort of benefits, whatever that might look like. Some are very comprehensive, some are very “Hey, we will pay 50% of your medical and leave it at that.” But now that we are in this lane of there is competition from private equity and from retail. Those are just a no-brainer. In those avenues. And so to remain competitive from that regard. They will get a full package of 401K’s with matching with benefits with PTO, all of those things, if they’re considering a retailer or a private equity opportunity in comparison to your private practice opportunity. And so, again, I think most I talked to very few that say “Hey, I’m just percent of production and I don’t give any days off you just you if you’re here you make money if you’re not, you don’t but you can take whatever days you want type of thing”. I have a handful of those but for the most part, most private practices are offering the salary with percent of production, at least something towards medical, and then most do have a 401K whether there’s a match or not with that.
Dr.Bethany Fishbein: Are there other intangible benefits, other things that would make a practice more attractive?
Becca Starks: Yeah. So I think the thing that’s so such a great opportunity with all of the listeners that would have that are trying to hire than our private practice owners that have been doing this for years to a new grad specifically is mentorship. And so those that are willing to do that are excited about that. Well, maybe “Hey, I haven’t really even thought about that. But I’m gonna share over the last 20 years, I really have learned a lot that I could pour into this next upcoming generation”. And so being very vocal with that, even in a job description, or whatever it is that you’re creating, to entice candidates to come your way and some people put a really extensive plan behind, “Hey, we have a weekly meeting, and you get lunch hour with me every week and we will cover XYZ and some it’s kind of informal of just “Hey, I’m going to be with you I’m alongside you. You can call me when you want”, whatever that looks like, or even if you haven’t, some team members that are fairly recent grads, being able to vocalize that to have hey, we’ve got folks that I brought on board as new grads and couple years later looking them go and so the mentorship side is again that intangible free opportunity that I think a lot of people don’t even necessarily recognize they have the ability to give.
Dr.Bethany Fishbein: Is it mostly clinical mentorship they’re looking for? is it practice ownership? like when you say mentorship, what are they hoping to learn from you?
Becca Starks: Yeah, definitely medical at the top of that, but there are again, those those candidates that just know that they know that they want to be very involved in the practice management, the business side of the house. And so for those candidates that are interested in it, being willing to say “Hey, here’s I’ll show you all of our programs and all of our software and how I design the day and this is how I designed the business side of the house”, and so in those situations for folks that are interested in that side, I think it’s important to have just kind of an open door policy of “I’ll show you all that. I’ll show you that number. So I’ll let you in on this.”
Dr.Bethany Fishbein: So for practice in a particular geographic area, if you can get your salary and benefits close, but they don’t necessarily have to be higher. They just have to be within range and you can kind of check off all the other boxes. Is there a type of practice like heavy medical versus refractive versus specialty that people are looking for?
Becca Starks: Yeah, so definitely looking at highly medical. And then what I would also say is kind of another somewhat intangible, but if practice owners are open to new specialties that maybe you don’t have in your practice right now. But hey, if there’s somebody who comes in and is passionate about whatever it may be, and they want to bring that into my practice, that’s a really enticing thing for a candidate to really see themselves. They’re in the long haul of “Wow, I’m passionate about myopia management and this practice says, by all means bringing that on.” That’s such a great thing to be able to offer to a candidate and so definitely, medical and specialties are really where the candidates are wrapping their brains around of how do I see myself there.
Dr.Bethany Fishbein: And what if you’re in rural Wisconsin, where there’s just not a huge population of optometrists looking to settle? What’s the best way for a practice like that to set themselves up to find somebody to join because so many of those are great opportunities to become part of a community to ultimately partner buy a practice have a really low cost of living like it’s how do they make themselves attractive or show how attractive they are I guess I should say.
Becca Starks: Yeah, and I think that so often because I get the luxury of talking to these practice owners in some of these more rural areas. And every time I’m just like, Wow, if I could just record this and let all of these candidates see this owner care about the type of patients they get to see a lot of times it’s the smaller communities that because there’s not a nearby ophthalmology or another office like those are the most medically focused practices.
Dr.Bethany Fishbein: Absolutely.
Becca Starks: Yeah. And so, so often I feel better. Oh my gosh, if I could just package this up and get a candidate to truly wrap their head around it. So one of the things that we do on the candidate side is our current advisors do as soon as a student comes in and says, “I only want Miami in New York and LA”, we try to mentor as well and show your kind of cost of living and let’s truly take a look at this and let’s look at your lifestyle and look at
Dr.Bethany Fishbein: Miami, LA, how about rural Wisconsin?
Becca Starks: Right? Yep.
Dr.Bethany Fishbein: And consider Minnesota.
Becca Starks: Exactly. We play that game all day long. Yep. And then to the practice owners, a lot of what I tell them is, they’ll tell me I say they get to brag. So give me your brag book, when they come on as a partner to me, tell me what’s so great about your practice. And then they’re typically ready to end the call and I say, “Okay, based on your area, we also want you to brag on the geographic location just as much as the opportunity and so getting a candidate to truly understand what their life is going to be like, not just when they’re at work with you all day, but once they leave work, and what does this community look like and what can I do there? Is it great for hiking, is it great for the music scene, and the art scene? Is it great to raise a family and maybe I’m not thinking about that right now. But in the next couple of years, I will be.” And so I always say “Somewhere in your job description, however, you want to do it. It’s a post that you’re putting on to kind of an Indeed or an AOA. Having information, just typed information about your geographic area and what makes it so great. And then also, the other added thing you can do is you can always create videos.” Videos are I feel like that’s kind of how we’re all digesting content at this point. And especially this generation of these new grads, and so if you can even do a quick it doesn’t have to be professionally shot but videos of you just speaking informally, almost as if you’re speaking to a candidate who wouldn’t be right in front of you talking about again, envisioning their life there, the more that a practice owner can make a job description or job post about the candidate instead of themselves. The better that that’s going to relay to the candidates have just really getting to understand “Okay, this isn’t what I thought I was thinking Miami, but now I can kind of envision how my life could be in Wisconsin.”
Dr.Bethany Fishbein: That’s a really strong and valid point. Because when I think about a job ad, it’s all about what we need and what we want. We’re looking for an optometrist to work these hours to do this and when I’m interviewing candidates for Associate optometrist, but really for any position I’m always sensitive to an applicant, who all they’re telling me is what this job is going to do for them. Right. So I’m very critical of it as an employer when they’re like, I’m looking to build my clinical confidence in myopia. I’m looking into, you know, whatever. And I think what are you going to do for me? But in the ad, maybe it should be the other way off, Here’s what I’m going to do for you so that they’re interested and intrigued by the post enough to then come in and want to tell me what they are going to do for me so
Becca Starks: Absolutely
Dr.Bethany Fishbein: Cool.
Becca Starks: We even have one it’s a Power Practice member that wrote a personalized it looks just like a letter you would receive from your grandma in the mail and it was so different and so eye-catching and so engaging. It was truly just a personalized letter, Dear Candidate, and then it just spoke really informally like, Hey, I get it. Words are hard, school is hard, but here’s what it would be like living here. Imagine if you could leave work and go out and do this, this, and this and your two hours within this big city so you can go catch a basketball game and be back home at night. And so it was just very, again trying to get that candidate to envision their life not only with that practice but in that geographical location. And so that was an incredible example.
Dr.Bethany Fishbein: Did it work?
Becca Starks: We’ve gotten some interest. We don’t have anybody signed on yet, but it has enticed interest.
Dr.Bethany Fishbein: And talked about KMK a little bit again, just before we close. So if a practice owner is looking for an associate, they can reach out to you or how do they go about tapping into this database network matching service that you guys have?
Becca Starks: Yeah, absolutely. Yep. I would be the point of contact Becca Starks. And I’m sure you can put my email in the show notes, but it’s just Becca@kmkodcareers.com. And yeah, we typically just do a really informal introductory call and learn about the practice, learn about what they’re looking for. And then go over kind of our offerings. We’ve got two different offerings to choose from, just depending on what the practice owner is looking for. And then yeah, we just go from there. It’s really simple. It’s free to be in agreement with us and having us promote a practice. And so basically, we get that agreement going and then our current adviser starts promoting any of our partners that we’re working with. And then essentially once we have a student that is a great fit, we play the matchmaking game.
Dr.Bethany Fishbein: I love it. Thank you. I think this is valuable information for new grads to help them understand what they’re going out into and some of the misconceptions they might be facing. But hopefully, we did our part today to try and reduce some of those and really give today’s employers a more real picture of new grads who are looking for jobs. So thank you so much for taking the time to do this and give this service to all of the optometrists out there.
Becca Starks: Absolutely. My pleasure, Bethany. Thank you. So much.
Dr.Bethany Fishbein: Thank you
Read the Transcription
Colin Carr: The landlords have you locked into a lease. They’re going to assume you don’t know what you’re doing. You don’t have time to go to market. You haven’t hired a broker. So the chances of you overpaying by $200,000, $300,000 on a lease, that’s a whole different story.
Bethany Fishbein: Hi, I am Bethany Fishbein, CEO of The Power Practice, host of The Power Hour Optometry podcast. And as we get nearer to the end of the year, starting to talk about the top topics on people’s minds, we’ve talked about spending money. Today, hopefully the conversation will guide us into saving some money. My guest today is Colin Carr. He is the founder of Carr Realty. Thank you so much for being here and being willing to have this conversation.
Colin Carr: Absolutely. Thanks for having me.
Bethany Fishbein: My pleasure. So Colin, the area that I wanted to talk about specifically is lease renewals. I don’t know if that’s an exciting one for you, if that’s… It’s as exciting as talking about getting a new lease or a new property, but it certainly feels like it comes up more frequently. This is something you deal with all the time, right?
Colin Carr: Absolutely. I love the topic of lease renewals. Lease renewals are the most prevalent or common transaction for optometrists or for any healthcare provider for that matter. And I will say this as well. Lease renewals are the type of transaction where optometrists lose more money than any other transaction. It’s where they leave more money on the table than any other transaction. And then if you want to flip that coin over and hit the positive side, it’s also an area where they can capture a significant amount of savings. I’d say probably more savings than a traditional deal. So there’s a lot that can be won or lost. It’s the most common transaction. And it’s not much of a difference between winning or losing, but it does take a strategy to get there.
Bethany Fishbein: Just to kind of set up a timeline, if you’re in a space that you’re leasing and your intent is to stay in the same space, your desire is to stay in the same space, when should you start having this conversation?
Colin Carr: You want to have the conversation whether you want to stay or you want to leave. It’s the same timeline for a few reasons. So that timeline would be a minimum of 12 months in advance. And if you want to start it a little bit sooner, like 14, 16, 18 months in advance, that’s not too soon. And the reason that the timeline is the same is because you have to enter into the negotiation and the process. Number one, should have representation. Number two, you should know what your other options are, whether you want to stay or not. And then number three, your landlord cannot think or believe that you have no other options or that you are only going to stay.
If you go into the negotiation with that, we can break that down further so we don’t hit too many things at one time. But your landlord cannot think that you have no options or that you’re not willing to move or that you can’t move. Move. And so if you wait to your like a month or two out and then you do it or you go in there without representation or you don’t handle it properly, you are going to lose one or two hundred grand instantly.
Bethany Fishbein: So even if you have a lease that has like a renewal option, so, you know, when you sign it the first time and it gives you five years and then you can sign on for five more years and the terms are already outlined in there, is that still something that you have to be thinking about renegotiating or is that all set in stone at that point?
Colin Carr: OK, so that’s a great point. So let me let me break that down for anyone who maybe is listening and doesn’t understand that. So a lot of leases do have what we call a renewal option. There’s two types of renewal options. There’s one renewal option which says you have the right to renew your lease and that it basically just says that the terms will be negotiated in the future at what they call then market rents or competitive rents for that time. And there’s like parameters as far as how you determine what the lease rate will be. And the landlord usually tells you what it is. And there’s ways of checks and balances.
And then the other type of lease renewal is where there’s set terms saying, hey, you can renew for five years at a starting lease rate of your current rate plus three percent or whatever it is. And it just tells you what the rates are. You can do that. You can exercise that renewal option. The problem is those terms are very rarely as competitive as you could get if you just renegotiated and had a fresh negotiation. And the reason being is that very rarely do you see a renewal option that includes concepts or concessions like free rent or TI, tenant improvement allowance or renovation allowance or money to refresh your space, very rarely do you see it where the rent actually goes down. And it almost always increases above what you’re currently paying. And so there are times it’s not a never. There are times it’s a very small percentage where those terms are going to be great terms or good terms for you. And you can just accept that renewal option, give them notice, and that scenario, you just have to make sure that you do it inside the window. They usually say you can’t do it before a certain date, and you can’t do it after a certain date.
You usually got to do it within like six to nine months or no later than this. If that’s the case, that’s great. But in the vast majority of scenarios, I’d say like the 90 to 95% scenario, you can do better by renegotiating the lease, but you can get a lower lease rate, you can get money to renovate your space, you can get free rents, even on a lease renewal. And so what most people do is they just accept that renewal option, and they leave like 100, $200,000 on the table. They take a lease rate that’s above market by a couple of dollars per square foot, and they don’t know the difference. They think, well, I’ve been paying this the last couple of years. It seems like it’s fair. It works for me. But they don’t realize that if the space were to go vacant and they were to move out, the landlord would typically be leasing that at a several dollar per square foot reduction.
And so if you take a lower lease rate by a couple dollars a square foot, if you take two, three, four, five months of free rent, sign up for a new five, seven, or 10-year lease, if you take the money that you could have received to renovate the space that the landlord would give a new tenant, if they renew the lease, it adds up to $100,000, $200,000 like that. And so that’s where a lot of people just assume, I’m just going to accept the renewal option or sign it, or they don’t know what they’re doing, and they leave a ton of money on the table, and they end up overpaying. And that’s where the opportunity lies, and that’s where it’s also loss as well.
Bethany Fishbein: So how do you know? If you should do that, you said, okay, if it’s a great rate, it’s already really competitive, below market value, then you would just re-sign for the option. But we’re optometrists, is it looking at comparable properties? How do we even know?
Colin Carr: So that’s a great question. So not to use a cheesy analogy or something like that, but it’s like, how do you know if you need glasses? You go in and you have a test on, or you have tests on, and there’s very specific things you can do to tell. I mean, you probably know that already because you’re seeing things that are blurry or things aren’t working the way you want to. But let’s just say that there’s no way of knowing that until you go to the optometrist. They’re going to sit down with them, and they’re going to say, tell me what you see here. What do you see here? Let me look here. Let me blow on this. Let me put… I mean, you go through this process, and then they say, hey, look, yes, you’re nearsighted, you’re farsighted, you need this. And then they just make it very clear to you, and then they give you a game plan.
It’s the same thing in real estate. If you’re just guessing, this would be like the equivalent of me being like, yeah, I think this is my prescription, and you just go to Walgreens and grab something off the counter or the shelf. Yeah, that’ll probably work. You would say, hey, that’s probably not a good game plan. If we’re just guessing if it’s a good lease rate, or we think it works or whatever, it’s honestly, it’s the same thing. So the way that you know that is you hire an expert or professional that specializes in healthcare real estate, they will look at your current lease, and they will do a market analysis for you. And they’ll review your lease, they’ll review the additional costs that are getting passed through your lease, like the operating expenses, the reconciliations, additional charges.
And then they will go to market and they will say, listen, if you wanted to own real estate, you’ve got two options or four options or no options. If you wanted to relocate to a comparable property within a two, three mile radius, you’ve got four options that are in retail spaces, two that are in office. And they basically just do an evaluation for you. And then they can look at your current terms, and they can say you’re four or $5 a square foot above market. Or if your space were to go vacant, the landlord would be charging the next person the same rate, or they’d be charging them more, or they’d be charging them way less. And so they give you the data and the information to say, this is a good deal. This is a bad deal. This is an average deal. And then they can help point you in the direction of what you could capitalize on or capture.
Now, if they look at your terms, and they say, listen, you’re paying, let’s just use numbers, you’re paying $25 a square foot, and they’re marketing new space at 30 a square foot, because the market’s gone up significantly. And your renewal option’s at 25.50. Like they’ll tell you take that deal all day long. But again, that’s not going to happen probably more than 5% of the time. Typically, they look at it and they say, you’re paying 25 a square foot, you should be paying 22 a square foot. And if we do a renewal, we can get you money to renovate your space, we can get you, you know, maybe 50 to 80,000 to renovate, we can get you three, four months of free rent. So that might be another 20 $30,000 in free rent, we can renegotiate your annual increases down from 4% down to three.
And then they put it together for you and just say, hey, this is what I think we can accomplish. But we’ve got to have a game plan and a strategy versus just, you know, begging or bartering or bluffing. And so they start to point in the direction as far as here’s the game plan, here’s how we should go about doing it. You still make all the decisions, but they just give you information for what you want to do.
Bethany Fishbein: Even if you have no intention of moving or no interest like you want to stay in your current space, everything’s working, you like it just the way it is, you should still go through this exercise. Because if you want to stay in your current space, you want to pay less for that rather than paying more.
Colin Carr: Absolutely. I mean, this would be the equivalent of someone saying, I want to buy a house. And so great, that’s the priority. But what if someone’s offering you a 10% interest rate, and you could be getting one at six and a half percent, you’d say, well, of course, I’m going to figure that out. Of course, I’m going to shop that and there’s no way I’m going to pay 10% if I could pay six and a half percent. That’s what’s going on in a lot of these lease renewals, the decisions made, I’d like to stay in my space. And then they just sign off on this 10% equivalent interest rate. And they just get hammered on, you know, missing out on all these other savings and costs.
So knowing you want to stay or you’d prefer to stay, that’s great. There’s nothing wrong with that whatsoever. But you still have to go to the market to see how your current terms compare to other options. What would other landlords be willing to do for you if you were to relocate? And then if you don’t have that information, number one, you can’t measure your current deal, like you can’t stack it up against other deals, you don’t know where it ranks or how it compares. But then the second part is, you don’t have any leverage.
If your landlord gives you a proposal at $30 a square foot, and you say, well, I don’t want to pay that, would you go 28? They’re going to say, based upon what, like, why would I lower my lease rate? And if you can’t say, well, because I have three other options that I’ve already negotiated with. And these guys are each at 24 and ones at 25. And they’re going to give me this much money to build out. If you can’t come to the table with like factual information, then you’re going to be in a really tough place. And so again, it’s not much different than if you were to go buy like a brand new vehicle and let’s say it costs $70,000, probably going to go look at more than one to make sure that you couldn’t find it for 60. You probably don’t just walk in and just pull the trigger at the very first place, you probably do some due diligence.
It’s the same thing here. And again, I’m kind of dumbing it down to these pretty basic analogies, but nobody would just sign off on a 10% interest rate without knowing if that was a good or bad rate. People are signing off on these lease terms all the time, and they have no clue how it compares to the market. All that they have for information is what they’ve been paying, or what they’ve been getting charged. But that’s a really bad way to look at it because a lot of healthcare providers did not get the best terms possible when they signed the first lease, the last lease, or they inherited a lease and they bought a practice. And maybe they’ve renewed it once or twice. And they’re going off of what I’ve been paying or they’ll say, oh, you know, your rent should be a certain ratio of your gross production.
Sure. But what if it falls inside of the ratio that’s acceptable, but you’re still overpaying by $25,000 a year? Like, you want to overpay by a quarter million over 10 years? Do you want to lose $100,000 in concessions? Who cares about the ratio if you could save $200,000?
Bethany Fishbein: I have a bunch of questions and all of them I kind of want to qualify with. I hope this doesn’t sound dumb, but… but then you already said you dumbed this down. So now I feel a little questionable asking those and I’m, laughing if my husband is listening, because we bought a car recently. And I totally do exactly what you said people would never do. I’m like, yeah, sounds good. And that’s it.
Colin Carr: Let me tell you why that analogy, maybe isn’t even the best one is because the other dealerships are all tracking the dealerships, they know what they have to be at to be competitive. So there’s a little bit more of a check and balance there. There’s no check and balance with the landlord. The landlords have you locked into a lease, they’re going to assume you don’t know what you’re doing, you don’t have time to go to market, you haven’t hired a broker. So the car one, the chances of you overpaying by 10,000 on a car could happen, but it’s probably pretty minimal. The chances of you overpaying by 200, 300,000 on a lease, that’s a whole different story.
The landlords do know what other landlords are charging because they’re paying attention to their competition. But they assume that you have no access to that. And that’s the difference is you can Google right now Ford F-150 and dealerships and you can pull up every dealership within the city that you live in. You can search landlords, but it’s very hard to tell what people are paying for their existing lease. And so that’s where you find yourself in a place where it is very hard to check and balance landlords if you don’t go to market and have an expert.
Bethany Fishbein: Thank you. Might have saved my marriage there. You hear that, Jonathan? The reason though behind it is similar. For me, it’s about time. I’m with you 100%. I want to save $100,000, $200,000. When you started talking about you’ve already negotiated with multiple other landlords, in my head I’m thinking, oh my gosh, do I have to go through all that? Do I have have to go see spaces that I have no intention of moving into. How much of an investment in time is it to truly know what’s out there? Again, even if you think you don’t want it, but you need to know it to get what you do want, which is to pay less for the space that you’re in?
Colin Carr: Yeah, that’s a great question. And that’s a very common question too. Let me break this thing down a little bit. Let me give a qualifying statement. According to our numbers, we represent thousands of healthcare providers per year. We have over 4,500 clients that we’re doing work for coast to coast. So we have a pretty good grasp around what’s happening nationally and in different places. So one out of three healthcare providers that say, I don’t want to relocate. I just want to stay. Once they see other options in the market, change their mind.
Bethany Fishbein: One out of three?
Colin Carr: One out of three. Because what they find out is they find out that they can own commercial real estate and they didn’t know they could. They might find out that they could get into a brand new building or a better building or space. And it might be only a slight premium or upgrade from what they’re currently paying, or they can afford to justify the move. And so sometimes you just get into a rut and you think you’re in the right place. And all of a sudden you get out there and see other properties, other buildings, and you start saying, you know what? My practice would grow in this location compared to this, or it’s worth it to me to have a better environment or better-neighboring tenants or a better landlord. Or if I could actually buy my own building or my own condo or space, build it out, have a brand new space, and then I can afford to move to another space. Brand new space, brand new finishes. And the effective cost of owning might be the same or only a slight premium above renting. And every month, my net worth builds by a couple thousand per month because I’m paying on principle. Just like when you own a home, that gets really compelling.
So again, the agent or the broker’s job that you hire is not to sell you on what to do. It’s just to give you options and then tell you what they think makes the most sense. Just like the optician’s job is not to tell you which color frames to choose. They’re going to give you options to look at and tell you the pros and cons and help you and then you ultimately decide, but there’s more than one option in most scenarios. And so there’s different ways to look at properties. If you’re wide open, then yeah, then let your agent go to market. They do all the due diligence. And then they’ll take you on an hour-and-a-half, two-hour tour. They’ll show you your top five day properties. And then you invest literally an hour and a half, two hours. And then you’re going to finish that tour. And you’re going to say, I don’t want to move. I love my location. It’s better than all these.
Or you might say, you know what? I’m open now. And so it was worth an hour and a half, two hours to make that decision. No one’s asking you to invest 50 hours into a transaction and become a commercial estate expert. But is it worth spending an hour and a half, two hours of your time and maybe another half an hour to interview a broker or two or to find someone? So maybe you’re a couple of hours into it. But at the end of the day, if that guarantees or ensures that you have the right strategy, the right process and put you in the best position to win. And by winning, I mean saving as much money as possible. That’s a really good return on your time. And then if you do find properties you like, you pursue them. But your broker or agent is the one who’s submitting the offers. It’s non-binding. You’re not drafting contracts.
Residentially, you find a property, you draft a contract. If the seller says, yes, you’re in a binding contract. In commercial real estate, you negotiate in what’s called a letter of intent or a request for proposal. It’s non-binding. So commercial real estate, you’re negotiating with three or four landlords simultaneously. If you’re doing it right. Residentially, you submit one offer. And if they say yes, you’re locked. And then I guess the last thing I’d say is, if you say, look, I will bet you every dollar that I have to my name that I’m not moving, I don’t care no matter what you show me, I’m not moving, etc. Your agent can still take you on a digital tour on a tour packet on a Zoom call in 10 minutes. And he can show your options.
And then that way, when they go to the landlord and talk about how you’re looking at other properties or you’re seeing things, that’s a true statement. So they can make it true or they can still educate you in person or over Zoom or whatever it might be email. In that case, if you want to just spend the least amount of time possible, you can do it still in 15 minutes if you want to.
Bethany Fishbein: I know with residential real estate, you’re not paying the realtor until you’ve actually bought a property or actually until you’ve sold a property. So as a looker, you’re not paying a realtor. Is there a financial investment as well at this stage to have somebody do this for you?
Colin Carr: No. And that’s one of the most simplest decisions to hire someone is that you don’t pay the real estate agent as a buyer tenant. If you transact, they will get a portion of the commission that’s set aside for the listing broker, just like residential. If you go to buy a house, your buyer’s agent is working for you and they take half the commission typically from the listing agent. So as a buyer, it’s very rare to pay your broker. It shouldn’t happen in most markets. I guess it could, but it shouldn’t. It’s the same in commercial. You can do it yourself. You can go it alone.
And then what happens in that scenario is the listing broker or the landlord agent, they just get a double commission. So you’re not saving any money by not hiring someone. You’re just making the listing broker twice as happy, if you will. And then at the same point, you just lost representation. You just lost expert advice. You just probably wasted a lot of time that you shouldn’t have wasted. You could have either not done anything and just sat there and waited for stuff to hit your inbox or hit your phone. Or you could have gotten the expert counsel from someone who specializes and could help you capitalize.
Bethany Fishbein: And what about the people who are afraid that by starting this project, they’re not going to be able to get the money they need? They’re going to piss off their landlord who they feel has become a friend at this point. And it’s always taken real good care of me.
Colin Carr: Yeah. I love that question because we get this one all the time. I’m not exaggerating when I tell you this. We work with literally hundreds of clients per year where not only is the landlord someone that they know well, the landlord is also a patient. Think about this one. Landlords become patients of their tenants all the time. And they do it maybe because they truly do appreciate the quality of care provided. But it’s also a very good strategy from the landlord because it’s going to hopefully make that tenant less likely to bring someone in between the relationship. And so landlords become patients all the time. They spend a couple hundred dollars with that doctor, that tenant, and then they overcharge them by thousands or tens of thousands of dollars. So it’s a very common strategy.
Here’s what I’ll tell you. When I hear a doctor tell me the landlord is my friend, I say, no, the landlord is not your friend. The landlord is a cordial business acquaintance of yours. A friend to someone, if you call them and said, hey, can I borrow $5,000? Will you come help me out here? Or would you do this for me? That’s what a friend does. Landlords don’t do anything for tenants unless they’re going to get paid for it. So the landlord is a business relationship. They might be cordial. They might send you a Christmas basket. They might take you golfing once a summer. They might be a patient. That’s not your friend. A friend is somebody who is with you whether you pay them or not. And if you stop being a tenant or they weren’t a patient, you’re never going to see that person again. Again, that’s not a friend.
So here’s what I would tell you. If it’s done properly with a good agent, they will not disrespect the landlord and they will not put you in jeopardy. They’re going to negotiate factually. And so here’s what it looks like. If you were the client and I called your landlord and I said, I represent you and we’ve gone to market, we have three options to lease, two options to purchase. We’re open to a lease renewal, but it’s not going to be big competitive terms. And then we submit an offer. If that makes the landlord mad, again, that’s not your friend. A friend wants you to get the best deal possible. What friend do you have that would hope that you’d overpay by $200,000 on a lease? That’s not a friend. A friend doesn’t want you to lose $200,000.
That landlord would love to take you for $200,000. Do you see what I’m saying? They’re just factual. If the landlord gets mad that you bring somebody in, it’s because they’re trying to overcharge you. They’re trying to take advantage of you. And if they’re not, they’re going to say, great. There’s no problem with someone else being in the room and we have the conversation or being the go-between. The other part too, I’d tell you, this would be like the landlord being expected to be their own optometrist. You would tell the landlord, well, do you go to an optometrist or do you run your own tests and then you write your own prescriptions? And then you probably shaved down the lenses and frame and fit yourself. You probably do all that yourself, right? Well, no, I go to an optometrist. Well, why would you do that? Because I’m not a site expert. I’m not a vision expert. Well, you’re talking to someone who’s not a real estate expert. You’re a real estate expert because you own real estate.
So again, it’s very easy to put the landlord into a position where the only time they get mad or the only time that they get upset is when they are trying to do something they’re not supposed to do, or they’re trying to charge you more than they’re supposed to charge you. If not, it’s like, hey, I’m an open book. There’s nothing hidden here. Lastly, I’ll say here, sorry for being long-winded on this one, but it’s a fun one for me. I would tell you this, from having personally done this hundreds of times with people in that same scenario, it’s going to work in your favor 99% of the time. It’s very rare that a landlord gets really upset. Sometimes they’ll make a comment or two, but they’re going to do business. Why? Because the landlord knows that if they lose you as a tenant and they have to release the space, it’ll probably cost them a couple hundred thousand dollars more, believe it or not, than just doing your deal.
Because of that space that’s vacant for like, let’s say 12 to 18 months, if they have to then spend a bunch of money to re-tenant finish the space or re-renovate the space, if they’ve got to give a build-out period. Landlords aren’t stupid, typically, and they know what it costs them to do a new deal versus renewal. They want that renewal. They’re not going to jeopardize it.
Bethany Fishbein: When are the other times besides renewal where you have the opportunity to go into a negotiation? You mentioned before, if you’re buying a practice, you could be buying a practice midway through a lease period, or you could be in the middle of a lease period and want to expand maybe into a larger property in your same office park or something like that. What are those other opportunities?
Colin Carr: I would tell you anytime that real estate is part of anything you’re doing, whether it’s a startup, whether it’s an additional location, an acquisition, renewal, it doesn’t matter. If real estate’s involved, get a real estate professional who focuses on healthcare real estate, who’s going to work for you, not the landlord or the seller, no conflicts of interest. Get them involved in a transaction. It’s simple as that. There’s a lot of money on the table on every deal.
If you’re buying a practice, and let’s say there’s eight years left in the lease and you’re going to inherit it, they’re not going to renegotiate the lease for you, but they can still tell you, hey, you’ve got a good lease or an average lease or a bad lease. They can still tell you where it stacks up or how it ranks. If it’s a startup, a lot of money on the table as far as build-out allowances, free build-out period, free rent period upon move-in, annual increases. There’s all these different economic negotiated deal points. Anything with real estate, get a real estate professional who focuses on healthcare real estate. And here’s the deal. At the end of the day, even if not much changes, it gives you peace of mind.
Let’s say you’re going to buy a practice. You’re going to buy it no matter what. The rent seems reasonable. You still have someone look at it because they’ll tell you, hey, listen, this is a great lease rate. That gives you tremendous peace of mind over the next eight years. Or they might say, listen, you’re slightly above market, but it’s not a big deal because you want the practice. And in eight years, when we go to renegotiate or seven years, I think we can improve upon it. Again, it gives you a trajectory for the future and what you’re going to do. And so, I think it’s a great lease rate. To me, the economic terms are fantastic, but I’ll tell you, don’t underestimate the peace of mind. Nobody wants to second guess for the next 10 years if they made a good or bad choice.
And again, going back to the concept of you just bought a vehicle, here’s the deal. You can turn around and sell that tomorrow if you want to. If you want to get out, you can get out. When you get into a 10-year lease, you can’t get out. Unless you sell the practice, you’re locked and loaded. You don’t get a redo or a mulligan or a do-over, and you can’t just change it next month. You can’t swap it out. You can’t go to another landlord and swap out your lease. They’re just a lot more on the lines.
Anything with real estate, get somebody involved, and they’re going to help save you time, save you money. They’re going to help you avoid the pitfalls and complications that people get into all the time when they’re not savvy about the process, which most people are not. And then ultimately, they’re going to give you peace of mind.
Bethany Fishbein: You mentioned somebody knowledgeable in healthcare real estate. What’s the importance of a healthcare realtor versus a general realtor, or the person who you really like? They helped you buy your house, and you have an existing relationship. Maybe they’re your grandmother. I know it’s a chance to sell yourself a little bit, but I am curious about the difference.
Colin Carr: So there’s a huge difference between commercial and residential real estate. Both are forms of real estate, but there’s a vast difference. I’ve been doing this now for 20 plus years. I don’t know a single person in residential real estate that is a real player in residential that tries to even touch commercial and vice versa. Can I help buy them a house? Sure. But if I’m going to sell my house, there’s no way I’m listing my house myself. I’m going to hire an expert. I’m going to let them do what they do and save me time, save me money. And they’re going to help get me at the highest value possible.
So it’s similar to if you’re an optometrist, you’re a doctor. Well, you could be a dentist and be a doctor too. But there’s a difference in the type of healthcare you provide. So you get a residential real estate agent, let them be your agent for anything residential, but don’t touch commercial and vice versa. And then when you get into the commercial people, there’s different people that specialize. If I was going to sell an investment property, we’re not your company. We don’t sell investment property. We help represent healthcare providers. If you had a retail strip center, like a Starbucks and Chipotle, and you wanted to lease it out, we’re not your team for that. It’s very specialized. If you want to buy an apartment complex, that’s a different broker than the person helping you to rent an industrial building.
Commercial real estate is ultra specialized. And again, can people get a transaction completed? Absolutely. That’s not the bar you’re trying to clear. Anybody can get a deal done. I used to joke around, or I still do, people say, well, I can call a number on a sign and I can ask them to send me a brochure. And my daughter’s 12 now, but I would tell people when she was five, my daughter knows how to use a phone and she can ask you, send me a brochure or what do you have available? That’s not the bar we’re trying to clear.
So I would tell you, just like in healthcare, there’s a difference between someone putting braces on your teeth and someone pulling a tooth. There’s a difference between someone helping you recover from an injury and someone who’s going to adjust your back. There’s a difference between an optometrist and an ophthalmologist. There’s a difference between an optometrist and an optician. It might sound similar. And to the outside world, what’s the difference? There’s a lot of difference. And so can they help you? Probably. Are they going to cost you 100, 200 grand? Probably.
Bethany Fishbein: This might be the actual dumb question. And maybe I save it towards the end because we can cut it out if we need to. You mentioned buying commercial real estate. And if you’re in a situation where you are your own landlord you own the property and then you have a lease with your own practice to pay rent. Is there some of this process that’s important or necessary for tax purposes where it makes more sense or less sense to have more money into the real estate company or less? Or is that not your area of expertise to answer?
Colin Carr: I’m not claiming to be a CPA or an attorney. So I’ll give that disclaimer right there. Everyone should consult with a really good CPA that can help you from a tax strategy, etc. No, the answer is absolutely. So number one, if you own the real estate, you would 100% want to have it in a separate entity. You would never own the real estate in your own personal name or your practice’s name, number one, from a liability standpoint. Number two, if you have a loan from a bank, they’re not going to let you do that typically as well because they know it from a liability standpoint. It also makes it very challenging when you want to sell one asset and not the other. You might say, hey, I’m going to sell the practice, but I’m going to write a 10-year lease with the buyer of the practice and I’m going to let them keep paying me and I’m going to cash flow. The real estate for the next 10 years or pay it off or whatever it might be.
So you always have the real estate in a separate SP, single purpose entity or special purpose entity that owns the real estate. You can name it whatever you want to. And then you will write a lease between that LLC and then the practice. Now, a lot of times the practice still has to guarantee the loan. You as an individual have to guarantee the loan, but the guarantee doesn’t affect the tax side of things. You’re then going to write a lease. It’s got to be a marketable lease, a market lease. If comparable rents $5,000, you try to say that rent for your practice is $45,000, that’s going to probably be a red flag. But no, there’s definitely a tax strategy of getting a higher value for that lease. And that income becomes passive income, which is going to be taxed differently than just your typical wage income is going to be.
And then so there’s things that are going to help you there. When you own real estate, you also get to depreciated too. So residential real estate gets depreciated at 27 and a half years. So the real estate minus the land, commercial real estate get depreciated over 39 years minus the land. But you can also usually get accelerated depreciation or bonus depreciation through concepts like cost segregation studies, etc. So won’t get too technical there. But I would say that the short answer to your short question was, yes, there’s definitely a tax strategy with getting passive income into your LLC from your practice. Your practice writes off the entire payment because the lease payment is 100% deductible.
So in a mortgage, like a residential owner, you don’t write off the principal. You write off the interest, you write off the taxes, but you can’t write off your utility bill. You can’t write off your insurance. It’s just interest and taxes. In commercial, any expense for your business is written off. So higher rent payment to your LLC, you write the whole thing off. Any operating cost, you write it off. And then your LLC pays the mortgage, your net worth goes up every month. And then the additional margin there becomes passive income, which has a different tax associated with it. And then the benefit is you can usually take the depreciation as the owner of the LLC, plus the interest write-offs. And a lot of times you can negate or wipe out any or most of the income or gains. And so basically what that means is you can a lot of times get an income from that property that can be very minimally taxed or could even be tax-free because of all the write-offs and then the depreciation.
Bethany Fishbein: Colin, thank you so much. When we started this, I knew I wanted to talk about renewals and I kind of had a little bit of like is that really enough? And I feel like I could keep asking you questions about renewals for another half hour here, but I appreciate you sharing your wisdom. I appreciate your time. If somebody wants to get in touch with you or somebody from your company, what’s the best way for them to do that?
Colin Carr: Thank you. The best way to get in touch with us is our website and that’s carr.us. So carr.us, upper right-hand corner, you can click to find an agent in your city or your area. If you are the type of person that likes to self-educate, we’ve got a resources tab that has literally hundreds of articles, blogs, videos, FAQs, glossaries. So you don’t have to become an expert, but if you’d like to get self-educated or informed, you can do that. If you want to get a market analysis done, all of our services for the most part are free. But if you want to get a market analysis, even if you’re nine years away from renewing, you can contact us. We’ll get somebody assigned to it, take care of you. And ultimately, we’re just trying to give you information that arms you to make the best decision for your practice. And it’s a really simple business model. Just like an optometrist, you take phenomenal care of a patient, they’re going to come back, they’re going to trust you, they’re going to refer friends and family. We do the same thing. We help our clients save $100,000, $200,000, take care of at a high level. And that’s how our business is built. And it’s a really straightforward model.
Bethany Fishbein: Thank you again. And for more information on our services, please visit our website at powerpractice.com. Thank you so much for listening.