Dentist buying dental business and property. Have some questions on due diligence process.
I’m buying the business and the property. As part of the due diligence process, is it customary to get a commercial property inspection like I would a house? Do I also need to get an Environmental Site Assessment? Will the property inspector tell me if the office is ADA compliant or OSHA compliant? I already have a team for the business side - accountant and attorney, should I get a practice consultant or a real estate broker on board? Trying not to have to spend too much as the accountant and attorney are pretty expensive. I’ve done a lot of research on the business side but the real estate part I haven’t dived deep into. Anyone familiar with medical or dental office space? Thanks!
[{"id": "g6trc3m", "text": "&gt; Trying not to have to spend too much as the accountant and attorney are pretty expensive.\n\nRight and good reason. (Please note I am assuming you hired licensed specialists) These are actual professionals who are trying to make sure you\u2019re not getting screwed. If you\u2019re actually serious about your business/career/purchase, why not consult with some more actual local professionals instead of asking strangers on the internet? Get legal, financial and structural opinions before it is too late.\n\n-\n\nI would want an inspection, engineer report etc. I would want to know this building complies with all codes (e.g. ADA) before I commit actual resources to the purchase. I would want environmentals andmake sure I was guided by a professional during the whole process. You don\u2019t know what to ask for or what you\u2019re doing...seek local professional help.", "replies": [], "depth": 1}, {"id": "g6ttw01", "text": "It's a lot cheaper to hire professionals now to advise you on the real estate side before you buy. No one here knows the property and whether you need an environmental report. Is a standard inspector going to know OSHA and ADA standards specific to the medical industry, especially in COVID-19 era? No idea. That is where a commercial real estate agent comes into play.\n\nSurely the dental industry and its associated associations have resources designed to help your practice with health industry-specific regulations such as OSHA and ADA. A practice consultant sounds like a wise expenditure.", "replies": [{"id": "g6u6vtc", "text": "&gt; Is a standard inspector going to know OSHA and ADA standards specific to the medical industry, especially in COVID-19 era? No idea. That is where a commercial real estate agent comes into play.\n\nWait, why would a commercial real estate agent be able to advise this person on whether the facilities meet OSHA and ADA standards?\n\nThat\u2019s like hiring a used car salesmen to inspect the engine...", "replies": [{"id": "g6ud9og", "text": "No, no no. I should have been much clearer, sorry. An experienced commercial realtor should have contacts and knowledge to guide the process such as find the appropriate professionals such as an architect (?) that can determine compliance -- not the real estate agent. I would never, ever rely on a real estate agent to advise on regulations such as this.", "replies": [{"id": "g6un1kx", "text": "Additionally too the agent can pick off some of the low hanging fruit pretty quick.  Like if that used car has a wicked engine knock and struggles to start I wouldnt expect him to know how to fix it or the problem but id expect them to notice it and point me to a mechanic to check into it.  (Assuming some weird world where a used car salesman has fiduciary responsibilities anyhow).\n\nOps questions are very general.  Some guidance on basics could save them a lot of time.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "g6u5j6j", "text": "Yes get an inspection. No a real estate inspector won\u2019t know if you\u2019re OSHA/ADA compliant. \n\nYour bank may require a phase 1 environmental assessment if the property is above a certain value. It\u2019s never a bad idea to do a phase 1. \n\nReach out to your state\u2019s dental association/ dental board and ask them these questions. They may suggest an OSHA compliance consultant who can inspect the facility. \n\nYes get a practice consultant. Ideal candidates will both be able to save you money on taxes and answer management questions.\n\n\nDo not bring in a real estate broker. If you\u2019ve already identified the property/ practice and are actively negotiating with the seller, a broker adds little/ no value and will increase the cost of the transaction by 3-6%. Get a lawyer to prepare/ review the PSA.\n\nNote that simply by asking these questions you\u2019re already light years ahead of a lot of dentists. The ones I know did very little DD when buying practices.", "replies": [{"id": "g6u7jbp", "text": "This, but some practice consultants also happen to be brokers.  Don't discount multiple offerings. \n\nYour business isn't your home. It's a long term investment, and a significantly more complicated transaction. Treat it accordingly.\n\nBest of luck!", "replies": [{"id": "g6u8trl", "text": "Some business/ practice broker are also real estate brokers is what I think you meant?\n\nI don\u2019t know of any practice consultants who are brokers. Practice consultants aren\u2019t transactional folks.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "g6ui2pi", "text": "Looks like you will be paying arm and a leg for what you asked. A property inspector, check for electrical, AC, roofing(roofing inspector). When in doubt request a structure engineer report on foundation, soil studies. Ask seller for a building service warranty.  Flood and earthquake zone disclosure. If you are getting a mortgage then an appraisal is needed. Mold and safety is part of OSHA.  Good luck.", "replies": [], "depth": 1}, {"id": "g6uplwp", "text": "Id recommend the following inspections:\n\nBoundary Survey\n- Required by title. You\u2019ll want to review this as well for any easements that could limit your use of the property.\n\nZoning Report\n- I would definitely want to know that my intended use is legal at the property, but this is definitely optional.\n\nPhase I Environmental\n- You dont want to take ownership of an environmental clusterfuck.  It doesn\u2019t even need to be an issue at your property or something you did for you to become liable.  It could be a dry cleaner next door.  Getting a clean Phase I completely removes you from future liability.\n\nProperty Condition Assessment\n- This will hit ADA compliance along with most other physical issues you can identify with a visual inspection.  They should note rough cost estimates as well to remedy any issues.\n\nAppraisal\n- Obviously this will be required by the bank.", "replies": [], "depth": 1}, {"id": "g6upntt", "text": "Regarding property tax assessments in the future. Make sure to separate the value of the business vs the equipment vs the real estate itself. Much easier to fight an unfair valuation by the jurisdiction in the future", "replies": [], "depth": 1}, {"id": "g6vbcuk", "text": "When you talk with the lawyer, ask them to set up a separate LLC for your real estate purchase. If you can, have the practice loan (typically a 10 year loan) go through your practice Corp, and the real estate loan (could be as much as 20 years) to the LLC. Then, your practice pays rent to the LLC each month, which pays the mortgage. \n\nIf you do it this way, you can sell your practice if you needed to (eg. moving, disability, partnership, etc) while retaining ownership over the real estate which is a great long term investment for passive rental income. Also, if you are ready to retire, you can sell the practice, then rent out the office for a decade, then sell the building if you want to. This reduces your capital gains tax exposure in retirement by spreading things over a larger chunk of time, and also makes the practice easier to buy for the new doc by reducing the up front cost.", "replies": [{"id": "gf3zfbh", "text": "This is a good recommendation, u/eran76. I know several retired physicians who sold their practices and retained the properties for passive income", "replies": [], "depth": 2}], "depth": 1}, {"id": "g6w304l", "text": "Let me see if I can answer your questions one by one:\n\n* The CRE version of a property inspection is called a **Physical Needs Assessment**. It\u2019s not usually customary if you are buying an existing dental practice. \n\n* **Environmental Site Assessments (also known as a Phase 1)** will be ordered by your lender. Each lender has varying requirements if/when a Phase 1 is needed/necessary, but I\u2019d bet they will simply require an environmental database report which runs about $250 bucks versus a Phase 1, which is around $1500.\n\n* A property inspector will let you know if the office is **ADA compliant**, or grandfathered if not. Not 100% sure about **OSHA**. It\u2019s my understanding OSHA has their own folks who come out, but again, not 100% sure. \n\n* If the transaction is over $5 million, I\u2019d hire **an attorney**. If not, you can probably handle this on your own.", "replies": [], "depth": 1}, {"id": "g6w73cq", "text": "Depending on where you are. Call the building department at the county and the town. They won't help you with valuation, but they will give you a ton of helpful information. From Occupancy requirements, historical problems etc\n\n  \n\n\nLove you see this advice is for suburbia. if you're in a major city like New York or San Francisco this would not be good advice", "replies": [], "depth": 1}, {"id": "gf3ynhz", "text": "Yes, yes, yes, and yes. Especially for MOBs and any healthcare properties, 45- to 60-day diligence is customary, and you need to take care of all of this. Get a Phase I ESA, because going to Phase II and failing it in the healthcare business will ruin your life. Have someone experienced in healthcare and healthcare CRE for ADA/OSHA inspections. You should probably have a practice consultant on hand, and having a broker will be useless since it sounds like you've already engaged in talks.", "replies": [], "depth": 1}]