Photo courtesy of Dr. Aaron Neufeld. Pictured is Dr. Neufeld’s Los Altos Optometric office building. Dr. Neufeld shares tips for ensuring your investment in real estate, whether renting or buying, makes good financial sense.
Office space
By Aaron Neufeld, OD, FAAO
April 23, 2025
Selecting the right office space is one of the most significant financial and strategic decisions for an optometry practice.
Whether I’m helping new owners get their dream practice started (through practice consults on ODs on Finance Practice Purchase Accelerator) or making decisions for my own practices, one thing is apparent – the decision involves multiple factors, from rental costs and net profits to long-term investment potential and practice growth.
Here are the key financial metrics and strategic considerations to help optometrists make an informed choice between renting and buying office space, and if buying, whether to invest in a whole building or a single office.
Crunching the Numbers – Understanding Your Office Space Budget
Before deciding on a space, you must evaluate your practice’s financial standing and determine how much office space your net profits can sustain. Here’s how to analyze it:
- Calculate Annual Net Profit
To calculate the annual net profit in an optometry practice, start by determining your total revenue, which includes all income generated from services such as eye exams, optical sales (glasses and contact lenses), specialty services (like myopia management or dry eye treatment) and any insurance reimbursements or other income streams. Then, subtract your operating expenses, which encompass all the costs associated with running your practice—such as staff salaries and benefits, rent or mortgage, utilities, equipment and supply costs, lab fees, marketing, insurance and administrative expenses.
The result is your net profit, which reflects the actual earnings of the practice after all operational costs have been paid. To assess the financial health of your practice, divide your net profit by your total revenue to calculate your net profit margin. A well-managed optometry practice typically achieves a net profit margin between 25–35%
- Determine an Affordable Rent or Mortgage Payment
A general rule of thumb is that occupancy costs (rent or mortgage + property taxes + maintenance) should not exceed 8-12% of gross revenue. This ensures you have sufficient cash flow for payroll, equipment upgrades and unexpected expenses.
Example Calculation:
● Gross Revenue: $1,000,000
● Net Profit (30% margin): $300,000
● Recommended Max Office Space Cost (10% of revenue): $100,000 per year ($8,333 per month)
This calculation helps determine what rent or mortgage payment is financially viable without straining your practice’s profitability.
Rent vs. Buy Office Space – Which is the Better Option?
I would be remiss to not mention my bias here. I am a huge proponent of purchasing commercial property. One of my overarching business models with all the practices I own is to ensure that we place them in owned structures that exist in strategic areas of appreciation with potential buyout leverage.
That being said, commercial real estate ownership might not be applicable in all cases.
Renting offers several advantages, including lower upfront costs since there is no need for a large down payment or loan approval. It provides flexibility, making it easier to relocate if your needs change and involves fewer maintenance responsibilities as the landlord typically handles structural repairs and upkeep.
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However, renting also has its drawbacks. Renters do not build equity since their payments contribute to someone else’s investment. Additionally, long-term costs can be uncertain due to potential rent increases over time, and there is limited control over the property, with restrictions on renovations and expansions.
On the other hand, buying a property comes with its own set of benefits and challenges. The primary advantage is equity and appreciation; mortgage payments contribute to property ownership, building long-term value.
Buying also offers more predictable costs since mortgage payments are generally fixed, unlike rent, which can increase. Homeowners can benefit from tax deductions on mortgage interest and property depreciation, and they have the freedom to customize and modify their space as desired.
However, purchasing a property requires a higher upfront investment, often needing a significant down payment, typically ranging from 10-20% of the property’s value. Recently, however, this hurdle was eliminated. Some of our partner banks through the Practice Accelerator program now offer ZERO down real estate financing, instead using the practice as collateral. These programs come with a 15-year term and competitive interest rates.
Owners are also responsible for ongoing maintenance, repairs and property management costs. Furthermore, owning a property offers less flexibility, making it harder to relocate or expand without selling or leasing additional space.
Whole Building vs. Single Office Suite
If you decide to buy, the next question is whether to purchase a single office unit or an entire building. Each option has its advantages and challenges.
Buying a single office space typically involves a lower initial cost, making it more affordable than purchasing an entire building. It also requires less management responsibility since there is no need to lease out additional space, and it is generally easier to resell a single unit than an entire building.
However, a single office space may have limited expansion potential, meaning that future growth could require relocating. Additionally, if the office is part of a professional complex, there may be association fees for maintenance and shared facilities.
On the other hand, purchasing an entire building offers investment potential, as rental income from tenants can help offset costs. It also provides long-term stability, eliminating the risk of landlords increasing rent or selling the property. Additionally, owning a building allows for future expansion without the need to relocate.
However, this option comes with a higher upfront cost, requiring a larger financial commitment. Property management responsibilities increase, as the owner is responsible for maintenance, tenant issues and leasing. There is also a risk of vacancies, which can create cash flow challenges.
For example, if an office suite costs $500,000, a 20% down payment would be $100,000, with an annual mortgage payment of approximately $32,000 ($2,667 per month) at a 5% interest rate over 20 years. In contrast, purchasing an entire building for $2,000,000 would require a $400,000 down payment, with an annual mortgage payment of about $128,000 ($10,667 per month).
But if rental income from tenants brings in $6,000 per month, the net monthly cost would be reduced to $4,667. In this scenario, buying a building could be a solid investment if tenants cover a significant portion of the mortgage.
Determining the Right Office Size
The size of your office space should align with the number of exam lanes and your expected patient volume. Determining square footage heavily relies on geographic area. Sure, we would all love a 10,000 sq ft facility, but the financial feasibility of that would defer drastically if an owner is in the heart of Manhattan, New York City, versus the desolation of Appalachia.
Understanding office dynamics, including a blueprint that outlines workflows, is crucial to deciding how much space you need.
Here are a few other space considerations:
● Growth plans: Will you hire more ODs soon?
● Efficiency: Well-designed layouts optimize patient flow.
● Parking and accessibility: Essential for patient convenience.
Making the Right Office Space Choice
The best office space decision depends on your financial health, growth goals and risk tolerance.
If flexibility is key, renting may be best. If long-term equity and investment appeal to you, buying—especially an entire building—can be a great move. Just ensure that the cost remains within 8-12% of your gross revenue to maintain financial stability.
Whether you rent, buy a suite, or invest in an entire building, a careful financial analysis will help ensure that your office space supports—not hinders—the success of your optometry practice.
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Aaron Neufeld, OD, is the owner of Los Altos Optometric Groupin Los Altos, Calif., Pacific Eye Care Optometry in Mountain View, Calif, and co-founder/COO of ODs on Finance. To contact him: aneufeldod@gmail.com
