Buying into a practice vs buying the practice premises

A partnership or associateship buy-in is priced on the practice's earnings, typically a multiple of the profit attributable to the share being bought. There is no property to secure, so the lender relies on the practice's financial history, the partnership agreement, and the incoming practitioner's income and guarantee. Medico lenders fund buy-ins for eligible practitioners at high or full LVR because the default history is low; other lenders want a contribution and often a home as security. Terms are five to ten years so the loan is cleared well within the practitioner's working life.

Where the practice leases its rooms from a landlord, and the landlord is willing to sell, the practitioners can buy the freehold. That is a commercial property loan assessed on the property and the rent the practice pays, under medico policy where the buyers are eligible. It is often done through an SMSF, a unit trust owned by the partners, or a company, and the practice continues to pay rent to the new owner. The property loan is cheaper and longer than the goodwill loan and is secured on a saleable asset.

Keeping the premises out of the trading entity protects it from practice liabilities, allows partners to hold different shares in the property and the practice, makes it easier to sell the practice without selling the building, and lets the property be held in super. Lenders are familiar with these structures and will lend to the holding entity with guarantees from the practitioners.

A retiring principal selling the practice and the freehold to an incoming practitioner is financed as a combined package: goodwill loan plus property loan plus equipment, with the property carrying the longest term and lowest rate. Lenders scrutinise the allocation of the price between goodwill and property because it drives both their security and the buyer's tax position.