Buy vs. Lease: Interest is Rising

Written By Stephen Strecker

"Should we just buy our building?" is one of the most common questions I hear from dentists, physicians, optometrists and veterinarians. Owning can build wealth and give you control. It can also tie up cash and cost more each month than a lease. The honest answer depends on your numbers, your timeline and how much risk you want on the practice's balance sheet.

Key takeaways

  • The Fed raised its target range to 3.75% to 4.00% on September 16, 2026, and prime rose to 7.00%. Rate-sensitive loans got more expensive.

  • SBA 504 rates for September 2026 were about 6.5% fixed for 20- and 25-year terms, with as little as 10% down for established businesses.

  • In our hypothetical, owning costs more in cash each year than leasing. It wins only if you stay long enough and the property holds or grows its value.

  • Run the comparison on total cost over your expected hold period, including taxes, upkeep, the down payment's opportunity cost and your exit.

The rate picture this fall

On September 16, 2026, the Federal Reserve raised the federal funds target range by a quarter point to 3.75% to 4.00%, its first increase since July 2023. Banks raised the prime rate from 6.75% to 7.00% effective September 17. The next Fed meeting is October 27 and 28.

That matters because many SBA 7(a) loans float with prime. SBA caps variable 7(a) rates for loans over $350,000 at the base rate plus 3.0 percentage points, and lenders can price below the cap. SBA 504 loans work differently: the CDC portion is a fixed rate set monthly from Treasury yields. SomerCor reported September 2026 SBA 504 effective rates of 6.54% for 25-year terms, 6.53% for 20-year and 6.60% for 10-year, priced September 10. These figures change every month, so check the current month before you plan around them.

SBA 504 vs. 7(a), in plain English

SBA 504

  • Built for owner-occupied real estate and long-life equipment.

  • Typical structure: a bank lends about 50% in first position, a Certified Development Company lends up to 40% with an SBA guarantee, and you put in about 10%. Businesses under two years old usually put in 15%.

  • Your business generally must occupy at least 51% of an existing building.

  • SBA lists a maximum 504 loan amount of $5.5 million, with 10-, 20- and 25-year terms, and eligibility limits of under $20 million tangible net worth and under $6.5 million average net income after taxes.

SBA 7(a)

  • More flexible. It can combine real estate with practice acquisition, equipment and working capital.

  • Maximum loan of $5 million, with terms up to 25 years for real estate.

  • Often variable, so payments can move with prime.

Many practices buying a building only lean toward 504 for the fixed rate and low down payment. Practices buying a building and a practice together often look at 7(a). Your lender and CPA should weigh in on which fits.

Colorado costs owners forget

  • Property tax. Colorado assesses improved commercial property at 25% of actual value for 2026. Real property is revalued every odd-numbered year, so 2027 is a reappraisal year. When you lease, taxes are buried in rent or CAM. When you own, the bill is yours.

  • Upkeep and reserves. Roofs, HVAC, parking lots and condo association dues all land on the owner.

  • Build-out. You fund it yourself instead of negotiating a landlord allowance. A Denver contractor estimated medical build-outs at roughly $375 to $498 per square foot for basic exam-room clinics in late 2025.

A hypothetical scenario (illustration only)

This is a made-up example to show the math. It is not a real practice, property or quote. Your numbers will differ.

Dr. Lee runs an established general dental practice in Douglas County and needs about 4,000 square feet. She is comparing two paths for the next ten years.

Path A: Lease. She leases at $32.68 per square foot full-service gross, which matches CBRE's H1 2026 Denver medical average. Year-one rent is about $130,700. We assume 3% annual increases.

Path B: Buy with SBA 504. Total project of $2,000,000 for the building and build-out (assumed). She puts down 10% ($200,000). The bank lends $1,000,000 at an assumed 7.25% over 25 years; the CDC lends $800,000 at 6.54% over 25 years. We assume property tax of $50,000 a year (25% assessment times an assumed 100-mill levy) and $24,000 a year for insurance and upkeep, both rising 3% a year. Fees and closing costs are left out for simplicity.

Owning costs more each year in this example. So when does it make sense? We also counted what the $200,000 down payment could earn elsewhere (an assumed 4% a year) and assumed 6% selling costs at the end. Under those assumptions, Dr. Lee needs to sell for about $2.74 million in year ten to come out even with leasing. That is roughly 3.2% annual appreciation on the full $2 million, including build-out that may not hold its value.

The takeaway is not "never buy." It is that buying a medical building is a long-term decision. Owning tends to work best when you plan to stay ten years or more, when you can buy at a sensible price, when you have the cash to put down without straining the practice, and when you have a realistic exit, such as selling the building with the practice or leasing it to the next owner. Control over your space, protection from a landlord's sale or rent reset, and the option to lease extra space to another provider are real benefits that do not show up in this table.

Questions to answer before you decide

  • How long will you practice in this location, and who would buy or lease the building when you leave?

  • Would the down payment be better spent on equipment, staff or debt reduction?

  • Does the building fit your clinical layout now and in five years?

  • How would ownership affect your personal liability and estate planning? Our post on protecting your personal assets covers some of this from the lease side.

Let's run your numbers

We help practice owners compare leasing and buying side by side with their own figures, and we bring a CFO's eye to the math. Learn more about our healthcare real estate services or our dental real estate work in Colorado, and when you are ready, book a consultation. We will bring the market data; you bring your goals.

Frequently asked questions

Is it better to buy or lease a medical office in Colorado?

It depends on how long you will stay, your cash position and the price. Leasing usually costs less each year and keeps cash free. Buying can build equity and control if you hold the property long enough and it keeps its value.

What is the SBA 504 interest rate right now?

SBA 504 rates reset monthly. For September 2026, SomerCor reported effective rates of 6.54% for 25-year terms and 6.53% for 20-year terms. Check with a CDC for the current month.

How much down payment do I need to buy a medical office with an SBA 504 loan?

Often 10% for an established business, and usually 15% for a business under two years old. Your business generally must occupy at least 51% of an existing building.

Do Colorado property taxes change after I buy a building?

Colorado revalues real property every odd-numbered year, and improved commercial property is assessed at 25% of actual value for 2026. Your bill also depends on your local mill levy.

Sources

Stephen Strecker
Next

Denver Medical Office Market Update: Fall 2026