Commercial Real Estate Investing for Dentists

Key Takeaways

• The BLS reported a May 2025 median of $170,950 for general dentists, $289,140 for orthodontists and $352,220 for oral and maxillofacial surgeons.
• ADA research published in June 2025 shows newer dentists become practice owners later in their careers, but most eventually own a practice.
• A dental practice is already a concentrated bet: the dentist's labor, business equity, equipment loans and often the building all depend on one location.
• Owning the practice's building and diversifying into passive net lease real estate answer different questions, and neither replaces the other.
• Proceeds from a practice sale arrive as a lump sum, which raises questions about timing, taxes and how much of it can be locked up for years.

How dentists earn, from associate to owner to seller

Dentistry is a high-income profession with a distinctive shape: most dentists eventually own a business, and that business, not the paycheck, becomes the largest asset. The ADA Health Policy Institute counted 205,088 professionally active dentists in 2025, and the Bureau of Labor Statistics reported 161,400 dentist jobs with a May 2025 median of $176,110 across the occupation.

Median annual wage by dental occupation, May 2025 (U.S. Bureau of Labor Statistics)

Occupation	Median annual wage	Jobs
Oral and maxillofacial surgeons	$352,220	5,600
Prosthodontists	$311,180	1,000
Orthodontists	$289,140	7,100
General dentists	$170,950	141,900

BLS wage figures come from employer surveys, so they describe employed dentists more closely than the take-home of an owner, whose income is the practice's profit after staff, supplies, lab fees, rent and debt service. An owner's income can be well above or below the table in a given year.

The ownership path has moved later. In ADA research reported in June 2025, 21% of dentists who graduated in 2016 to 2020 owned a practice three to seven years out, compared with 63% to 70% of pre-2010 graduates at the same stage, and the ADA's chief economist concluded that ownership is delayed for newer graduates but that the large majority still become owners. The practical arc is an associate period on a W-2 or production-based pay, often alongside student debt, then a purchase financed with a practice loan, then a decade or more of paying that loan down, then a sale.

Specialists follow the same arc at a different scale. Oral and maxillofacial surgeons carry hospital call and the longest training, often including residency years paid far below practice income, then earn the highest medians in the field. Orthodontists often build high-volume practices with long treatment plans and patient financing, which ties practice cash flow to case starts in a way general dentistry does not.

The practice is already a concentrated bet

A dental practice owner already holds a concentrated position in one business at one address, funded largely with debt and dependent on one person's hands. That makes the case for passive real estate for dentists mostly about diversification, not about adding another business to run.

Consider what a typical owner is exposed to at once: the practice's goodwill, equipment financed over several years, a lease or a mortgage on the building, the local patient base, insurance reimbursement schedules and the dentist's own ability to produce. A hand injury, a new competitor down the street or a change in an insurer's fee schedule affects all of them together. Adding a second local rental property often adds more exposure to the same town.

Dentists also already know what running a business costs in hours. Payroll, hiring hygienists, managing a front desk and handling a landlord are part of the week. Most owners who look at real estate are looking for the opposite of that: an asset where someone else handles the operations.

Owning the practice building versus passive diversification

Buying the building a practice occupies and owning a passive interest in other commercial property are both real estate, but they answer different questions. Owning the office controls occupancy cost and location; a passive interest spreads wealth across tenants and places the dentist does not depend on.

Owning the office has real advantages. The practice stops paying rent increases to a third party, gains control over build-outs and relocation, and the dentist builds equity in a building rather than a landlord's. It also has a specific weakness: the tenant is the dentist's own practice. The building and the business rise and fall together, and when the practice is sold, the building's value depends on whether the buyer signs a lease at a market rent. Some buyers, including dental service organizations, prefer to lease rather than buy the real estate, which can turn the building into the seller's retained single-tenant property with the buyer as tenant.

A passive net lease interest works the other way. The tenant is an unrelated company, and the investment's value depends on that tenant's credit, the remaining lease term and the cap rate a buyer would pay. None of that is tied to how the dentist's own practice performs. Some owners do both; the point is that the building under the practice is not diversification, however good an investment it may be.

How a passive net lease position works

A passive investor contributes capital to a limited partnership or LLC that a sponsor forms to buy, finance and manage property. In a single-tenant net lease, the tenant generally pays taxes, insurance and most maintenance, so the investor's economics turn on the lease rather than on operating the building.

Dentists who have negotiated their own office lease already understand the other side of this contract. The landlord's view is summarized in net operating income, the tenant's ability to pay in the rent coverage ratio, and who stands behind the rent in the lease guarantee. Debt changes the picture through positive leverage, and results are measured with cash-on-cash return, IRR and equity multiple.

Practice sale proceeds and timing

A practice sale converts years of concentrated business equity into cash in one transaction, and that moment is when many dentists first consider passive real estate seriously. The main questions are how the sale is taxed, how much of the cash may be needed soon, and what the dentist's working life looks like after closing.

Sale terms vary widely. A buyer may pay part at closing and part later, require the seller to keep working for a transition period, or offer equity in the acquiring organization. Each changes how much cash is truly free and when. Cash committed to a private real estate vehicle for five to ten years cannot also fund a tax bill, a new practice, a transition-period income gap or a family need. Deploying proceeds in stages rather than all at once is one way investors reduce the risk of committing everything at a single point in the market; it does not remove that risk.

The tax treatment of a sale depends on how the price is allocated among goodwill, equipment and any noncompete, which affects the split between capital gain and ordinary income. That allocation is negotiated in the purchase agreement, and it deserves a CPA's attention before signing, not after.

Risks and liquidity

A passive position removes landlord duties and leaves investment risk intact. Private real estate is illiquid, depends on the sponsor's judgment and honesty, rests on one tenant's credit in a single-tenant building, and becomes more volatile when debt is added. These risks sit alongside, not in place of, the risks of the practice.

• Illiquidity. Interests generally cannot be sold on demand, and transfers usually need sponsor consent. Capital earmarked for a practice expansion, an associate buy-in or equipment replacement is a poor match.
• Sponsor risk. The sponsor controls leasing, financing and sale decisions. A dentist cannot step in the way they can with their own office.
• Tenant risk. When the only tenant leaves, rent stops. Brand familiarity is not the same as the credit of the entity that signed the lease.
• Leverage. Lenders are paid first. Rising rates at refinancing can reduce or suspend distributions even with a paying tenant.
• Stacked concentration. Owning the practice, its building and a local rental can leave nearly all of a dentist's net worth in one metro area.

Tax mechanics for practice owners and associates

For tax purposes, a dentist's practice income and passive real estate income sit in different categories, and losses generally cannot move from one to the other. IRS Publication 925 treats rental activity as passive for anyone who is not a qualifying real estate professional, and passive losses generally offset only passive income.

An owner who works in the practice materially participates in it, so S corporation income, partnership K-1 income or sole proprietor profit from the practice is nonpassive. An associate's W-2 or production pay is nonpassive too. Depreciation from a passive real estate interest can shelter that interest's own distributions, and suspended losses carry forward until there is passive income or a sale.

Owning the practice's building adds a rule most dentists meet only through their CPA. When a taxpayer rents property to a business in which they materially participate, IRS self-rental rules generally treat net rental income from that arrangement as nonpassive, so it cannot absorb passive losses from other investments, while losses from it may still be treated as passive. How the building is held, and whether the practice sale changes it, is a planning question worth raising early.

These outcomes depend on entity structure, state, filing status and the terms of any sale. Freedom Commercial Real Estate does not provide tax advice. Consult your own CPA or tax advisor about your situation.

Accredited investor status for dentists

Private real estate offerings are usually limited to accredited investors. SEC Rule 501(a) generally requires individual income above $200,000 in each of the last two years, or $300,000 jointly with a spouse or spousal equivalent, with a reasonable expectation of the same this year, or net worth above $1 million excluding the primary residence.

Many general dentists earning near the BLS median qualify through joint income or later through net worth rather than individual income, while most oral surgeons and orthodontists clear the income test once in practice. Owners should note two wrinkles. Owner income can dip sharply in the year of a practice purchase or expansion, which can interrupt the two-year income history. And practice equity counts toward net worth, but it is an estimate until the practice is sold, which is why verification often relies on a CPA or attorney letter rather than on a dentist's own valuation.

Questions a dentist can ask any sponsor

Dentists evaluate vendors, landlords and practice brokers already. The same discipline applies to a sponsor, with the added fact that the relationship cannot easily be ended.

1. Who is the tenant entity on the lease, and who guarantees it?
2. How does the tenant's rent compare with market rent for a replacement tenant in that location?
3. What is the expected holding period, and what happens if an investor needs cash sooner?
4. What does the loan cost, when does it mature, and what is the plan if rates are higher then?
5. List every fee and what it is calculated on, including acquisition, asset management and disposition fees.
6. How are distributions ordered between investors and the sponsor, and can they be suspended?
7. Does the sponsor invest its own money on the same terms?
8. What reporting do investors receive, how often, and when are K-1s delivered?

Frequently Asked Questions

Q: Should a dentist buy the building their practice is in?

A: It depends on the practice, the market and the exit plan, and it is a different decision from diversifying. Owning the office controls occupancy cost but ties the building to the practice. After a sale, its value depends on the buyer signing a market lease.

Q: How do oral surgeons and orthodontists differ from general dentists here?

A: Mainly in scale and timing. The BLS reported May 2025 medians of $352,220 for oral and maxillofacial surgeons and $289,140 for orthodontists, versus $170,950 for general dentists. Higher, earlier specialist income often means accredited status comes sooner, while the passive loss rules are the same.

Q: Can passive real estate losses offset dental practice income?

A: Generally not. Practice income is nonpassive for a dentist who works in the practice, and IRS Publication 925 limits passive losses to passive income. Suspended losses carry forward. Consult your own tax advisor about your structure.

Q: What should a dentist consider before investing practice sale proceeds?

A: How the sale is taxed, how much cash may be needed for taxes or a transition period, and whether the proceeds can be committed for many years. Private real estate is illiquid, so money that may be needed soon is usually a poor match.

Q: Does a practice owner need to manage anything in a passive investment?

A: No operating work, but the reading happens up front: the offering documents, fees, debt terms and the sponsor's record. After funding, the ongoing work is reviewing reports and passing the annual Schedule K-1 to a CPA.

Q: Is net lease real estate a substitute for a retirement plan?

A: No. It is a different asset with different liquidity and tax treatment. Retirement plans offer tax deferral and daily valuation; a private real estate interest offers property income with long lockups and sponsor risk.

Sources

1. U.S. Bureau of Labor Statistics, Occupational Outlook Handbook: Dentists (May 2025 pay)
2. American Dental Association Health Policy Institute, U.S. dentist workforce (2025)
3. ADA News, Younger dentists still become practice owners, just later in careers (June 17, 2025)
4. IRS, Publication 925: Passive Activity and At-Risk Rules
5. 17 CFR 230.501, Regulation D definitions (accredited investor)

This page is for informational purposes only and is not an offer to sell or a solicitation of an offer to buy any security, nor investment, tax, or legal advice. Examples are hypothetical unless a source is cited. Consult your own advisors about your situation.