Playbook #071: Medical Equipment Leasing

🖼️ The Big Picture

The vast majority of healthcare providers finance new and used medical equipment rather than buy it, and leasing is the most popular method as it’s the most efficient from a cash flow perspective. Investors acting as middlemen can typically earn higher returns with a leasing model rather than lending.

In addition to consistent monthly cash flow, leasing equipment to healthcare providers has very little correlation to other markets. That means that even when other investing markets go down, medical equipment leasing will likely be unaffected.

Medical equipment leasing also gives you a strong collateral position (since you own the equipment, if they don’t pay, you just take it back), and offers tax advantages.

The most common methods investors use are either:

  1. Capital Lease - finances equipment over a fixed term with set payments and no option to return it. The customer then buys it for $1 at the end of the term.
  2. Operating Lease - similar to a car lease. At the end of the term, the customer can either buy the equipment for fair market value, return it, or extend the lease.

For the passive investor, equipment leasing funds (ELFs) provide an option to participate. Do your research into the fund and management, and be aware that in addition to being illiquid, they can charge significant fees up to 25% of investors’ initial capital.

If you like this model, why not start your own small equipment leasing company? Especially if you have industry knowledge along with a strong balance sheet and credit score, you could easily benefit from arbitrage by financing the equipment purchase yourself, then marking it up on the lease.

Customers could include hospitals, individual practices, and even personal devices for in-home care.

🔢 By The Numbers