Buying Multi-family with non-profit leases

6 Replies

While browsing properties for sale on Loopnet, I came across a few 8-16 unit buildings in the Milwaukee area that all the units are currently leased out to local non-profits. While the some-what guaranteed rent check every month does seem to have its appeals along with the 11-12% CAP based off the numbers I ran, I am curious what the down sides to buildings like this are?

Originally posted by @Dave Wilson :

While browsing properties for sale on Loopnet, I came across a few 8-16 unit buildings in the Milwaukee area that all the units are currently leased out to local non-profits. While the some-what guaranteed rent check every month does seem to have its appeals along with the 11-12% CAP based off the numbers I ran, I am curious what the down sides to buildings like this are?

I run a non-profit, so I have experience on the renter end. But the real question is, what kind of non-profits are the tenants? There are so many factors to consider based on who the tenant is, and what kind of organization they run, and if they are providing housing for 3rd parties. I did a quick search, and maybe you'll find these posts helpful.

https://www.biggerpockets.com/forums/52/topics/103127-corporate-non-profit-sfh-rentals

https://www.biggerpockets.com/forums/52/topics/109050-renting-to-a-non-profit-organization

11-12% Cap in Milwaukee would indicate a D class area. I looked up the properties and they are in very rough areas. You need to decide if that is the area that you want to have properties in. Good cash flow on paper though, so if you can manage them properly, then you could do well. One thing to note as well - don't expect much appreciation in this area. 

@Dave Wilson Hey! I know all the ones you're talking about, and I know some things about the nonprofits occupying them too. I guess I know the listing agent too. While I'd like to help her out and help her find a buyer, I'd have the same reservations. As @Todd Dexheimer pointed out, they are D areas, and pretty firmly D areas, maybe with the exception of one. Additionally, non profits are hardly guaranteed rent. While I know one of the non profits on the rent roll is managed well and probably not going anywhere, it's still a non profit that relies on grants and state assistance for their work. Neither of those things are ever guaranteed or certain, and with our crazy governor in Wisconsin the latter might actually disappear. If I was going to buy over there I'd ignore the actuals and put together a pro forma with market rents. The seller might think I was silly but that's how I'd approach it. Lastly, banks, assuming you'll partner with them, see what you see and I know one of those properties is under contract having troubles in underwriting. Thanks for your interest in Milwaukee! Its a cool place. @Todd Dexheimer If you vetted all the non profits and liked them what would be your opinion be on purchasing a property like this? Best, JTM
Apologies for formatting. Darn smart phones.

@Joshua Martin I would not buy in a D area.

Thanks for the insight. After giving it some consideration and thinking through an exit strategy years down the road, I decided buying these would be the easy part, but unloading them years down the road would take a decent amount of work. 

Until I get a little more experience for larger unit multi-plexes under my belt, I think I'll pass on these.

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