Buying Multi-family with non-profit leases

[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?

[Joshua Martin]

@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