Four things nonprofits should consider before buying real estate 

Most nonprofit leaders will only purchase or renovate a building once or twice in their careers. Meeting these leaders during this process is one of the most rewarding parts of my job as a lender and financial specialist at Propel. In my role, I get to hear about the ways new or renovated real estate will play an important part in helping a nonprofit meet its mission and serve the community. I like to think of my team’s role as kind dream-holders: we’re here to hold a dream lightly because this is a complicated process that takes a lot of administrative oversight and energy.  

Many nonprofit organizations are having conversations about purchasing real estate, more than ever before. Whether it be the desire to have control over your space or the current market climate, nonprofits are in a unique position to hold community assets. Propel is here to be a partner through this process: we’ve been through it, we understand it can be both exciting and daunting, and we have insights into the technical processes you’ll encounter. I like to frame the process into four areas for leaders to focus on.  

1. Mission 

Nonprofits are mission driven, and large financial decisions should be examined through the lens of your mission and programmatic goals. A quick and easy question to ask is: 

How does purchasing a building help us deliver on our mission? 

The answers can vary from organization to organization, but could include:  

• We need more space to deliver our services  
• We are tired of renting  
• We need to grow our services  
• An opportunity presented itself 

Reasons beyond this exist but these are the most common ones I have seen in my role. If you’ve identified that purchasing a building is in alignment with your mission goals, then you should consider the next step.  

2. Management 

I was a property owner in past jobs, and I learned more things about property management than I ever thought I would. Suddenly, being a property manager became part of my job and I was looking for snow removal companies, talking with plumbers about a backed-up sewer (with repairs totaling $60,000!), and responding to calls about when the fire alarm when off. These sound like horror stories, but they are realities of owning a property and taught me to always ask the following questions:  

Who will manage the property? 

Can your current team absorb the expansion? 

Do you have financial forecasting abilities or do those skills need to be developed? 

As an Executive Director, you can’t do this alone, and you shouldn’t have to. Your leadership team will need support as they take on a new real estate project. If your plan is to expand your services, consider that they won’t be able to help with all the property management pieces.  Alternatively, you can hire out a lot of property management services but that costs money that needs to be fundraised.  Whatever way you look at it, the management of a new building is going to fall to your management team to oversee, and having honest conversations about this early is essential.   

3. Financials 

Propel works hard to be a safe space to talk about your financials. Whether you are getting capital from us, or from another source, we are willing to discuss your organization’s finances as part of this process so you can feel confident moving forward.  

Assess your financial health for the following:  

What is your current cash position? 

What is your year-end surplus or deficit? 

Do you regularly fund deprecation in your current model? 

We know that a solid, existing financial model is essential to being able to excel when moving to grow to buy a new property. Owning a property changes your business model and you’ll need all the unrestricted cash on-hand you can get to ensure that your operations are able to run efficiently.  Having cash on-hand at the beginning of a project, funding depreciation, and generating yearly surpluses are all good practices to have in place prior to purchasing a property.   

4. Forecasting

Forecasting what the financial future of your organization is going to look like is an important part of the real estate acquisition process. It will include asking yourself about how much space you will need, how much money you will need to raise, whether you are buying a new building or rehabilitating an existing one, and much more.   

Forecasting skills that are important to have or develop include: 

• Budgeting with sound assumptions 
• Monitoring budget versus actual 
• Making changes to your plans based upon what is happening in the budget 
• 12-month cash flow projection​ 
• 3–5-year forecast  

These are guidelines for what is needed in financial forecasting on a real estate project.  You can do this internally or hire someone to assist you with this planning.  Either way, you will need to look forward to finding out what the financial future will hold based upon your fundraising and financing potential.   

Propel as a Partner 

Whether you are getting capital from us or another source, we are ready to help you through this exciting time.  

Propel offers two products that focus on community facility loans. You can learn more about our community facility loans and our Community Asset Building loan program for BIPOC-led-and-serving nonprofits at our lending page.

On June 26, 2024, I am presenting a free webinar: Buying Real Estate: An Overview for Nonprofit Organizations. If you can’t attend, you can register and receive the recording following the event. If you find this blog after the event has passed, feel free to reach out to me or your Propel lender to learn more about buying real estate.