NON PROFIT HOUSING WITH REVENUES
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
This is an open discussion about non-profits providing or facilitating special needs or specialty housing, yet doing so profitably for those who operate the housing services. This has basically arisen out of another thread.
I'd like to know who is doing N/P housing, what is the niche filled by the service and how are you structured.....tell all you can.
Anyone interested, jump in!
Bill Gulley hit it on the head with this.
Most of you here know that I prefer not to talk much about my holdings. What people don't know you have they can't go after. I'm involved in several nonprofits. I am both employed by several as well as have arrangements with them.
You have a lot of flexibility on your arrangements.
Donations to nonprofits work out very very well.
If you donate a property and receive a rather large deduction. This is helpful if it is a property that could take a very long time to sell.
Michael Lauther, sorry, I also meant to say anyone interested in N/P housing arrangements to pump in too.....
Bill for a starter why do you think it is necessary to organize as a not for profit to operative effectively in this market?
How do we make money as a not for profit?
That is the first question most people ask, N/P can be big business and pay very well. The oragnization must have a chraitable purpose or public good as a 501 C3 under IRS Code. After the purpose is defined you must have a board of directors, unrelated parties but they could have had and occassionally have other business dealings between them. An Executive Director is appointed by the board and is paid a salary. The salary can be adjusted as to however it is designed, say to the number of units managed. You can lease a property to the N/P so long as it's at FMR, the N/P then can rent it and pay the ED. While you must be careful about self dealings, you can arrange rents to flow through and pay a salary, benefits and expenses.....even a retirement plan or golden parachute.
You can also support a N/P from the outside, loan money or assets to it, sell to it or rent peoperties to it, if there is no affiliation with the N/P that can be what ever is agreed to.
While you can have the organization qualify as accepting contributions with tax deductions, it is not necessary to have the tax deduction, but it's worth the effort in the long run, I have used both.
Like Bill said, non-profits can be quite profitable for the organizers. There are lots of non-profit administrators drawing six figure salaries and many ways to associate that can be very profitable.
what is the specific organization used to set up a non profit, is it a C corp, LLC???
What does IRs require to qualify to be treated as 501 C3 ?
I could see how Special needs housing would qualify for a public purpose but could low income SF Homes also qualify ?
Why do you recommend approaching this strategy as a non profit rather than a an individual investor?
It appears that the main way to be compensated is through salary payments which would benefit my family now, but what happens when I die leaving any interest to my Wife and children. Since it is a non profit how could they benefit?
I have so many more questions but this is a start.
Michael Lauther , The entity that I have used is a C Corp, however some states now have non-profit LLCs specifically designed for simpler administration. The C Corp is really no more adminstratively intense than a good LLC properly managed, both are very similar.
The IRS will require basically the same thing as they do all business entities, a good and consistant accounting system. However, you will be required to have an audited statement, a CPA like Charles, to sign off on the books. Often, you can find a CPA who will provide services at a discount or almost as a donation of services in reality.
Basically all you need is the charitable or public good mission and show that the business is conducted in that vien.
You'll also need unrealted (family) members that serve on the board of directors or I assume in a N/P LLC. You only need three but actually a larger board has some advanatges in keeping things close to the intended mission, IMO. Probably a book or two could be written about this.
The way to set up a N/P for future interests with contractual ties for services or use of assets. You could also use an association or a trust with an unlimited term as LLCs usually have a limited term to qualify under certain tax elections (to pass through to your 1040 as a partnership). But the N/P can contract with any entity. Such contracts might be thought of as handcuffs.
If your N/P is tax qualified, deductions for donations, you can have property or cash donated. When you learn to apply the tax benefits for example to a large family farm for development, the gain for the seller can be a killer (I did one that the family had from the 1870s). Not only did I buy property that Realtors tried for decades to get their hands on, but we were given a donation in cash beyound the sale price for the project. That would never happen in the private secctor.
Financing is non-recourse to a N/P and is counted under the Community Reinvestment Act requiring loans be made by banks for the public good. (BTW, this act has nothing to do with mortgage lending as I have heard some say, unless it has a public good element).
Another plus is that marketing, while done in a different manner, is not that necessary to the public. You'll get newspapaer, radio and TV coverage, sponsors for materials, benefit and fund raising activities to work with. Other N/P can support your efforts through their efforts as well. This is the political nature of things.
As a N/P you'll be given a few bennnies from government, building regs will generally bless your activities so long as they are up to snuff, but much easier to work with...they help you! Cities may donate or sell properties for a dollar and provide support. You'll find that many city/county employees may donate time and effort to clean ups, fix ups and renovations. I used labor from the court for those ordered to perform community service.
At this scale, you aren't talking about 1-4 properties, but the goal should be 100 properties. I believe the local organization is over that now and I got out ten years ago. Another was for development. And another was affiliated with the public housing authority, each having seperate but yet similar missions, to provide safe, affordable housing.
This could go on forever.....if you and other could map out your basic goals I'd be happy to make suggestions along the lines that could meet them. It may be better to partner with an existing N/P privately and support them as well. It's a two way street out there.....
It appears that other than me and Charles, no one else sees any value in this concept. There is certainly an unfilled need in many areas.
Lots to digest bill. You have added some ideas I would not have thought about. It will take me more than a few minutes to digest and understand every thing you just posted. I will be back for more later.
LOL, OK, come back anytime, I'm gonna watch Betty White now. Off Their Rockers gives me ideas to use in RE....mainly how to present yourself to younger folks.....social skills are important in RE but especially in the N/P circles...later,
I wish I had been online for this conversation. Nonprofits are fantastic. I'd rather not go into too much detail on my use of them; however, they can be incredibly beneficial.
-Steven the Tax Guy
Steven Hamilton II this runs 24/7, so jump in with your comments, I'll cath it sonner or later, LOL.
Michael Lauther this thread may be very limited, until we talk about money....but while there are ways newbies can benefit working with N/Ps it's certainly not a beginner topic. What ever hat you might wear in a N/P circle you need to be viewed as the expert in your area to command respect of other participants and have the ability to lead them in the direction needed to accomplish the mission. That said, being able to do so without being the boss but another participant. Depends on how big the community to serve might be, the scope of the mission and the social support system.
The social support system in a community and the community to be served (your clients) is an initial consideration.
If you target the homeless in general for example, you're talking about transistional housing. Everyone in the community would like to see these folks off the streets but you'll find alot of resistance when the housing is in someone's backyard. Drugs and booze, sexual preditors and all the undesirable factions will be lumped into the category as those being served. Yet there are familes and singles that have none of these issues. I have seen more support for halfway housing for individuals getting out of prison and who are on probation than for homeless housing!
The social support system takes into account other services in the community. Organizations that serve the handicap, various illnesses, mentally ill, our Vets, drug dependencies, just to name a few, are all interested in housing their clients.
Most here would probably say....well who would want to rent to them? The trick to a successful and long term tenancy is eleminate the risks with those organizations sponsoring the client. The oragnization that do the handholding and support can lease the property.....if a wall gets bashed in (which I have not seen) the sponsor makes the repair! Many of the landlord headaches can be greatly reduced through partnering with other organizations. Even if your rents were reduced, you can be better off financially in the long run.
And just a note, I had open market units not under any such program and I never used yellow signs, mailings or other means tried here because I had a word of mouth referral. I had a waiting list at times! Who do you think some lady who serves on the board of directors of some organization who has a sister who needs to rent a house will call?
Good morning all, I need to simplify my thinking.
I have meetings In Dayton in the next few weeks to discuss how I can benefit the immediate community in which have been active.
Meetings are to be scheduled with Catholic charities, Several veterans organizations, The state department who places refugees in the area (predominantly from Nepal) and who prefer a pocket in town that is particularly inexpensive)
My original plan was to offer housing on a room by room basis That will be fully supported with services including lawn care and maintenance, and all utilities included. Many prospective tenants cannot afford more than $350 or $400 a month and end up in substandard housing.
I have not yet determined what the numbers are but I could probably ask for $350 - 400 a month for each bedroom 1050- $1200 a month for a three bedroom property that I currently get 625 a month for without utilities. Electric , gas, water would run $150 a month in this area and lawn care another $50 so even if I had an additional 300 monthly in cost I would come out ahead but would have case mangers to help manage the tenants.
I know how to do this one property at a time but Bill has suggested that establishing a non profit would be beneficial .
How would I raise capital to fund the expense of the NP?
I understand there are grants available to support this activity but a certain amount of seed money will be necessary.
I can purchase duplexes in this area both sides 2 bed on bath for $15 to $20 most likely repair cost another 20K with taxes in the area of 1200 a year and insurance 600. With closing cost this would run around $40,0000 and have a gross rent of $1400 a
month.
How would forming a NP facilitate doing this on a larger scale? I can do one or two like this on my own but would soon reach my
limit.
Turning a SFD into a rooming house may have issues but not serious as most ordinances seem to go with no more than three unrealted paties to a dwelling. Moving on.
The State Department? As in the federal government state department? Without going into alot of brain damage, I'd use them as a referral to you and not try to contract off the bat.
The church is probably going to be a great start up partner. In your meeting see if they will be willing to guarantee loans with your N/P with an agreement that the properties will fall to them in the event of default. See what financial support they can provide. See if there are church members that would entertain participation in such a non-profit. Also, see who they are working with now and how they are addressing the housing issues. I would think in a city the size of Dayton there will be several N/Ps in the hosuing arena, if so, see who they are and what clients they serve.
Actually, besides buying properties, there is little capital required for a start up. Filing fees are not much for a N/P, about the same as the LLCs, maybe less as the state encourages formation of N/Ps usually.
Ask if the church has an attorney willing to participate in the formation, otherwise, you can find N/P filings and adapt them to your mission pretty easily as the C Corp. initial filing is not complicated and in fact has less considerations than an LLC, IMO.....so long as you keep in mind the unrelated party issues and three or more for the board. You do not want to be on the board of directors, as they are limited to compensation, you need to be an executive director or an outside consultant or independent landlord/manager.
The next stage is putting yourself in as the adminstrator or executive director appointed by the board. In this agreement, be happy to assist you from afar, but you'll need some legal assistance there. I'm sure if you get the church on board, this will not be an issue. They could very well have the N/P formed for you.
Michael, you need to go in to these meetings as a concerned citizen wanting to assist the community first and foremost, if they see that you are mainly interested in furthering your personal position you'll die on the spot....that's in working with any N/P, many of these folks are volunteers and receive no compensation at all, so that is the standard to meet. They all know that you need to profit and that's fine, but I'd suggest your initial contact be community oriented. I'm sure you already understand that, but in case others are reading all this. You win with empathy, profit later....
When you see what the specific need is, how many units might be required, what support there is and who will participate then you can formulate your position.
The N/P can own all the properties and you manage, if there are 100 units all over town, that's a good take down from management and remember you'll have boots on the ground to help, so you are an adminstrator, not a landlord so much.
You can own the properties and sell to the N/P and carry back or use a long term lease to the N/P, probably your best interest with an outside LLC.
The N/P can initially buy and you can repurchase from them working in the arrangement with your management. I think this meets your ultimate goal as well.
There are many ways to do a deal like this, but you might consider these first. I believe I'd go for the N/P owner, assist under a contract and agree to purchase.......but whatever.
Questions, suggestions?
Bill Gulley hit it on the head with this.
Most of you here know that I prefer not to talk much about my holdings. What people don't know you have they can't go after. I'm involved in several nonprofits. I am both employed by several as well as have arrangements with them.
You have a lot of flexibility on your arrangements.
Donations to nonprofits work out very very well.
If you donate a property and receive a rather large deduction. This is helpful if it is a property that could take a very long time to sell.
Steven: good to see you on the post , i will take the weekend off but I believe I have an opportunity in my target market and your input is most welcome.
Steven Hamilton II, absolutely, jump in with your arrangements, without naming names, what is the mission of the roganization and how do you work with/for/advise them? There is always other ways to skin a cat.....
Seems like this is no small undertaking but a worth while one. I am continuing to explore this option while at the same time purchasing property in Dayton. As Bill indicates, It would be helpful to see come concrete examples from Steven as to how this would work.
Was just at a Walmart grocery opening in my area and got to talking with a lady involved in a low-income housing non profit. She was interested if Walmart had given any grant money out. They help farmworkers and other poor people.
She told me they just built a 12 unit, bought an acre for 500K and the entire cost is $188,000 per unit! I said you have to be kidding, you can buy luxury plexes for less than that per unit. Guess some are townhouses and can be quite nice.
These units rent for $875. She says no cash flow. How in the world does all that work?
Michael, how someone else puts themselves in a NP affiliation can be tricky and many are really not that compliant, but go, for the most part, unknown. It's always best to be an open book in a NP and show everything, no one expects anyone to work for nothing except at times there are volunteer situations and donations that can be involved.
With that, my thinking in any structure is done through backward planning and starting with the ultimate goal.
I draw out circles and diamonds, lol, not Amway, but a flow chart as to what needs to be done and consider alternatives as well as what needs to happen. What is necessary to make this happen?
Seems your goal is to own the properties for your estate from what has been said. Seems the State Dept. is already using the church feeding them clients, that is already in place and would be hard to get in a contractual relationship with the government, lots of brain damage and wasted time, so I'd stay out of that aspect and work off what is already being done.
What aspect is not in place? I assume the church is placing tennats and assisting them in social issues, as is usually the case. They are not providing property management I assume. So, a PM can be looked at as a needed function.
I assume also the church is not buying rentals or low-mod housing. I can see where they would support such activities, the acquisition and rehab of properties and perhaps the ultimate sale of properties to get people started in ownership of safe and affordable housing but may not want to hold title.
Another issue is financing. Churches are very tough to finance, I know from doing it. I'm going to assume again that this church is a long established, solvent and active church in the community.....a large church that is bankable. While they could probably buy properties for a charitable cause let'sgive them a break on getting that involved and ask that they simply guarantee the required financing with operating agreements allowing them to step in and dispose or or assume any property in the event of default.
Initially, what I see here is a limited liability company that owns the property, it leases on a long term basis to a NP real estate sales and leasing entity and the church guaranteeing the financing and rents of the NP entity. Your LLC can acquire a property with a long term lease in hand from the NP. The strength off the new NP falls on the church. Your ability to acuire new properties falls on the long term leases assigned to the lender from the NP.
You can take on the role of the executive director of the NP as an employee or set up your LLC to provide services under contract with the NP, the later being best IMO.
I'll let you catch up Michael and maybe others will jump in......any thoughts?
For now my only thought is "ouch" I will digest this after lunch.
Jeff: if i am understanding this concept the non profit purchases the property or leases is and operates the organization without making any profit but pays the director to manage the organization. The Director could be an individual or an LLC with a contract to manage the business of the non profit.
therefore the value of the property acquired by the Non profit does not have to be bought at a discount and the cash low need not show a profit because the director would be paid a salary which would eliminate the profit.
Not sure I am getting it but that's my take.
Jeff, it's most likely a Section 42 tax credit development where tax credits are sold that subsidize the project.....very lucrative and political, Walmart could do that easily....
I think I understand Jeff's question because it is similar to mine (I think). Somebody, at some point is shelling out a lot of money in this operation. In Jeff's example, a high amount of money would have been seemingly lost on this deal.
What's the rub?
The rub in dollars is you and I as tax payors paid it, LOL. Tax credits are allocated by the government, it's like a coupon, you buy a 5,000 tax credit for say 3000 and turn it in with your tax liablity and get a credit as having paid 5000 on your taxes. These are sold through syndicators to corporates or the 1% types. The properties must be professional managed as in any event the rules are violated the tax credits become worthless, so it's a very tough business to break into. A friend of mine does Sec 42 developements and I have assisted at times, but I would never want to have the problems. We have had discussions here on BP about this, just search Sec. 42 or Tax Credits.
Back to NP, yes Michael, that's the right picture, you might read my previous posts as to how this might work for you and we can go from there.
Interesting about the sect. 42 credits. Won't hijack the thread, will just do a search.
As for N/P, Michael asked a question earlier that I would like to revisit. What is the advantage of going the N/P route vs. a normal investor LLC/S-Corp? Perhaps I am not smart enough or well versed enough to be able to see what the benefits are, but it seems to me, paying yourself an ED salary or taking a draw from an LLC are about the same. Does it help with acquiring and financing properties? Reducing taxable income? Scaling to larger numbers?
I am all for innovative strategies, especially if it helps grow and scale profits. Please help me understand what I am missing here.
In addition to Sean's question, re Non Profits in general, section 42 tax credits are obtained for investing in low income rental property so wouldn't tax credit have some bearing on this topic?
One of the areas I am considering is providing rentals to Homeless vets under a program currently underway at the veterans administration. This would certainly be low income housing.
If I formed a non profit for this would section 42 of the code apply in any way? How exactly does sec 42 apply to real estate investors and if I qualify for a deduction or tax credit which I do not need can I sell it?