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.
Glenn McCrorey I would like to possibly partner with a Special needs N/P here in El Paso. Would you be interested in sharing the names of any who may be national or sharing how to find those in my area?
Thanks
Charles
I bet if you get with the local United Way they can point you in all the right directions. They are usually the center of the non-profit hub of services, a good place to start. :)
Does anyone have experience getting a non profit set up with the HUD/FHA program?
Charles, better late than never.... google The Mentor Network. They are practically nationwide. Once you find one to talk to, you can ask for referrals for other institutions in your area. There is usually a Housing Director which is a good place to start.
@DJ
@DJ Johnson undefined
you need to set up the 501 c3 first, then you can contact HUD in KC Mo, your regional office, and ask about credit counseling classes and how to be approved. You can become qualified as a credit counselor to provide HUD housing classes for first time homebuyers and foreclosure assistance.
Recent fed law requires a license to advise those in foreclosure.
So, the thread is almost 2 years old! Anyone looking into N/P operations?
60 Minutes had a story on a N/P in Memphis, providing apts to the homeless, landlords were donating a small % of units and the N/P was paying rents, they were saying that the rent was cheaper than the costs associated with people being on the street.
Find a niche and fill the need! :)
@DJ Johnson undefined
you need to set up the 501 c3 first, then you can contact HUD in KC Mo, your regional office, and ask about credit counseling classes and how to be approved. You can become qualified as a credit counselor to provide HUD housing classes for first time homebuyers and foreclosure assistance.
Recent fed law requires a license to advise those in foreclosure.
So, the thread is almost 2 years old! Anyone looking into N/P operations?
60 Minutes had a story on a N/P in Memphis, providing apts to the homeless, landlords were donating a small % of units and the N/P was paying rents, they were saying that the rent was cheaper than the costs associated with people being on the street.
Find a niche and fill the need! :)
Not enough people realize the power of the non-profit.
Thanks for the reply @Bill Gulley will chime in as well?
DJ, no, you don't want a C Corp. Read through this thread, it explains the profit side, basically. There are many ways to profit, it takes people being involved.
Read the IRS Code 501 C 3, and follow the requirements, then adapt that to your state law of incorporation, not hard to do. Just need to plan ahead, have the scope of activities laid out and follow the plan.
Steven, absolutely, most in RE miss this boat, the tax advantages, grants, subsidies, cooperation from governmental entities, the public relations, legal protection and limited liability.
Non-profits are exempt from Dodd-Frank as an example.
For profit activities can be conducted to further the mission of a non-profit.
The N/P can work with other entities as well, that's to say that for those looking for away around DF, well, being exempt is being in compliance! :)
Bill summed it up perfectly.
@Glenn McCrorey What area are you investing in? Have you considered doing this niche investing strategy with Multi-family properties? That is what I am looking to do. What is the hardest part about getting started and what mistakes should be avoided to make this successful?
Utmost regards,
Andrew
Andrew, I'm not Glen, I'll let him explain any difficulties he may have had.
I believe many of the main issues have been addressed here, but I'll mention the key factors, but first address the multiple unit aspects.
There are several branches of this N/P housing tree. First thing to identify is the population to be served. Rather difficult to put in a decision tree format as each falls into very low income, low income, moderate income and may go into an average income bracket. Tenant income is the primary concern but there can be health aspects that limit a tenant's ability to live alone, physical or mental health issues may be the first concern but you'll still end up addressing income levels.
First question: Who is in need of safe and affordable housing?
You have very low income persons. This branches off into single room housing and family housing needs. It may branch off further as to special groups, could be veterans, could be Indian tribes, youth homes or other identifiable sectors.
This is the area served by HUD through public housing authorities. Section 8 subsidizes dwellings and housing authorities have "owned housing" to serve many of the lower income levels, in single room units and apartments for families. Housing is usually limited and housing authorities may have the authority, through funding, to obtain more housing as needed. Leased properties may be possible and the PHA will manage the property.
Low income and moderate is usually lumped together. The idea is that moderate income tenants can subsidize projects to carry low income tenants.
These clients may be served by multi-family units. If you have multiple stories then those with physical challenges will obviously have issues and you'll need to be ADA compliant.
The other major branch is moving low-moderate income persons, primarily families into home ownership. This closely follows the Habitat For Humanity mission, ultimately providing home ownership. This is obviously accomplished with single family detached units or houses. You can also include condos and townhomes, SFD attached units.
Then say at the trunk of that tree you'll have two trees with common roots so to speak. Privately owned operations and non-profit operations.
Glen's position sounds like private ownership where housing is leased to the non-profit and they often manage their tenants or clients. Maintenance may be accomplished to your tenant, the non-profit since they are business entities that can the tax matters related to maintenance and repairs. Individual tenants can't go there as it's the owner's tax matter and responsibility to make repairs and improvements.
For investors, this is the simplest approach, it's just a lease. A note too, your financing to a corporate entity and long term will not likely be allowed under secondary market loans, you'll need commercial financing. This can often be accomplished with your affiliation with your non-profit.
The other trunk is forming the non-profit and directly serving the targeted population. that I believe is covered above.
So, you first need to identify the population to be served, then decide which direction to best serve that population, from a private point of view or by being active on the non-profit side.
The population to be served will guide the mission, what is to be provided to accomplish the adopted mission.
You'll find in this public sector that housing isn't just a one issue at these income levels. Individuals and families face multiple issues that hold them back. Education can be as basic as literacy, job training can be an important aspect, schooling, finishing high school and beyond high school is an aspect. Job opportunities. Personal financial management will be need to be addressed in most all cases, credit counseling and money management. Home economics, cooking, balanced diets, special diets, cleaning techniques, how to care for a home, how to make simple repairs generally performed by homeowners usually must be taught. Transportation is often an issue, how people get to work or to health care may need to be addressed.
In any community of any size, you'll usually have many of these services available. If one organization were to do it all, it would take a very large operation and very deep pockets. So learning to collaborate with other organizations is critical. I mentioned before that N/Ps are sensitive to their turf, don't duplicate services or you can gain an enemy instead of a supporter, stealing their clients threatens their funding and purpose so tread carefully.
This is the first hurdle getting into this niche area, after identifying those to be served and your mission, you need to know the other service providers and develop a working arrangement.
After the ducks are in a row, you need to address financing. The aspects and benefits have already been mentioned. If you're on the private side it will be your financing techniques, your N/P can influence lending decisions.
As a private operator you can skip much of the collaborative efforts and concentrate on the relationship with your corporate client. Volunteering to assist them in other areas might be a good idea, all of this will have a political flavor to whatever you do.
After funding is known, now you can enter the area of searching for the RE.
I'd say for newbies, start with existing housing inventories, but if funding is available you can take on new construction.
You'll still need a team on your side just as you do for investing if you work the private side. If you go into the N/P side, you need trusted individuals on your board of directors, this is a huge area of concern starting off.
Board members must be of good character, the more successful they are or have been the better, they need to be known in the community, they must have the common interest in your mission and they need to be able to make a commitment to actually serve in that position! These folks are usually active in the community and may contribute time and money. This is the toughest part of setting up a good non-profit organization by far and it is a continuing process as board members don't serve forever.
Executive directors of other N'Ps can be great contacts, they usually have past board members who may be interested in serving in another mission. They can also inform you of whose toes not to step on! Political players in your community are another source of get to know people, at some time you'll need their support in a zoning hearing or building regs waiver. They also know those who may support the mission and unlike private enterprise they may assist as a public service without greasing their coffers. :)
Andy,
I buy single family homes to rent to the non profits. I am not organized as a non profit myself, just an LLC. I rent to 5 institutions, 3 are non profits and 2 are for profit but they do the exact same thing.
My son just bought a duplex for one of these companies but I don't have any multifamily properties. They like having houses in close proximity so the staff can help each other if necessary.
As far as mistakes I made, how long do you have? Just use good fundamentals and don't show the institution a house that doesn't meet all your requirements like resale potential, condition of the property such as newer HVAC, roof, etc. My first several houses weren't the best investments but they got me started. I was buying SFH's when someone told me about a non profit that wanted to get out of 4 of the 25 houses they rented for one reason or another. We bought all 4 over the course of a year and then networked with them to find out which other institutions do the same thing. Of course Google works too. The key people at these institutions all know each other so guard your reputation very carefully but don't be a push over, these institutions have budgets and access to government funds to make property modification, improvements, repairs, etc. Good luck,
So I have determined my company is going to provide Supportive Housing for @ risk homeless Veterans. My question is what is needed to initiate the process of working with the institutions that provide dedicated supportive service funding and property based rental assistance? Is it a matter of setting up a meeting with the key person and getting our business plan in front of them? Any guidance and information is greatly appreciated. Thanks.
Andrew, I haven't worked with an institution that serves veterans but I'm sure it's similar to other non profits. Networking is the best way to meet key people once you have identified some institutions you might like to work with but getting that first deal is going to require some cold calling. I have had limited success with cold calling but once you have spoken to anyone I drop their name in the next conversation. "I was speaking to Joe Blow and XYZ Institution and they don't need a house right now but thought you might". Be very ethical/honest and build a good reputation with your first client or two because the key people all know each other because it's a small industry with limited players in each area. First million is the hardest, so they say. Same with cracking into a new market. Once your in the opportunities will come if they like working with you. Let me know what else I can do and I would be interested to hear what you learn specific to the veteran angle.
@Bill Gulley I mistakenly omitted you from reference on my question. If you have any input and or experience with this segment that would be appreciated. Thanks.
Maybe I missed it but non profits that own houses can be exempted from property taxes. If I buy a house to rent to that institution I have to pay property tax which of course is a factor in my rent calculation.
I'm a CPA. I'm working with one of my clients right now that has a N/P. He is trying to provide housing for people after their court ordered half way house period is up. The issue we are dealing with is finding a city that has the proper zone that will allow him to build an apartment complex. @Glenn McCrorey is right that house can be exempt. But in my experience here, the county would only give him exemption if the apartment complex brought in some sort of revenue to the city.
On another N/P note, keep in mind while it can be a powerful strategy, you need to know the limitations. Once a N/P owns an asset, it can never be "sold" out of the N/P. I'm not saying you can't sell the property. You certianly can. But the proceeds from the sale stay within the N/P. If you want to dissolve the N/P, the assets have to be transferred to another 501c3 qualified. Nonprofits don't have shareholders or owners and they can't be organized to financially benefit its members, officers, or directors. However, reasonable salaries and expense reimbursements are permitted.
This thread is awesome @Bill Gulley
I think I prefer the angle of staying on the RE side and NNN/long term leasing to the N/P as opposed to starting a new N/P and having to navigate the political, financial and BoD aspects of it. I want to be an active contributor to the communities where I invest but setting up a nonprofit would remove some degree of geographic flexibility for me. Leasing properties to a NP does not necessarily require me to have a long standing personal presence in that city/town. Correct me if this conclusion isn't correct.
One link I'm missing is the partnership with the N/Ps. Does being a partner with a nonprofit allow their financing options and other benefits (access to community service labor, etc) to extend to your for profit LLC? I realize that the property tax exemption would not extend to property not held in the nonprofit itself. I keep seeing mention of the benefits of partnering but I'm not clear on what they are. Is this just another way of saying to have a NNN lease with the nonprofit?
Thanks for clarifying. This is one of the lesser discussed aspects of RE for sure.
@Richelle T. it's been awhile since I posted in this thread but I'm pretty sure that in most instances where I said "partner" with a N/P it's meant in the spirit of working with them not so much in a formal partnership arrangement. While you can form a formal business partnership it's more complicated and your CPA and attorney should be involved in the model. Taxes become an issue, they are tax exempt and you're not, meaning interests must be divided along with equities, in many instances it isn't worth the pain.
A Series LLC would be a possible arrangement as interests can be divided and accounted for more efficiently.
Legal issues arise as well, officers and directors are immune from personal liability except under intentional acts of wrong doing, basically. It's the type of immunity most investors wish for or think they have under other business forms. Another exception comes into play if the officer or director is compensated as opposed as working as a volunteer. The reason such immunity exists is due to the nature of being a volunteer and not receiving any benefit, otherwise it would be very difficult for N/Ps to attract volunteers.
It is better thinking in terms of a sale and repurchase agreement in the future or remain in a lender's position for the N/P to purchase as a commercial buyer. They can have relationships with other business entities through agreements, installment purchases, leases, options, re-purchase agreements, or simply bi-lateral or unilateral contracts.
I'd say you're on the right track in keeping at arm's length in your business arrangements. You can get sideways easily when you are an officer or director of one entity and then have a business relationship being compensated in another capacity. You shouldn't try to wear two hats as you can not serve two masters. While an attorney may facilitate some legal action or function for two or more parties they will always select one as their client for representation.
An example of where a N/P can assist in financing is where the N/P has a lease agreement with a property owner, a blanket lease arrangement agreeing to lease acquired properties or just the subject property. You can take that longer term lease to the bank, the larger and better known the N/P, the more your loan request turns into gold. The lease is assigned to the lender in the event of default, therefore you become more irrelevant as the lender relies more on that lease.
You'll also find that lenders will be more flexible in matters concerning the due on sale clause with installment sales or subject-to transactions. Equitable interests transferred to a N/P are viewed with less risk involved for the lender. Another aspect is that a transaction may be viewed as conduit financing and become eligible in the eyes of regulators as qualifying for community development and the Community Reinvestment Act that benefits the bank in their community involvement.
It's just a fact in today's economic society, regardless of what you do to make money the more money involved the more difficult it will be to perform or accomplish. Dealing in the N/P sector can be very rewarding, financially and personally and so requires greater knowledge on several fronts compared to dealing in a for-profit mode. While an investor's position doesn't need to be complicated they need to understand the basics of a N'P structure and how those entities operate. :)
The issue we are dealing with is finding a city that has the proper zone that will allow him to build an apartment complex. ..... But in my experience here, the county would only give him exemption if the apartment complex brought in some sort of revenue to the city.
On another N/P note, keep in mind while it can be a powerful strategy, you need to know the limitations. Once a N/P owns an asset, it can never be "sold" out of the N/P. I'm not saying you can't sell the property. You certianly can. But the proceeds from the sale stay within the N/P. If you want to dissolve the N/P, the assets have to be transferred to another 501c3 qualified. Nonprofits don't have shareholders or owners and they can't be organized to financially benefit its members, officers, or directors. However, reasonable salaries and expense reimbursements are permitted.
Welcome to BP, John, we appreciate input from other professionals.
Since a true public benefit corporation is exempt from most all taxing matters, a municipality will make some effort to limit the property tax base, they are providing services without the taxable income to pay for services. I'd have many points against an apartment complex being tax exempt and I don't believe that is a good approach socially for that client base. I'm pretty familiar with halfway residential properties and the programs involved. (frankly, there are many scammers involved acting under the color of law and social benefit entities and even religious entities, that's another story, many in that area take the old "company store" approach ripping off the clients as they have no alternatives to housing). It's much easier to obtain temporary tax relief on SFD, 1-4 family dwellings. It's also better socially and economically for the community and the population served. It's less beneficial to the owner due to management, expenses and profitability in many cases. It's not about your client, it's about the community.
Very true, non-profit accounting is a specialty area as the goal is not profit but to increase capital to further the mission. The way to pay out "profits" is by expensing them and reinvesting in other projects. As to a paid officer or director, I've mentioned in this thread that often it's not the best to sit in these seats but to be the Executive Director who is a paid employee as an administrator, pay needs to be in line with other positions of a similar nature as well. You can get into benefits as compensation and retirement accounts or arrangements, even golden parachutes based on performance or time served are common. The trick is not to over do it, but over time there is really no problem getting the funds out of a non-profit. Stay away from the appearance of "kick-backs", commissions and inducements. :)
Richelle,
In a nut shell... you buy a normal rental property and rent it out except your tenant is an institution (some are non profit, some are for profit). Either way, the funding to the institution to cover salaries and overhead comes from Medicare, etc. and the rent money comes from the individuals living in your property but they pay the institution (who is actually who sign the lease and responsible for the rent) and your check or EFT comes from the institution. The benefit to you is they always pay and on time. If you are responsive as a landlord and not greedy with the rent, you should have no turnover or vacancy. That is the best part. It's buy and hold without the drama from lost jobs, divorces, etc. And, it's recession proof because your tenants are going anywhere.
Near a year ago, this discussion about how non profits operate got almost 200 Post, and few non profits took part in explaining public/private operation of special need housing. Few Post were from actual non profit organizations. The only people came close were Accountants.
Next time you can questions about non profit organizations, I would PM a non profit
@Account Closed are you a non-profit organization?
Yes..Go to: www.hamiltoninvestmentschdo.com an I.R.S. designated 501 ( C ) non profit tax exempt community housing development organization that is public supported
Yes..Go to: www.hamiltoninvestmentschdo.com an I.R.S. designated 501 ( C ) non profit tax exempt community housing development organization that is public supported
So, can you please fill us all in on the details. We are all here to share and learn, the community would get a lot of value out of some further explanation from you (I.E. how we can get involved, what the structure looks like, what your clients needs are, where your industry is going). Thanks again for sharing your knowledge.