Nonprofit 501c3 - Posted by Tonya

Real Estate Investing
#1

Posted by scott (tx) on July 03, 2001 at 13:49:52:

We have been operating a ‘nonprofit’ (misnomer) here in Texas for some time. We bid exclusively on HUD and VA properties. If you go to the HUD website, you will see there are extremely strict regs that you must follow in order to keep your status. HUD will grant a discount of up to 15% off the list price of one of their properties. However, as I said there are very strict rules and regs to follow, and you must clearly document a percentage of the discount as returned to the owner-occupant/homebuyer in the form of prepaids, closing costs, grants, downpayment assistance, etc… HUD does not give approved non-profit status without careful consideration and frequently audits to ensure compliance.
They can shut you down instantly and prevent you from submitting any bids which in essence puts you out of business. There is a lot to consider with a venture like this and although I certainly applaud you for trying to provide a community service, it is not for the faint of heart.

#2

Nonprofit 501c3 - Posted by Tonya

Posted by Tonya on July 02, 2001 at 16:36:31:

Hi, I just recently became a nonprofit 501c3. I would like to know if there is any way that I can buy houses under the nonprofit? Does anyone have any other advice on the usage of a nonprofit in creative finance? Thank you, Tonya.

#3

Re: Nonprofit 501c3 - Posted by Steve

Posted by Steve on July 03, 2001 at 12:15:30:

Tonya,

I’ve worked with lots and lots of non-profits that buy real estate…mostly for community/economic development initiatives.

My suggestion would be to contact some of the larger support/education organizations in the country that help non-profits do that.

Here are a few:

L.I.S.C (Local Initiatives Support Corporation - liscnet.org…I think)

N.H.S. (Neighborhood Housing Services…www.nw.org)

N.R.C (Neighborhood Reinvestment Corporation…www.nw.org)

I’m interested in why you want to do this…I’ve thought about doing it for a long time as a way to put non-qualifying buyers from impoverished areas into homes…there’s also still a LOT of “red lining” that goes on by lending institutions.

Hope this helps, feel free to write with any questions,

-Steve

#4

Interested in doing this as well… - Posted by IB (NJ)

Posted by IB (NJ) on July 02, 2001 at 20:21:08:

I want to form a non-profit CORPORATION that deals primarily with real estate to fund it’s humanitarian causes. But I figure I’ll consult an attorney when the time comes. Let me know if you find any info. regarding this. Thanks.

#5

How in the World did you do that ? - Posted by JT - IN

Posted by JT - IN on July 02, 2001 at 17:57:35:

Tonya:

You must have worded your post other than what you meant… You cannot possibly be a 501c3 ! Maybe an organization that you are affiliated with, (club, museum, etc) may have become a non-profit, but that is not an option for an “individual/person”. Some folks become non-profit, in the literal sense of the word, by not making any money, but that is way different than what you have referred to here.

Please clarify this, and thanks.

JT - IN

#6

JT, You mean to tell me that… - Posted by IB (NJ)

Posted by IB (NJ) on July 02, 2001 at 20:17:05:

an individual cannot form a non-profit org. ?

#7

Yes, Exactly… - Posted by JT - IN

Posted by JT - IN on July 02, 2001 at 20:43:13:

IB:

What Tanya’s post said was: “Hi, I just recently became a nonprofit 501©3”.

Yes, I am saying this is not possible, for an individul to become one, or we would all be 501© 3’s !!!

As I posted, she may have formed one for another purpose, but not one for an indivdual. My question was, did you misstate the post?

Enlighten me, if you know otherwise, but I have neeevvvveeeerrrr heard of this. I have filed for, and am a board member on several 501©3’s, (all legitmate non-profit org.), and there are very rigid guidelines to qualify.

JT - IN

#8

I’m sure you’re correct JT… - Posted by IB (NJ)

Posted by IB (NJ) on July 02, 2001 at 20:46:57:

I’m sure Tanya actually meant that she FORMED a 501 c3. Thanks for the clarification.

#9

But a 501c3, for what purpose??? - Posted by JT - IN

Posted by JT - IN on July 02, 2001 at 21:04:17:

Tonya’s questions was about buying houses using Creative financing, in a 501©3, non-profit corp.

The two entities are about as dissimilar, as can be. Additionally, I can think of no way faster, to lose your non-profit status, than to begin enterprising in business “for profit”. It just doesn’t compute. I origianlly posted, to get some clarification, of what Tanya meant, about the non-profit, and I would still like to know.

There is no way that I am aware of to buy for-profit properties, in a non-profit corp, and have an individual benefit financially. Please enlighten me here, maybe I am missing something.

JT - IN

#10

Re: I’m sure you’re correct JT… - Posted by Tonya

Posted by Tonya on July 02, 2001 at 21:01:56:

Hi, yes I did form the nonprofit 501c3, when I say I am a nonprofit 501c3, it doesn’t mean as an individual, I am the Pres. who filed it and the executive director. I am looking to buy houses under the nonprofit. Can anyone answer how you go about aquiring properties under this status. Thank you.
I didn’t use an attorney, but I went to aj.com and asked, How do I form a nonprofit corp with 501c3 status?

#11

Re: But a 501c3, for what purpose??? - Posted by IB (NJ)

Posted by IB (NJ) on July 02, 2001 at 21:12:35:

JT, I’m no lawyer but I assume that I would be able to form a non-profit corporation and transact real estate in the 501 c3’s name. The nonprofit corp. would actually benefit from the sale of these properties (I’m a rehabber) as long as they were able to show that the profit was used to benefit the social causes they claimed to represent at the time of filing. Tanya, as Executive Director/President, should be able to receive a salary from this nonprofit corp.

#12

What is the purpose of the N.F.P.? - Posted by JT - In

Posted by JT - In on July 02, 2001 at 21:08:03:

Tanya:

For what purpose did you form the non-profit corp? Have you filed with IRS and received approval of your 501©3 status?
What did you state as the purpose and type of business in your IRS filings?
Please clue me in here… Thanks.

JT - IN

#13

Re: But a 501c3, for what purpose??? - Posted by JT - IN

Posted by JT - IN on July 02, 2001 at 21:31:24:

IB:

This better not smell remotely like an investor setting up a nfp, and profiting from this venture. There are substantial burdens to be met here, to maintain the nfp corp. One misstep, and there goes the neighborhood, I mean the status of being non-profit, not to mention the possible fraud involved. Maybe I am reading way too much into this idea, but why would a nfp want to be investing in RE?

As I mentioned, I am deeply involved in the operation of several nfp corps, and we have never considered investing in RE, cause it could jeopardize our nfp status.

JT - IN

#14

Re: What is the purpose of the N.F.P.? - Posted by Tonya

Posted by Tonya on July 02, 2001 at 21:50:33:

I filed the nonprofit to aide low to median income families in aquiring housing, and to develop housing in the NJ area. Yes I do have my approval fro m the IRS

#15

here’s an example - Posted by Anne_ND

Posted by Anne_ND on July 03, 2001 at 15:30:49:

JT

In my city, Easter Seals/Goodwill is making money by
rehabbing houses and selling them to low-income owner-
occupants.

The city participates by giving them very
run-down properties. Easter Seals also gets the city’s
help by using donated time from contractors who owe
community service to the city. In other words, a
roofer gets stopped for DUI and part of his punishment
is 100 hours community service. Well, the city lets
him work that time off by working for Easter Seals for
free. Easter Seals then sells to low-income people.

The city gets previously useless property turned into
tax-producing owner-occupied homes. Easter Seals uses
whatever profits they make to do their good works.
And some low-income people get a chance at home owner-
ship in some brand-new houses. These houses become
the showpieces of their neighborhoods- they look great.

This was developed here by the local Easter Seals
director and now it’s being copied in other cities
around the country.

Anne

#16

Re: But a 501c3, for what purpose??? - Posted by IB (NJ)

Posted by IB (NJ) on July 03, 2001 at 14:05:36:

JT: Personally, I’m interested in assisting ‘disadvantaged’ youth. I would use the proceeds generated from rehabbing/flipping to further this cause. Using a separate entity (my current LLC), I would buy property in the same manner. This would be used to benefit ME and my family. I would keep the entities totally separate.

I plan on hiring a special accountant and attorney to handle the paperwork to ensure I stay within the IRS guidelines.

#17

Well, this makes a lot more sense - Posted by JT - In

Posted by JT - In on July 02, 2001 at 21:58:33:

Tonya:

Now that I understand a bit more of what you are trying to accomplish, this makes more sense. So you are the Director of a nfp, and going to purchase property for low to mod income families, and either rent, at below market rates, or sell to them at below mkt rates? If the answer is yes, then yes you could use creative financing methods to benefit your clients, but not your corporation, as you probably already know. You could make operating expenses, a modest reserve, but not a profit.

JT - IN

#18

Re: But a 501c3, for what purpose??? - Posted by JHyre in Ohio

Posted by JHyre in Ohio on July 04, 2001 at 10:05:42:

501©(3) are very complex and very easy to foul-up. It’s generally expensive to find good help on these. I see no advantage to be gained in using a 501©(3) when compared to conducting activity in your LLC and providing some well planned charitable contributions…or better yet, using a Charitable Remainder Unitrust (“CRUT”)- the latter provides a very nice income tax deduction, estate planning opportunities, while helping the cause of your choice. 501©(3) provide no real benefit to you (OK, no economic benefit) and are both delicate and expensive to maintain…doing flips sounds alot like what is deemed Unrelated Business Income (“UBI”) to a 501©(3)…UBI is TAXABLE! If you absolutely MUST do a 501©(3), PAY for the best help to insure that UBI is not being generated!

John Hyre
Tax Attorney, but no expert on the convoluted world of exempt entities.

#19

Sounds very nice… - Posted by JT - In

Posted by JT - In on July 03, 2001 at 23:46:58:

and a great way to help people, especially children. Bless you, cause the disadvantaged need all the help they, or others, can muster.

Very worthwhile, Great Success to you!

JT - IN

#20

Question on related topic - Posted by Gerald-DC

Posted by Gerald-DC on July 02, 2001 at 23:01:53:

On a related topic, is it possible (legal) to buy a house in a rundown area for far below the assesed value and the fmv, then donate it to a non-profit orgization such as Tonya’s and deduct the fmv for tax purposes?

Specifically, I have a truly motivated seller in Bmore with a house that is assessed about 18k and the fmv is about 32K free and clear. However the area has become so bad that no one wants her house. She has called every I buy houses add in the Washington Post for the past few weeks. I don’t want this house b/c I am not in the slum lord business and I absolutely will not entertain rehabbing or l/o a property in this area, wholesaling is not really an option either b/c 60% of the properties on the block are boarded up.

I know I could buy it from her for about 3 or 4. thousand. (Maybe less).

The only way I could see going through with this purchase is to Buy It- Donate It- Deduct It (apologies to Kevin Meyers).

Since I figure my taxe bracket this year to be around 29%, if I could deduct the fmv of approx 32K my tax deduction would be 29% of 32K which is $9280. If this scenario is doable and cool with the IRS I would have a great tax break and help a desperate seller with a real turkey on her hand.

Thanks all.