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Nonprofit and flipping houses? (self.nonprofit)

submitted ago by campycapper

What do you guys think about a nonprofit flipping houses, to gain funding for programs? We are about to have a house donated to our program and know we can sell it for profit. All of the profit will be utilized for community programs but we are unsure of the problems that may arise from selling the house.

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[–]IndecisionToCallYou 0 points1 point ago

Well, the first problem is property taxes, every month it sits empty, you probably pay taxes.

You need to actually have enough in your reserves to do the remodeling.

It's hard to tell, you should probably look into how much it'll take to fix, ask your bank/ what is required to work before a buyer to get a loan, (probably a working heater and stove.)

This might be a discussion for /r/realestate. It's hard to answer this without knowing where you are and much about the house or your non-profit.

You may want to spend $200-$300 and have a home inspector tell you what's wrong with it before you start.

[–]principalsofharm 0 points1 point ago

There are loads of non for profits now engaging in investing and ideas like this to supplement funding.

[–]campycapper[S] 0 points1 point ago

That is what I have been reading about.

[–]CaptainKabob 0 points1 point ago

Unrelated business income can be taxed. Seriously, talk to a lawyer and an accountant.

[–]campycapper[S] 0 points1 point ago

We assumed we would have to pay income tax on the profit, but this could increase our ability to do a couple of programs several fold if it works. We have a meeting scheduled with our tax accountant next week.

[–]itsnowornever 0 points1 point ago

Also note that if you start doing this regularly, you may run into something called the Commerciality Doctrine. Which means that regardless what your money is going to, if too much of your operations is devoted to a purely commercial activity like real estate, you are no longer operating like a nonprofit, and the IRS will revoke your tax exempt status.

[–]campycapper[S] 0 points1 point ago

This is the number one thing I was worried about, could we lose our 501c3 status by partaking in these types of endeavors. We have investments, but they have done terribly the last three years, and we are desperately needing income to do our programs.

This house is ready to be sold, and a benefactor is donating it to us. Even if we sit on it during a down market for a year, it could net 10k+ with limited work on our part. On the other hand, if it does better than the investments we thought this might be a continued stream of income for our charity. So very many questions.

[–]itsnowornever 1 point2 points ago

What organizations have done in the past, is they would start a new for profit company that is owned wholly by the non profit company. The for profit company handles all of the for profit activities and transfers the money to the non profit company.

You should speak to a lawyer about that.

[–]ScottPR 0 points1 point ago

Real estate holding company. A separate non-profit that does the real estate. That's how ours does it. But yea, talk to the lawyers first.