Is there profit to being a non-profit?(???)
June 27, 2007 11:51 AM   Subscribe

An individual looking to buy a multi-family home to create a low rent situation for several artists. Is there a benefit to becoming a non-profit? Is there money to help support this venture that I should be chasing after?

Not very complicated: I'm in the process to purchasing a piece of property, to allow a small group (8-10) of artists to live and work for reduced rent. Suddenly it occurred to me that I'm playing the role of a non-profit - I've been crunching numbers so hard I hadn't given it much thought.

1. Is there some benefit to purchasing this property as a non-profit, rather then a single nice guy?

1a. If I do go as a non-profit (what ever that means), does that mean I have to charge the logistically lowest rent? What does that mean to the profit from the property if/when I sell it again?

2. Is there money out there for this purpose that I should be pursuing that might help us out? (Currently living in Connecticut, but my search isn't limited to this state) Any way to make the monthly payments as low as possible.

3. And while I'm at it: Whats the wisdom to making a piece of property a co-op situation, rather then a tenant/owner situation? And would/should it still be considered a non-profit.

4. if things go ugly - is there a way for property to become profit again?

facts: Second piece of property, I AM a a low income artist as well, and I would like to live here as well.

Don't worry, I'm not going to run out and buy the house today or tomorrow base on what ever you say. Yes I'm going to go talk to a 'real' person if my 'internet friends' generally make noises like this could be a good plan.
posted by mrgreyisyelling to Work & Money (6 answers total) 2 users marked this as a favorite
Find a property and see if you can get a non-profit community development seed grant or loan.

You will probably have to get a board together and show that it is being used for work purposes in addition to living, get a business license and place conditions on use.

You would have to get the property zoned, which could take time if you have to get council permission.

If you are only looking for a way to save on taxes and live rent-free, this is a huge amount of work for what could be a very tiny payoff. Plus, any decision would have to be made with the best interest of the foundation at heart. It's rare that a single person or family (except in fiscal foundations) get to have say in a non-profit after an insurrection. You might find yourself out on the street, because "you" no longer own the property.

You would be better off, in my opinion, of going in with a group of people on a house and then carving a retail/gallery environment into the property for the mutual benefit of all owners provided they gave free labor to the retail project until such time as a profit is created. You could agree on a payment schedule beforehand so there is no bickering and the artists could get tax write-offs for expenses related to their own self-employment and the gallery could get a corp and probably community tax incentive as well.

If an artist left, he or she would have the right to sell their part of the property they owned to anyone, but you could make a deal which included yourself to say that were one of you to move on, the remaining original owners would each have the first chance to bid on the property. This would cut the chance of ugliness and problem tenants. For-profit ownership would also cut your chances of having renting tenants who refuse to go.
posted by parmanparman at 12:29 PM on June 27, 2007

Plus, the property would have to be owned by the nfp corporation in order to get any of these benefits.
posted by nax at 12:53 PM on June 27, 2007

I don't know much about this kind of situation but I know a little about nonprofits. I doubt that you could get a seed grant or loan if you were not already an established 501(c)(3). And, doing the work to file with the IRS to be a 501(c)(3) can take a year, then you have to register with your state and if you solicit donations from other must file with those states as well, etc. Yes, the house would be an asset of the nonprofit and if the nonprofit dissolved the board of directors (who have fiduciary responsibility of a nonprofit) would direct funds from the sale of the asset to a similar nonprofit.

So, I think that you are better off doing this as a benevolent landlord. Once you have a community of support, such as the artists who will be living there maybe reconsider--especially if your goal is to find donors and grants.
posted by fieldtrip at 1:02 PM on June 27, 2007

Just asking, but where is this house located and what is the condition and layout of the property?
posted by parmanparman at 1:29 PM on June 27, 2007

I assume that you intend to purchase the property by taking out a mortgage (rather than spending a pile of money you have). I'm not sure what sort of legal frameworks are available in your area, but this sounds like a good candidate for a co-operative type organisation. You and the other potential residents get together and form a co-operative (perhaps buying shares for some non-negligible sum) and then that co-operative takes out a loan and buys the property. You don't have the same control as you would doing this yourself, but you don't have to worry about the potential risks either.
posted by ssg at 3:54 PM on June 27, 2007

If I do go as a non-profit (what ever that means), does that mean I have to charge the logistically lowest rent?

No, of course not. In fact, as an individual you could potentially create tax problems for yourself by charging below-market-rate rents, so a non-profit is certainly better if you want flexibility.

A non-profit can sell things for a profit -- it just can't distribute that profit back to its "owners" the way that a company or corp can.

In any event I think that ssg is right that a co-op is much more along the lines of what you want for this sort of project.
posted by dhartung at 9:15 PM on June 27, 2007

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