In our previous blog post, we discussed the importance of purchasing real estate for nonprofit organizations. In addition to furthering the mission success of an organization, purchasing the right piece of real estate enables a nonprofit to become rooted in its target community and provides long-term stability in a changing marketplace. But apart from purchasing land, real estate can occasionally come in the form of a donation, where a landowning benefactor gifts a building or piece of land to an organization.
As generous as such a gesture is, how do you know if the property is right for your nonprofit entity?
Here are the steps you should take to determine whether a real estate donation is the right location for your organization.
Mission Success
One of the most important considerations to make when vetting a piece of donated property is whether or not the location in question furthers the success of your organization’s stated mission. A number of factors can determine this success, including:
Location. Is the property located near your target population? If you operate a food bank or a mentoring program for underserved youth, you should make sure your nonprofit is located in an area that would most benefit from its presence. Being present in the community you serve is important for growing trust and meeting your goals effectively and efficiently.
Function. Does the building function properly? This question may seem rhetorical—after all, you wouldn’t move into a building that was not up to code or otherwise uninhabitable. But function applies to more than the basics. Is the building set up to efficiently house your staff and services? Will it accommodate your organization’s needs next year? In five or 10 years? There are so many ways that the program of a building can actually enhance the day-to-day operations of a nonprofit. When vetting donated real estate, be sure that it meets or exceeds your standards and is functional for its intended use.
Stability. Is it a property or structure that will hold its value? Building equity is an important part of owning property for nonprofit entities. A property located in a good market where values are likely to rise is important to ensure that you get the most out of ownership. Properties that have a stable market value can be leveraged to secure loans for construction or program expansion. Unused portions can also be leased back to the community and produce income for your organization. Consider these benefits when vetting a potential real estate donation.
Tax Considerations
The Internal Revenue Service (IRS) provides organizations with extensive guidelines on existing federal tax codes, outlining the potential benefits for charitable organizations that receive donated property. Beginning in the 2008 tax year, the IRS issued a restructured annual return for charitable organizations requiring them to file a Schedule M that attaches to their standard Form 990. The Schedule M form details features of the donated property and allows for greater scrutiny to ensure compliance with both valuation and charitable deduction requirements. In order to complete the necessary tax forms, it is important to determine an accurate value for the property in question. Speak with an experienced tax representative for more details.
Other Considerations
Some other important considerations to keep in mind prior to accepting a property donation include any conditions placed on the donation. Will you eventually be permitted to sell the property for fair market value? Do you have a protocol in place for transitioning into the space? The time to consider these and other possible outcomes is during the vetting process. When you receive donated property, make sure that your organization retains full control and has the ability to alter or sell the property as needed. The last thing a nonprofit needs is to have its mission be compromised by conditions placed on a donated building or piece of land.
Soliciting Property Donations
Many nonprofits lack the time or personnel necessary to pursue all of their funding opportunities. Soliciting cash donations is such a common practice for nonprofits that some lack the skillset or knowledge required to ask for non-cash donations such as property. But messaging and soliciting for non-cash items is easy, once you understand how to make the most of each opportunity with your top donors.
It is important to message your “ask” around the unique selling propositions of your nonprofit, so your potential donors see the virtue of offering both cash and non-cash donations. Non-cash donations can promote the legacy of their donor by standing in commemoration of their generous spirit. And by making a visible donation, they can inspire others to step up and make an impact.
Also read – Real Estate for Your Nonprofit: Should You Rent or Buy?
Start Accepting Donations!
It is always a good time to start soliciting your donor base for non-traditional items such as property. Contact our team of experts in Arizona nonprofit real estate brokerage to learn more about navigating these donations and getting the greatest possible impact from your donor engagement.
