Should nonprofits own their own real estate?

Ask some tough questions before buying or accepting it as a gift

By Robin Minick

Many nonprofits have the desire to own their own space, or willingly accept a gift of real estate from a donor. Sounds like a good plan, right?

Not necessarily.

If you’re a nonprofit leader, before you sign a sales contract or accept a gift of real estate, you need to ask some tough questions. Here’s the first:

Does this match my mission?

If you run a community garden, or an equestrian therapy center, or housing for teen mothers, maybe it makes sense. Having an established space that you own can be a draw for clients and donors, provide the space you need for supplies, or create a safe environment for the people you serve.

But things change. Neighborhoods can gentrify. If you were serving the poor in an area that isn’t poor anymore, determine if you’re still achieving your goals in that location. Is it convenient for your clients? Is it easy for them to get there? Or, consider if you can serve more people by leasing space for a shorter term where they are, instead of where you own.

Does the property meet my space needs for the future?

Maybe you aren’t ever going to have more than 20 people on staff. Maybe you only need six rooms for counseling sessions. Maybe you don’t need a big conference room. Now, that is.

Things change for the better or for the worse. What if you have to downsize your staff (think Covid) and now are paying for more space than you need. Or maybe because of economic conditions (think Covid) you need additional space to serve the clients that have been affected. Either way, you’re locked into owning property that doesn’t meet your current situation in a significant way.

Do I know what I’m getting?

Do your homework. Is the property in good condition? Have you checked on the environmental history? What’s happening to the area around the property? Is title to the property clear? Will you have to pay real estate taxes?

The condition of the property, especially environmental concerns, can create liability that could sink your organization. It may be raw land in the middle of nowhere, but that doesn’t mean that somebody hasn’t used it as a dump site in the past. And not all property owned by a nonprofit qualifies for a tax-exemption.

How is owning the property going to affect my organization’s financial health?

As an owner, you’re not paying rent but you are paying for maintenance. Be sure you are financially prepared to pay for a major repair or replacement, such as a new roof or a malfunctioning HVAC unit. And factor in the cost of the necessary insurance to protect the asset. Understand what is required to own and maintain that property.

Do I have the experience to manage real estate assets?

Maybe you plan to buy a building that your organization will occupy a portion of with the intention to lease space to other nonprofits. Being a landlord requires work and a knowledge of the laws relating to it. Make sure that’s not a distraction from your core mission before buying that property.

Am I afraid to say no to a donor?

Sometimes getting a gift like real estate is great. In the current real estate market, you might be able to sell the property or use it to secure a loan that you need to grow your mission. Maybe having a specific location is the best thing that could happen.

But sometimes (and I would say most times), it’s not a good idea. Ownership of real estate by a nonprofit generally is more hassle, distraction, and an expense greater than its worth. Frequently, the core mission has nothing to do with the real estate. That mismatch can lock your organization into a location that doesn’t serve your clients well, costs and expenses that require additional fundraising that doesn’t serve your mission, and potential liability for real estate that you really don’t know anything about.

If you want to explore buying or taking a donation of real estate, get the facts and get people to help you understand the benefits and risks. And don’t be afraid to say no. After all, a well-intentioned donor may only be transferring a problem to you. Instead, ask the donor to sell the property and then donate the proceeds to your organization.

Robin Minick can be reached at robin@wrightconnatser.com.