Real estate investors tend to understand better than other professionals exactly what they stand to gain from giving away a house.
It’s as much a part of the season as mistletoe and silver bells. The annual home giveaway season starts just after Halloween when Christmas lights and holiday dazzle show up on your retailer’s shelves.
Among the biggest operators of home-giveaways is St. Jude’s Children’s Research Hospital. St. Jude’s raffles local and nationally-sponsored donated, upgraded, and often furnished and decorated properties. The program actually operates year-round, but the process makes a particularly big media splash around the holidays.
Benefits to Investors
One of the ripple effects is that local real estate investors often decide to give away homes in their own portfolios as well. This decision offers three substantial benefits to those investors:
- They are doing something good for their community and for a family in desperate need of assistance.
- They get lots of good publicity for their real estate business.
- The investor may receive tax benefits for the large charitable donation of a home.
Understanding the Intricacies
This practice has become so popular in recent years that many community programs offer home giveaway services to investors. They will make sure your raffle is legal and your selection process won’t set you up for a lawsuit later. They watch your back to make sure you don’t violate privacy laws. In general, they coordinate the process.
These groups are well-meaning but do not necessarily protect their donor’s personal interests or those of the winner in the giveaway process. As a result, the happy new homeowners often find themselves in a worse position than when they started.
Real estate investors tend to understand better than other professionals exactly what they stand to gain from giving away a house. Furthermore, investors are more likely to tackle the feat because an investor is more likely to have a viable home to give away. Deals that have dragged on, vacancy problems, or the need for a big tax write-off all are common reasons behind giveaways.
5 Steps to Ensure Your Giveaway Goes off Without a Hitch
Before you announce your own raffle on Facebook, make sure you are following these five best practices for effective, tax-advantaged home giveaways that will truly benefit the recipient and the community:
Verify the property fits the need.
Not every property is right for every service organization. For example, Veterans Path Up is a 501(c)3 helping honorably discharged veterans access affordable housing. Founder Ken Lacy recalled an incident in which his group facilitated a veteran’s transfer out of a gifted property from another organization. “There had been two gunshot instances in the neighborhood where the property was located, and that veteran had PTSD,” Lacy explained. “We had to help him move out of a beautiful house because he never should have been living in that neighborhood in the first place. It’s so important to make sure you’re donating to an organization or individual who can effectively place its clients in the property.”
Don’t be afraid to talk about failure.
Organizations dedicated to placing individuals in homes should not be afraid to talk about situations in which they have failed. Not every placement will succeed, and optimizing your chances is important if you want your gift to make an impact. Find out what organizations do to support recipients after they are placed. And don’t forget to ask about success and failure rates after those services end.
Confirm your donation qualifies for a charitable deduction.
Not every donation is tax deductible, no matter how charitable your state of mind. You cannot deduct donations made directly to individuals, and only donations made to qualified charitable organizations are eligible. Qualified organizations often post something called a “determination letter” from the IRS on their websites. Determination letters show they are qualified, but you can also search directly on the IRS website.
Factor in financial education.
In most cases, successful organizations involved in providing homes require individuals to support themselves after some predetermined length of time. Self-sufficiency in homeownership is more likely to occur if that organization offers or requires a form of financial education or homeownership training as part of the process of qualifying to receive a property. These trainings teach new homeowners budgeting, predicting how much they’ll owe on property taxes, and keeping up with household expenses. “We actually require our veterans to complete a financial training course as part of the process to receive the house,” Lacy said. “It helps them prepare for the point when they’ll be making monthly rent or mortgage payments on their own. It has dramatically increased our success rate because it helps them put the money side of the equation into perspective.”
Identify an organization that has the expertise to use your gift.
Not every property will be a good fit for every organization. “Say you want to donate a property that has suffered damage over the past year. Your tenants let a leak go unreported, or the house has been vacant and is a little neglected. You need an organization with the means to fix that house,” Lacy said. “A lot of people are embarrassed to donate those types of houses or they donate them to groups that do not have the first idea how to do the repairs, so the homes continue to sit empty and neglected. Find an organization specializing in the repair side, though, and they will thank you for that gift every time.”