JF1636: Creating, Managing, & Raising Money For A Nonprofit | How To Establish A 501(c)3 #SkillSetSunday with Christian LeFer
Christian and his company help people establish their own nonprofit organizations. You’ve probably heard how complicated and time consuming the process is, clouded with red tape that takes months to years to clear up. Changemakers is here to help minimize those hassles and get your giving back efforts established more efficiently than what is typical. Hear some great tips on how to establish your own efficiently, or hear how Christian and his team can help. We’re only on this earth for a short period of time, it’s important to try to make it better while we’re here. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
Christian Lefer Real Estate Background:
- Founder and CEO of Changemakers
- Starts and manages 501(c)3’s for successful business owners, investors, execs and celebrities
- Has raised millions and run many campaigns during his decade-plus of fundraising
- Based in Denver, CO
- Say hi to him at https://changemakers.world/
- Free PDF for starting a 501(c)3 www.changemakers.world/
Sponsored by Stessa – Maximize tax deductions on your rental properties. Get your free tax guide from Stessa, the essential tool for rental property owners.
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.
First off, I hope you’re having a best ever weekend. Because today is Sunday, we’ve got a special segment for you called Skillset Sunday, and here’s the skill you’re gonna acquire… This is a fun one, and a rather altruistic skill – creating, managing and raising money for a non-profit. We’ve got an expert who will help us with that, Christian LeFer. How are you doing, Christian?
Christian LeFer: I’m doing fantastic. How are you, Joe?
Joe Fairless: I am doing fantastic as well, nice to have you on the show. A little bit about Christian – he is the founder and CEO of Changemakers, which starts and manages 506(c)(3)’s for successful business owners, investors, execs and celebs. He’s raised millions of dollars and run many campaigns during his decade-plus of fundraising. He’s based in Denver, Colorado. The URL is in the show notes page, so you can go check that out.
With that being said, Christian, do you wanna first just give a little bit of background about yourself? And then I’d love to dive right into creating, managing and raising money for a non-profit.
Christian LeFer: Absolutely. I appreciate you having me on the show, and I’m looking forward to where we can go here.
Joe Fairless: Cool. So will you give the Best Ever listeners a little bit more about your background?
Christian LeFer: Absolutely. I have been in the non-profit space on both the [unintelligible [00:03:27].06] and the public charity side for probably closer to 15 years now. I have traveled the country, meeting with people on the fundraising circuit… Basically, meeting with people that I’d never met with before, learning a little bit on the way about their goals, their personal history etc. and then sort of connecting their personal mission with their desire to contribute to a particular non-profit, and coming home with a four, five or six-figure gift.
[unintelligible [00:03:55].00] that opportunity, both because I got to see so much of this incredible country, and meet the people that really make it work, and make it go around. Some were [unintelligible [00:04:04].23] executives, or just middle management or whomever, independent people; some were entrepreneurs, some were real estate investors… So I just got to meet a cross-section of a heartland that I’ll take with me through the rest of my life.
I’ve also done a lot of communications, I’ve been a copywriter for many years for a sort of direct response [unintelligible [00:04:24].10] political, and going and consulting with businesses of my own, or businesses that I did work for. So a lot of communications, a lot of ultimately what is sales; in the non-profit space you’re not providing a tangible to someone for their gift, you’re providing them with a connection to creating a better world and a better future in general.
Joe Fairless: So you’re the founder and CEO of Changemakers. Is Changemakers a for-profit company, or a non-profit?
Christian LeFer: Changemakers is for-profit. Structurally, it’s an LLC, and I co-founded that with Jacquelyn Long, and we help successful entrepreneurs, investors etc. connect their next-level efforts to make more of an impact and a legacy for the future, while taking maximum advantage of things like tax strategy and the non-profit vehicle as a way to give back to the community, in a way that doesn’t take away from what they’re doing now.
Joe Fairless: That makes sense, and I know one of my team members actually reached out to you, because he’s looking at starting something, and that’s how we came to know you… So when you are working with an entrepreneur or an executive, whoever’s wanting to start a non-profit, what are some of the questions that they typically ask?
Christian LeFer: Typically, when somebody is out to start a 501(c)3, first of all, there’s tons of misinformation out there. Now, that might be because people operate on conjecture assumptions etc, it might be because there have been a lot of changes over the years, with guidelines and how the IRS views certain things, what their process is, how long it takes, all that kind of thing… So there’s a lot of questions around the process and timeline, what’s permissible and what’s not permissible, and then I would say a lot of those questions are just sort of “in the weeds” operational – how do I switch out a board member, and that sort of nitty-gritty kind of stuff. But what we try to do is help people with those things, and do a lot of those things for the non-profit founder, so that they can focus on their mission. That is the number one thing, and that’s where things like tech strategy will come into play…
Or we provide plug-and-play sponsorship strategies, for example, so that people don’t have to sit there and have hours of meetings about how to stratify different giving levels; there’s some templates and some ideas that are tried and true that can work well, and help people get past those logistical issues and getting something up and running, so they can really focus on their strategic and their lifetime goals, and even post-lifetime, their generational goals.
Joe Fairless: Why create a 506 — first of all, am I saying it correct, 506(c)3? Is that accurate?
Christian LeFer: It’s a 501(c)3.
Joe Fairless: Sorry. I was venturing into securities territory, where I’m at. Okay.
Christian LeFer: I’ve actually written a memorandum for 506(b), which I know is your investment vehicle, and I’m familiar…
Joe Fairless: Okay, so 501(c)3… Why create one of those, compared to going on GoFundMe…? Say I’m passionate about ponies, and I want to help pony rescue… I don’t know why ponies are on the mind, but they are; so I wanna help pony rescue.
Christian LeFer: I have an 11-year-old daughter, so…
Joe Fairless: Okay, cool. Well, I have a one-month-old daughter, so maybe that’s why ponies are on my mind, but… When I want to support ponies in my local area, why can’t I just do a GoFundMe account and say “Hey, everyone”, share it on social, “Pony rescue, let’s make this happen”, versus going through the whole process, which we’ll get into in a little bit, of creating a 501(c)3?
Christian LeFer: Absolutely. Well, there often are reasons, typically… If you look at the cross-section of the world, 95% or 99% of people are going to give to a GoFundMe, or to a particular non-profit with a donation, or taking part in a social campaign sharing initiative, or whatever… But there are really three reasons, versus methods of engagement – and I have three of those as well – that someone would want to actually start a non-profit instead of give to another non-profit, or a GoFundMe, or what have you. Those are primarily simply to give back.
Somebody I believe in – I’m sort of a serious capitalist, and I also believe that people have goals and dreams that can’t be quantified in a bank account. So simply giving back is often a primary reason that someone would want to start a non-profit, because they see a way that they can contribute, where their experience growing up in the inner city, growing up without a dad – whatever have you; growing up without a pony – they see the need, and they look around and they haven’t seen anything that fills that need in the way that they see it.
People sometimes say to me, “Well, aren’t there too many non-profits already?” My answer to that is “Are there too many businesses already?” Because the millions of businesses and micro-companies that exist in the U.S. are because someone does not see a need filled, that is from their angle, in a particular community, or reaching a particular community. And with 300 million Americans, and seven billion or so on the planet, there are a myriad ways someone can interpret a way to fill a need, and then a community to approach with that solution, that is unique… And non-profits range from a few thousand dollars – if that – a year, like your local Little League, all the way to the Bill and Melinda Gates Foundation. So number one is simply to give back.
Joe Fairless: Before we go on to number two, I’m still not clear, because if I were to start a GoFundMe account for a pony rescue, then I’m giving back; and if I were to start a GoFundMe account for $100,000 and I were to donate all $100,000 towards a pony rescue, then I’m giving back just like I would if I had a 501(c)3, right?
Christian LeFer: Absolutely. But just in the same way that you might be an advocate for a certain company – “I love this hardware store. They have the best hammer selection. Go there”, and you can encourage all your people to go there. But there’s a particular type of roofing hammer that nobody carries, you can’t find it, you have to order it, and it takes weeks; you start a company providing that particular item. It’s the same thing with a non-profit.
The reason you might wanna start a non-profit is because no one is doing what you want to do, in the way you want to do it. Does that help?
Joe Fairless: Yes, it does.
Christian LeFer: So we can get on board with other people, we can see “Hey, I’m already aligned with this effort over here. Why don’t I just do that?” But people start non-profits for — I’ll give you a great example. I’m actually on the board of a non-profit where this sort of crazy entrepreneur – he’s an industrial painter by trade – created a guitar for a very famous rock band, tracked that rock band down, got them to sign it, and now wants to autograph it, and he thinks that he can do this again and again. It’s a really neat idea, and again, it’s a crazy idea, nobody’s gonna do this, and he approached me to not only help him get the non-profit going, but to sit on the board. I just got approved a few days ago in a pretty quick fashion. So nobody is going to do that, and what he wants to do is preserve the legacy of this type of rock, this band and bands like it, for future generations… Because people who hear of things now — millennials don’t know what it’s like to live without a microwave, and future generations might lose that piece of history; so instead of relying on the non-profit that probably is the rock ‘n roll hall of fame, he wants to install statues in places of celebration for these bands, in various countries around the world, that maybe don’t have the [unintelligible [00:12:09].04] memorabilia and experience like we have in America.
Joe Fairless: Got it.
Christian LeFer: That’s pretty unique, no one else is gonna do that, and I just think it would be fun to work with these kinds of bands… And these guys are getting old, they wanna contribute too, so it gives them an opportunity to not just go to another signing, or go to another Gala event in L.A, but to really bring these people in Cambodian places where generationally they haven’t had the opportunity to experience this kind of thing.
Joe Fairless: Noted. Okay. Number two?
Christian LeFer: Number two would be to create an organization in a way that aligns a corporate social responsibility effort through the non-profit and a for-profit venture. For example, talking with Grant in your office, and what you wanna do, you want to bring – and I don’t wanna read the other mission if that’s not something you’re ready to roll out…
Joe Fairless: That’s fine, that’s fine.
Christian LeFer: Okay, so you wanna help veterans obtain housing, right? And what a great thing to do. What a great way to inspire other people to maybe copycat you in their own jurisdiction, their own geography, in a place that you’re not doing this. So you can give away a home in a massive — and I know someone that’s already done this, and created an incredible model that I’m gonna share with you… They raffled these tickets to these sponsorships on a massive national scale; that has a halo effect. You’re doing something that brings light to the world, and that light is positively reflecting on Joe Fairless, your investing company, your team, yourself… There’s nothing wrong at all with reflecting positively on your for-profit venture by doing something that is literally going to put a veteran in a home. That is awesome.
So aligning those two things by having a non-profit alongside a for-profit is something that is a main, primary focus of us at Changemakers. Hopefully that example served to illustrate that point.
And then last but certainly not least it’s to take advantage of tax strategies. Yes, you can take advantage of tax strategies by doing certain things, like donating property into Fidelity Charitable, for example, and maximizing the upside on a long-term held property; you can’t do it with short-term holdings, but you can do it with long-term. If you do it with short-term, you can only get the cost basis. Longer term you can get a massive write-off by donating it; it’s kind of like donating appreciated stocks. But our philosophy at Changemakers is to do all three of these, because we have to get past the stereotyping that by making money you’re not for the social good, profit is evil, all that stuff. Total BS. It deserves to be relegated to the trash bin of history. You cannot save the world if you can’t pay the rent, and they are.
They’re starting out now, on day one of forming a company, they’ve got a social idea in mind. Back in the ’50s and ’60s a lot of these folks that I would fundraise from as I traveled the country, great people [unintelligible [00:15:01].11] to the manufacturer, for example. They’d make things that you drive behind a tractor. They’re doing 30 million a year, they have everything they want, their family has everything they want, and then they say “Oh, what about my legacy? I’m getting older. I’m 50, 60, 70 years old, I wanna give back.” It is a different paradigm now. There’s been a massive shift, where young people – and heck, I’m 50, I’m young – from the outset of the company they have a social purpose in mind. I’m a foster parent and I’ve adopted through the foster care system, so I have a particular passion around that.
My sister is developmentally disabled. I’ve been in the Special Olympics since I was a kid. I’ve got certain affinities, and when you start a company and there’s a great purpose behind it, it’s much more powerful on those bad days than when you’re losing money or you make a bad deal, it’s the mission that drives you forward… And if you can align your personal mission with your business mission, I think that’s gonna bring people to the kind of satisfaction that leads to fewer Prozac prescriptions, personally.
Joe Fairless: I would agree with that. And what are the costs associated to starting one?
Christian LeFer: The costs can vary. There are a couple of different tracks to getting a 501(c)3. The IRS has a tiered filing fee structure, for example… But it’s not just about starting the 501 entity itself. Yes, we’ve done that thousands of times successfully. I’ve been involved in many thousands of those. What I realize after thousands of these is that the likelihood of success long-term for the founder is also having the system set up to get the funding in, and to set up the sustainability systems like with any business, for things like compliance, staying on mission and getting the board or getting any staff and people that are involved in the non-profit to be aligned on the same page, and then that will drive the organization forward.
What happens with non-profits a lot – if they’re under-funded, especially the founder gets burnt out and the thing becomes sort of a side project that never really runs under its own power… Or if they don’t plan ahead, there can be sort of a founder’s syndrome, where everything’s falling on the founder over time, they don’t get enough buy-in, and it’s like a company where somebody’s not grooming middle management to be C-level and to take over, and growing people.
What happens is there becomes a stagnation and maybe the company that could be doing 50 million a year plateaus at 5, and is dysfunctional, and no one’s really excited to go to work in the morning. So what we do is we provide a holistic approach to all of those things, so that you know exactly what the policies are, and aligning your for-profit and your non-profit.
Where you can get in trouble and where you don’t have to get in trouble – how do you make money? You founded the non-profit – can you be a director and a paid staff? The answer is yes, but it’s how that’s done that’s important. So those are the kinds of things that I find the best predictors for success, and that’s why we’re templating these things and consulting, so that we can align the mission and the function.
Joe Fairless: So what are the typical itemized costs for starting one?
Christian LeFer: If you were to itemize the costs, you can be looking at about $10,000 for starting the non-profit, putting all the policies in place, and aligning the by-laws, the charges that you have to your directors and officers and all those kinds of things, with the mission of the non-profit and with the day-to-day functioning, how the things work, and setting up the systems so that the non-profit can operate properly.
It can range from about $5,000 to $10,000 to get started, and then there are ongoing maintenance costs that you need to pay attention to, and it’s subjective. It can vary. To get particular, there are a series of questions that will qualify what the costs really are and how long it takes. The maintenance costs can be fairly minimal – a couple thousand dollars a year, or maybe even a thousand, depending on the budget… To if you are fundraising in a very public way, where you are a Donate button, you’re doing a lot of social, you’re not just getting from a very close-knit group of people, larger donors… 41 states regulate charitable fundraising and you have to register in those states. That cost can be $5,000 to $10,0000 a year, but when you’re doing 2-3 million a year or more, that becomes just a cost of doing business.
On one hand, I don’t wanna scare anyone with big numbers, because most non-profits don’t incur those kinds of costs, because they’re not doing big, massive, public fundraising campaigns. But that is the range that it can go to. If you go to our website, you can see there’s a $5,000, there’s a $15,000 package which has a lot of ongoing maintenance where it’s sort of done for you; you can stay focused on your mission, we take care of everything else.
Joe Fairless: What is something that is not permissible, that some people mess up on because they don’t know any better?
Christian LeFer: Impermissible things – certainly a co-mingling of funds. Say you’re running a for-profit and a non-profit together, or alongside of each other (I shouldn’t say together, but your audience might). The listener would want to have a decision-making process that is very distinct for the non-profit, and separate from the for-profit.
The for-profit – you might have a board, you might not. You might just be a solopreneur. But say you have a group of people that are involved in the decision-making process for your for-profit real estate investment company – you can share directors; I recommend not having a majority, or at least not having a 100% overlap of directors, because that’s gonna create some separation and bring some sunlight into each process… But you wanna have a distinct bank account, decision-making processes.
You might have lots of your company people that volunteer for your non-profit, but you sort of want to look at this as two different hats that you would wear. You take off one hat to put on the other hat; you don’t stack them on top of each other. So the same person can wear a number of different hats in an organization, but wanna take those off when they go do work for their for-profit.
It really comes down in the IRS’s eyes to sources of funds and use of funds. The use of funds for a non-profit needs to fall under one of the exempt purposes, which is why the non-profit entity exists.
Joe Fairless: Anything else as it relates to creating, managing and raising money for a non-profit that you wanna mention before we close out, that we haven’t talked about?
Christian LeFer: Absolutely. I had mentioned earlier there are three types of non-profits that real estate investors might want to start or get involved in. Number one is the general education and/or community non-profit. This is where you’re putting information out to the public, you’re teaching them about real estate, or you’re teaching them about a certain aspect of what you do, and it’s available to everyone. It could be paid membership, or it could be just for free, but education is a primary one.
And then creating community. We’ve done a number of angel investing groups. The 501(c)3 can have the pitch fest, it can get everybody together into the rooms, where they educate people on how to become an angel investor etc. When the deal is made, those doors close and another door opens, and that’s where the for-profit or the other type of entity would be involved in actually putting deals together.
Number two would be a purpose-specific vehicle, like the one that you were talking about starting, where you give away a property, or you rescue ponies, or whatever, and you just wanna start one for a particular purpose.
And the third is to donate property to take advantage of some of the tax strategies that are available. There isn’t really a goodwill of real estate donations, and most non-profits have a lot of trouble. If you called your average non-profit up the street from you, they would find it very difficult to accept the real estate parcel. So there are organizations and companies that do specifically that, and sort of turn those into cash for the non-profit… But you could also give properties directly to a charity if they’re capable of accepting those.
Those were just a few of the final points I wanted to make on creating, managing and giving through a 501(c)3. I’m happy to provide more information. People wanna go to our website, changemakers.world/realestate.
Joe Fairless: Cool. Good stuff. Well, Christian, thank you so much for being on the show, talking about the costs associated to doing this, why to do it or why people do it, as well as what’s permissible or what’s not permissible, and some commonly asked questions that perhaps someone who is listening who wants to do something more formalized with their philanthropic efforts – they’ve been wondering, and you addressed them.
Thanks again for being on the show. I hope you have a best ever weekend, and we’ll talk to you again soon.
Christian LeFer: Absolutely. Thanks a lot, Joe. I really enjoyed being on the show. Have an awesome weekend.