“Non-Profit” Apartment Complex Loophole

This was actually a draft of a post I wrote on August 20th, 2006. However I still think this is a clever loophole, as I know people who run apartment complex’s, and it would be GREAT if you could strictly discriminate who lives there (although that’s illegal):

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For the summer I lived in a “student community” where you HAD to be a student to live there, however they weren’t associated with any university.

I went to speak with the manager about this, asking how they were allowed to ask for student ID’s as a prerequisite to live there….as this obviously violates the Fair Housing Act (you can’t decline someone housing based on pretty much anything such as occupation, race, gender etc).

He told me the whole complex was a “Non-Profit Organization” which I immediately didn’t believe.  There HAS to be someone making money from this I thought. The manager didn’t know much about how it worked, but he said there are bond holders and some other people that make money off the apartments.  I knew it.

Someone is definitely profiting off a 400+ unit apartment complex.

I asked a close family friend of mine who deals with apartment complex’s what was going on, and I found it very interesting:

He said that there used to be a loophole in the system where if a property was established as a non-profit, they could accept or deny whoever they wanted to live there. This is why even in a heavily low-income, Hispanic part of town, there are only students living in the apartments.

The loophole was shut down, but people already under that loophole could continue operating as non-profits.  They were basically grandfathered in.

Obviously there were SOME profits, so I asked how those were collected. He said there are bond holders for the loans, so when the apartment makes a profit, it’s issued as tax credit. So if the apartment makes $1,000,000 in profit, they could sell that tax credit for $900,000 in cash to someone looking to save money on their taxes.

So while the complex loses a little money in the tax credit arbitrage, their ability to decline whoever they want probably makes them more profitable than others.

I found this VERY interesting…..it wasn’t illegal, but it’s very sneaky.