ShareThisOnce a novelty, dream-home raffles are becoming a popular but risky way for nonprofit organizations to raise money.
The concept marries two of America's favorite obsessions -- gambling and real estate -- with that good feeling you get from supporting a worthy cause.
At least eight Northern California nonprofits have sponsored dream-home raffles this year. While some have hit the jackpot, others have been canceled or forced to scale back their grand prizes because they didn't sell enough tickets.
In a dream-home raffle, a nonprofit organization sells tickets -- usually $100 or $150 each -- for a chance to win a luxury home or a large sum of cash, typically $1 million or more.
Raffle tickets are not tax-deductible unless you win, in which case you can deduct them, to the extent of your winnings, as an itemized expense.
Although the cash is usually less than the home's advertised value, most winners take cash because it's simpler.
For cash prizes over $5,000, nonprofits must withhold 25 percent for federal income taxes. If the prize is a house, the winner must give the nonprofit 25 percent of its value for federal withholding before title can be transferred. The winner also pays closing costs, property taxes and other homeownership expenses.
To encourage early ticket sales, most nonprofits raffle off smaller prizes before the grand prize drawing. Together, these can run well into the six figures.
Usually, the nonprofit is not given the home. It might lease it from the owner with an option to buy if the winner chooses the home. The owner gets paid for keeping the house off the market during the raffle, and even if it doesn't end in a sale, the home gets plenty of free publicity.
To protect itself from a big loss, the nonprofit usually sets a minimum number of tickets that must be sold for the home or cash to be awarded.
If the minimum is not met, the nonprofit typically agrees to split the net ticket proceeds (after all raffle expenses) with the winner 50-50. Or it may pay a certain dollar prize based on the number of tickets sold. This is disclosed in the raffle rules.
Last year, InnVision, a San Jose nonprofit that feeds and houses the poor in Silicon Valley, sponsored a raffle.
The grand prize was a $1.2 million penthouse condo or $1 million in cash -- but only if the agency sold 15,000 tickets. Because it sold fewer than 6,000, the grand prize was only $100,000, which is more generous than it had to be under the published rules. InnVision essentially broke even on the raffle.
Lada Rosandich of San Jose, the grand prize winner, was thrilled to get $100,000 because she didn't expect anything. "I just filled out the form and paid my $150 to support the cause," she says. "It was literally a donation. I might have known there was a condo involved but I didn't know the legalese."
This year, InnVision is raffling a $3 million home in Los Altos Hills or $1.5 million in cash.
Christine Burroughs, InnVision's chief executive, says the recession and competition from other raffles are hurting sales. But with donations down and demand for its services up, "We have to try different things. The regular fundraisers aren't cutting it."
(E-mail Kathleen Pender at kpender(at)sfchronicle.com. For more stories visit scrippsnews.com)
(Distributed by Scripps Howard News Service, http://www.scrippsnews.com)
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