In this post, we continue our series on funding your church design by looking at what your church building might be worth. The recent economic uncertainty, both in this country and around the world, affects things like interest rates and the willingness of lending institutions to take on projects that they might feel are riskier. All of this can, and will, impact your own church building project, especially when it’s time to secure funding for your new or renovated church design and construction venture.
How Much Cash Down?
Here’s a question we get a lot: “How much cash do we need to have for a down payment before we get started on the building?” However, we don’t feel that question is the best place to start the conversation. We encourage church leaders not to paint themselves into a corner by arbitrarily deciding that they need to have ten or twenty percent, or more, of the total cost in cash before they start.
This is because the lending institution will do some of that math for you, just in the process of figuring out how much they are willing to lend you. The amount you can borrow is based on their appraisal of the church building, not the cost to build it—and those can be quite different numbers.
Keeping Dodd-Franks in Mind
The reason is because of Dodd-Franks. One of our earlier church building blog posts talks about the Dodd-Frank Act. Put in place after the housing bubble burst, this law means that appraisers have to value buildings based on actual resale prices for comparable buildings. Unfortunately, churches aren’t sold frequently, and when it happens, it’s rarely at a premium price. Usually, it’s another church that does the buying—one that’s probably trying to stretch their dollars as well.
The Impact on Church Building Financing
In realistic terms, we have learned over the past half-dozen years that most banks will value churches at only fifty percent of the cost to build them. This means that a $2 million church building project will only be valued by the bank at $1 million—and the most they will lend you is eighty percent of the appraised value, or $800,000. So if you’re considering a brand new church design and construction project based on this example, you’re going to have to come up with a lot of cash: $1.2 million.
Does that mean it’s much harder to construct a church building from scratch these days? Yes. The good news is that there are options. If you want to add a new building on property you already own, your existing facility becomes part of the appraisal. Even at fifty percent of what it might really be worth, the value of your existing physical plant raises the amount of money that the lending institution will be willing to let you borrow.
There are also alternatives to traditional lenders like banks. Many church organizations have their own, church-based lending institutions. A few examples are the Methodist and Lutheran Church’s Thrivent fund, The Wesleyan Investment Fund (WIF) and the Christian Church’s Christian Development Fund. Take the time to investigate what your church denomination might have available in terms of funding support, but be aware that their interest rates are likely to be higher than traditional lending institutions.
The bottom line is that you’re going to need to think creatively and perhaps utilize a variety of sources to fund your new church building or renovation project. Since the facts change on a regular basis, we consider it part of our commitment to customer service to keep up with what’s going on. To keep up with what we’ve learned, we strongly encourage you to sign up today for our free i3 webinars.