From The Religious Real Estate Review, August 2020
By Marcus Daniels, Ed Luckett, & Terry Rogers
Whether you’re just starting a ministry or your church’s congregation has outgrown its building, it’s likely that you’ve had to take on an unusual new role: that of a real estate expert. Although faith leaders understand how to preach effectively and build a community of believers, not many are equipped with the knowledge for buying church property. From evaluating the value of the property to gaining zoning approval to inspecting the facility, there are many steps church leaders need to go through before signing on the dotted line.
But church leaders are not the only ones who lack familiarity with the process of selling or buying church property. Many commercial real estate brokers also lack the familiarity with laws and regulations unique to religious properties. Consequently, many lack the vision and strategic guidance to thoughtfully lead you through this process. Matters regarding church real estate require a specialized approach that should include an adviser who has both real estate expertise and experience working with churches.
If you are considering buying a church building or purchasing a nontraditional property to convert into your congregation’s new home, here are four critical steps to position your church for success.
ALIGN CHURCH LEADERSHIP
Before you can even think about selecting a site, everyone from your church administrators to your congregation members need to be aligned in terms of your long-term vision and how the new building will help you achieve the objectives and goals you have set. An experienced church broker can help shepherd a congregation through conversations about location, property-specific issues and design decisions to avoid a disconnect within your congregation.
KNOW YOUR RECENT HISTORY & WHERE YOU STAND
Get your business documents, attendance and balance sheets for the past three years and keep your financials safe and secure to be prepared to create a financial plan. Make sure your financial and organizational records are in order. You should be able to produce financial statements for the past three to five years, information about any existing debt obligations and current assets, as well as tithes and offerings. Additionally, review your articles of incorporation or bylaws, and determine who is going to be the signatory for the execution of the documents.
CREATE A FINANCIAL PLAN
Next, you need to create a financial plan for how the congregation will lease or purchase the property. If you choose to lease, make sure you understand the real market value of the property so you know if you can handle lease payments. If you choose to purchase, you will probably use a combination of funding sources, such as a capital campaign, donations and bank loans. A good rule of thumb: Churches can borrow three times their annual giving.
LOCATE THE APPROPRIATE CHURCH PROPERTY
There are many spiritual, emotional, and congregational considerations when selecting a site, and it’s helpful to remember that the “perfect property” doesn’t exist. Church leaders need to be flexible. For example, many churches are leasing or buying nontraditional church buildings because there is a low inventory of existing churches for sale. If you have identified a potential building, investigate local regulations and conditions, including easements, parking and zoning regulations, and utilities, to determine if the property can be used for religious purposes. Additionally, gain a clear understanding of what it will cost to convert the building into a suitable church.
Unfortunately, without the aid of an experienced church broker, many churches purchase buildings that aren’t zoned to be churches or that they ultimately cannot afford because they did not account for how much it would cost to repurpose or renovate. If you do find an existing church building in a good location that fits within your budget, make sure it suits your needs and is in good physical condition, so renovations required are more cosmetic than infrastructural.
Unlike a traditional real estate agent who must string together the professionals necessary to complete the purchase of a property, an experienced church broker offers a full turnkey solution. It pays to find the right partners who can connect you with church lenders and capital campaign leaders, organize documents and reports, manage the zoning process, oversee the inspection of the facility and the construction process, seek congregational approval, negotiate the deal, and hand you the key.
This article is an excerpt from The Religious Real Estate Review, a newsletter providing the religious community with up-to-date news on real estate development specifically by houses of worship in the Washington DC Metro region. Each issue provides updates on recent transactions, real estate development, religious news, and upcoming community events.
Marcus N. Daniels, Ed Luckett, and Terry Rogers of NAI Michael are the editors and publishers of The Religious Real Estate Review and have over 30 years of combined experience in commercial real estate sales and leasing specifically with churches and houses of worship.