Excerpt from 10 Tsunamis Impacting Ministries, a book which identifies significant areas impacting Christian ministries in the coming years, and identifies very practical responses for churches to overcome these shifts.
Dan Cook · October 6, 2016
The following describes a scenario for each model:
The proposed $5 million dollar project is funded as follows:
1. The ministry through existing resources and capital campaign will raise a minimum of 20% or $1 million dollars.
2. The ministry would form an LLC and generally be the general partner of this company. For-profit investors would come into the LLC with an investment of 30% or $1.5 million dollars. The $1.5 million could be a loan to the ministry or work as a deposit for the ability to lease the facility from the ministry.
3. A 25 year bond (mortgage) will be placed with the ministry for the balance of the project or $2.5 million dollars.
4. The LLC leases the facility from the ministry for 7 years and runs the business as a for-profit.
5. The net profit of the business pays for the lease and a return to the investors generally in the 6 - 9% range.
6. The ministry pays the payment to the bond company with the lease income from the limited liability company (no taxes on this income since it is passive).
7. At the end of 7 years the ministry buys out the limited partners for the original amount of their investment ($1.5 million) and places the entire operation under professional management so that the income to make the bond payment and sustainable cash will go to the ministry as passive income.
8. All debt service payments have come from the business, not from the ministry.
Advantages to the ministry:
1. The ministry extinguishes its debt, yet retains the right to future cost free ownership of an “appreciated asset.” This is what the non‐profit obtains in return for allowing the Limited Partnership to operate the structure as an event center or other financially sustainable use.
2. The ministry relinquishes the responsibility of having to maintain the asset, as the Limited Partnership will outsource the management/maintenance to a for-profit management firm while the non-profit pays as little as 1/5th of the expenses of ownership.
3. Opposed to receiving only the benefit of tax deductible charitable donations which many of the higher income ministry members cannot fully utilize, Limited Liability Company investors still support the non-profit’s cause while receiving a return on investment and return of principal. In addition, they obtain the benefits of tax deductible depreciation and interest.
4. Investors may also receive a closing tax deductible gift upon donating the asset back to the non-profit if they make that choice rather than return of capital. Limited Liability Company investors incur nominal risk, as the company will be restricted to maintaining debt equity below 50% of the asset’s appraised market value.
5. Ministry spends financial assets for Kingdom Building Purposes.
6. Ministry increases outreach with quantity of people visiting the facility for non-ministry purposes - events, etc.