Buying a Church in Elgin, IL?

Question

Hello everyone,

I have an odd question trying to help a friend. He is currently on the search, on finding a building for his church. He was told that he needs a 2-year probation period of track his non for profit income in order for him to be able to purchase a building. He currently has a potential building in Elgin, IL being sold for $470k but it has been on the market for 5 years. He unofficially offered him the seller $280k and said he would entertain that idea.
How can he purchase this building without running it through his nonprofit (he does have a home loan under his name). Also, could I purchase this building for him and use it somewhat as a rental property. Or should we open an LLC and buy it that way? Any recommendations would be greatly appreciated.

Zack Karp · Answer

@Elier Roman that's all great, but make sure you have the exit lending part down.  I can't say for certain that you would be eligible for a church loan in 2 years, I don't have any outlets for those right now, and I don't know of anyone offhand who does.  I just don't want you to go into this thinking you have a plan, when in fact that plan might not even be possible in 2 years.  The exit is more important than the entrance, so that you don't get stuck or wind up wasting a ton of money and/or time.

Zack Karp · Answer

@Elier Roman if the seller will go for something like that, it might help in the meantime to get into the property, but for an exit strategy you would still be in the same position of needing church financing.

Michael Facchini · Answer

@Elier Roman - in the event they are looking to acquire a church property, it would fall under commercial financing, and given the zoning/use, likely will fall under a specific sector of the commercial market.  A good broker should have these wholesale relationships and could help.

Zack Karp · Answer

@Jonathan Klemm thanks for the tag :)

@Elier Roman unfortunately I don't have any options for churches, this is definitely a commercial loan product, and actually many commercial lenders won't lend to churches or other non-profits.  Your best bet is either a local community bank near the church that needs to lend out CRA funds (Community Reinvestment Act), or a commercial broker.  In the distant past, I recall that these loans usually require a massive down payment percentage, and frankly not very good terms.

Hope that helps :)

Jonathan Klemm · Answer

@Michael Facchini & @Zack Karp

Jonathan Klemm · Answer

@Elier Roman - It's not that clear for me what exactly you guys are trying to accomplish?  Who was he "told" by about the 2 year probation period.  Is his church looking and he is looking for the church or he is starting the church?

I am honestly don't have a good handle on how the non-profit space works with ownership, but I don't see why you couldn't put in an LLC and transfer to a non-profit later?  However, if you are going to use commercial lending the bank is going to want to see or understand how the asset is going to generate income, will it generate an income during the probation period?

I am sure they make special loans for non-profits?  @Michael Facchini or @Zack Karp?

Elier Roman · Answer

@Zack Karp This is my exit strategy. I will work with him and we will spend some money on the property in order to increase the value as much as we can during those 2 years. We will re-appraise and refinance, if possible, the property. We will see if we can pull equity out of the property. We will use that money and whatever we have saved to put the down payment for the commercial non-profit. I know it will be hard to do but I am confident he can do this. Based on the income I’ve seen so far, with not that many members. Thank you for your feedback!

Elier Roman · Answer

Hey @Zack Karp,

So, what if I create a deal with my friend, on which I create an LLC and I do a lease option to the church. So in a way I would be doing sort of a rental property with the intentions of selling to him or transferring that property to him in a few years. After keeping really good track of our finances and building a 2 year history. Is that something that would be possible?

Elier Roman · Answer

Sorry I was half  asleep when I was typing this. So, he is church planting/starting. He has all his legal nonprofit documents through the state of Illinois. Also, he has his IRS paper work and bylaws. The only thing missing is a building for his people to congregate in. The 2-probation period- he was told this by a bank he was trying to get loan from.  Basically, the same thing applies if I was to apply my rental income to a property but I was just starting.

The purpose of the LLC was just exactly what you said we wanted to transfer the property later. The non-profit is already generating income but the location they currently congregate on it is not suitable.

Thank you for your feedback. I have worked with Zack. So this will be great!

Buying a Church in Elgin, IL?

Most Popular Reply