The Financial Logic of Buying a Building

We have a headquarters building under contract at a great price. One of our longtime partners questioned the logic of owning versus renting. Here's the math--and it's very interesting. Let’s assume the final building cost will be $1,200,000 with closing costs and tenant improvements.

First, the deductions. For investors in a 39.6% tax bracket, the $1,200,000 in charitable tax deductions will result in $475,000 of tax savings, making the net investment only $725,000, a net cost of $75 per square foot. Even a 25% bracket still generates $300,000 in tax savings.

Second, the rent saved. The rent saved for us over the next 12 years will be approximately $1,200,000--an average of $100,000 a year. So the gross cost of the building is recouped in saved rent in 12 years.

Third, more money into direct ministry. Meanwhile, if we are able to buy the building without a mortgage, over next 10 years 1,200,000 more dollars go toward direct ministry. $100,000 a year (rent savings) on $725,000 is approximately a 14% annual return on investment for the donorsPLUS those savings go into direct ministry. 

Fourth, Man in the Mirror has a free and clear permanent home. We own the building free and clear and don’t have to pay rent going forward.

To summarize, this deal generates revenues several ways: $475,000 in immediate deductions, $1,200,000 more goes to direct ministry by saving $1,200,000 in rent payments over 12 years (and permanently eliminating rent), and we own a $1,200,000 building. That totals $2,875,000 worth of benefits on an investment of $1,200,000.

Humanly speaking, there is a lot of financial logic for Man in the Mirror to own a building. Please pray for God to show us if He agrees with our logic. We have exactly one week before we need enough response from donors to go hard on a nonrefundable deposit. This is a faith stretcher!

Until we reach every man...

Pat