So, your church is growing! This is a great, exciting season chock-full of potential to take your ministry to the next level. However, church expansion can also be a time when teams split, leaders get overwhelmed, money is tight and faith falters. How do you resist the urge to maintain the status quo?
Successful church expansion happens when you apply important elements to your formula. You need to get real good real quick at a few core skills if you want to achieve your goals. These are well within reach for all leadership teams (although you may require coaching to get on the same page!).
First, you will need to understand construction costs.
Second, you will need to learn about interest rates and financing.
Third, you will need to plan your project management and processes.
Let’s dive deeper into these three vital elements of stage one in your church expansion project.
Construction Costs for Church Expansion
Church expansion will include building. Whether you renovate or start from scratch, understanding construction costs is an important part of stage one. This isn’t something you can outsource or trust a contracting team or anyone else with. Your church leadership team has to understand what these costs are or should be and integrate them into your long-term goals and milestones.
So, how much will that building be?
Well, of course, it depends.
Churches are impacted significantly by the fact that construction costs have risen over the last couple of years. There are some trends that are highly relevant for your project.
In both 2014 and 2015, the construction price index increased by 11-13% each year, which means that a project which would have cost $5,000,000 in 2013 cost at least $6,160,000 by the end of 2015 (some markets experienced even higher increases).
The result of this has been high demand for vacancy and a shortage in construction labor.
The good news? In 2017, the increase dropped to 3.8% in commercial projects. While this is better than it has been, it still impacts your bottom line.
Construction Cost Forecasts for Church Expansion
The rise of construction spending and price continues. Forecasts show that construction spending could increase as much as 12%. The construction price index continues to rise at a rate of about 3%. What does this mean? It means that a project that was intended to cost $5 million dollars could now cost $5.4 million dollars. Experts say that this growth will continue through 2021.
The construction industry continues to experience a labor shortage of about 600,000 people. This increases demand in major markets, which means that labor costs will also continue to rise. The residential market encroaches on this demand for jobs, which continues to inch the price tag of your new build higher and higher.
Interest Rates for Church Construction
Interest rates are a hot topic everywhere. A strong economy, decreased unemployment and increased spending are necessitating an interest rate increase. While no one can definitively say how much interest rates will go up, there are a few key elements that can help you make a (better) educated choice.
Interest rates are not all the same: you may have short-term (prime through five-year) and long-term (7-10 year) rates. Both are likely to increase in the next couple of years, but short-term rates will be impacted most.
At the end of 2017, the prime rate was around 4.25%. This increased to over 5%.
The five-year treasury rates are increasing, which impacts your interest rate.
Long-term rates (like a 10-year fixed) may continue to increase by half a point.
Cost-Cutting Your Church Expansion
What does this mean for you?
Process has never been more important. You need to have an eagle eye on every element of your expansion project to ensure you are not wasting money and are always getting the right service for the right price. Here are some practical ways to do that:
Get consistent milestone pricing at every interval of design: concept, schematic, DD and construction drawings
Do not move forward into the next phase of design if you haven’t received a price check on the last phase. A decision without information is an expensive guess.
Eliminate the guesswork by making sure you have a general contractor at the table with you. Without this expertise, there are increased chances of having to re-design and move back your timeline significantly, or to incur more cost/debt.
The Bottom Line for Church Expansion Costs
Money is more expensive.
You need to anticipate, in light of all of these factors, that every million dollars borrowed will cost you $10,000 per year more than it did a year ago. For a $5M loan, that is the equivalent of one staff position ($50,000).
This may mean that you can borrow less than you could even a year ago. Borrowing capacity is impacted by cash flow and debt service, or interest payments. If you were already at the height of your debt ceiling, you may need to revisit your project plan and timeline.
Bottom line: every phase of your project counts, but this first one needs to be steeped in good financial understanding and practices. Our goal at Ministry Solutions is to say yes to growth by eliminating guesswork, accelerating vision and protecting the purpose of your church.