If you’ve ever invested in real estate, stocks, or even cryptocurrency, chances are you’ve heard the famous Wall Street saying, “Bears and Bulls make money, but Pigs get slaughtered.” It may not be a Biblical proverb, but we can all agree that there’s some serious wisdom behind it when it comes to investing for personal gain or for the Kingdom of God. In this post, we’ll explore what this means and how it can help you make smarter investment decisions. So, let’s get started!
Let’s Start with a Story
One of our Church partners had a need to provide affordable housing for seminary students. So, the pastor approached a group of givers and asked them to purchase several rental properties that the church could then rent out. The agreement was that the Church would do this for a period of time and then purchase the properties from the givers for a reasonable price when housing was no longer needed.
As many of you may know, the housing market has been strong. With no credit risk, the Church’s only responsibility was to ensure that each property had tenants. This arrangement had a minimal downside, and both the Church and the givers were able to make a fantastic return on their investment.
What Happens Next
The single-family properties were purchased for around $140,000 each. The church and the seller agreed to a sales price of approximately 80,000, representing about a 25% return for the givers. The current market value of the single-family rentals is about $380,000.
Since the church guaranteed the monthly rental, they received the benefit of the appreciation. At the same time, the givers had a nice tax deduction for many years from the interest and depreciation. The arrangement created a classic “win-win.”
Now that the housing is no longer needed, the Church and givers want to divest the assets. The sellers (the givers of the single-family residences) have four choices.
- Sell the Single-family Residences Outright and pay capital gains tax and give the church their share less the taxes;
- Create a Bargain and Sale to the Church with a Land Contract which would give the Church the single-family residences. In doing so, the givers would avoid capital gains taxes and receive a sizeable deduction even after recapturing the depreciation;
- Use the Church’s Pooled Income Fund Trust, where the trust will sell the houses and remit a payment stream for the duration of the giver’s lives; and finally,
- Use a Charitable Gift Annuity (CGA) issued by the Church to provide the givers a large deduction, a guaranteed stream of income for life, and a partial return of the principal.
All but one of the above choices seems like a good decision, right? Not exactly!
When givers make gifts to the Church they are investing in God’s economy. Remember, as stewards, we are merely managing the resources God has entrusted to us. Even though the four options outlined above seem logical, there is an important question the givers need to consider before making their decision. A wise Stewardship and Generosity Pastor needs to ask “What is your generosity plan for all of the blessings that you manage for God?’ This exploratory question will open the door for a broader discussion involving their estate and their generosity plans.
We don’t want to minimize the givers and their hearts behind this singular gift. Rather, we want to engage our people relationally, disciple them, and take the time to understand what they care about which will make this conversation a transformative discussion rather than a one-time transactional gift. There is a difference!
The proverbial ‘pig’ in this example could have been the giver or the Church. The danger of greed can cause givers to hold tightly to their assets while asking for too much can cause hesitation on the part of the giver. But, in this example, a series of non-cash gifts of real estate resulted in a seven-figure current gift and the potential for additional deferred gifts for the Church. What’s more, it produced a substantial return on investment for each of the givers.
At first glance, three of the four strategies could have created a fantastic gift. However, with a little advanced training, a gift like this has the ability to grow and become part of multiple current and deferred gifts for the givers and the Church.
This is an excellent example of Tax Smart Giving. Effective and efficient stewardship can be achieved by placing the Church (or charity) at the forefront when donors experience significant life events. Imagine the possibilities when you resource your givers with biblical teaching and education on various charitable gift options. We believe this is effective and efficient discipleship that results in increased generosity!
At MortarStone, we have helped many churches cultivate generous disciples through biblical teaching and by educating them on various charitable gift options.
By providing insights through data analytics and experienced strategy, we can help fund your ministry for today’s mission and vision, as well as create sustainability for tomorrow.
To help you get started, we want to offer you a customized generosity and opportunity report for free through the month of June. This report will allow you to evaluate the potential within your Church and start making strides toward increased generosity.
Don’t wait, reach out to us today, and let’s work together to cultivate generous disciples and fund your ministry!