Appraisal and Tax Liability
Market Value:
Smaller renovated, wood-frame and brick houses nearby recently sold for in excess of $300,000. Essex residents interviewed hypothesize a selling price of $240,000 on the market should it be sold as is.
Taxes:
The Old Stone Church is a 36’x46’ building on a 45’x50’ lot. The property is tax exempt, as the Town of Essex owns it. Should it be sold, any private reuse option will require taxes. It is currently assessed for taxes at $119,670.
2004-2005 School Tax Rate =16.0925/thousand
School Tax bill=$1926 per year.
2004 Property Tax rate=11.678089/thousand
Property Tax bill=$1397
Total tax bill per year for the property would be $3323 annually or a cost of $277 per month.
Re-Use Options
OPTION 1 – Private (for profit use):
The town opts to abandon use of the church edifice and it reverts to the American Legion, who sells it at full market value for $240,000. A $200,000 mortgage is taken out with a loan to value ratio of 83 percent, requiring a higher APR.
An interest-only, construction line of credit is used with an adjustable rate at 5.00 percent.
After rehabilitation, the line of credit and remaining mortgage balance are combined for $269,502 and the sum is refinanced against the new assessed value of $340,000 for a lower rate of 5.708 percent APR on a loan to value ratio of 79 percent.
For the business to be profitable,the owner must earn over $2,840 per month ($34,075 annually), every month for 30 years (before inflation) to break even.
The building can realistically be rented for only $1,300 per month, or $15,600 annually. Thus, rehabilitating the building to rent it out will not be profitable.
Starting a business at the church with additional overhead costs (inventory, employee wages etc.) makes earning a profit a very difficult proposition. Even if the business was self-employed, had no inventory costs, and sold items on a 20% commission (i.e. an art gallery), it still would have to gross over $156,395 annually in merchandise sales to have a net profit of $0 against the yearly costs of $31,279.
See Pro Forma
Note:
1. Option 1 assumes tax assessment remains fixed at $119,000 as an incentive given by the Town of Essex to see the rehabilitation of the structure.
2. $885($10,625 annually) depreciation is also available (340,000 over 32 years)
OPTION 2 – Private (non profit) use:
Assumptions
- The town/American Legion would sell the building at assessed value of $119,000, substantially lower than market value, to assist a nonprofit organization.
- Taxes would be exempt for the organization.
A 30-year loan for $219,000 at 5.718% APR is taken out on a building appraised at $340,000 (after construction value).
LTV ratio is 100 percent of expenses, but 64% of the value after completion.
For the building to be profitable, the owner must earn over $2,040 per month ($24,476 annually), every month for 30 years (before inflation) to break even.
The building can realistically be rented for $1,300 as two apartments or for commercial space.
If consignment sales were used for a means of raising money within the church (at a 20% commission), total gross sales would need to be over $122,400 annually. This is still a difficult proposition.
NOTE: Private donations/fundraising on behalf of the Non Profit could reduce the required loan amount required and therefore reduce the needed income. Perhaps one floor could be used for income production and the other to promote the goals of the organization if donations or grants raised half the funds required.
See Pro Forma
OPTION 3 – Public
- The town retains the building (no purchase price)
- Taxes remain exempt.
- Work is funded by matching grants (50%), town funds (25%), and private donations (25%)
Ideally the town would rent the church’s space out periodically to recoup the subsequent annual operating costs, needing to raise $6792 annually or $566 per month.
If the senior center retains usage of the first story, then the main hall revitalization would need to yield $406 per month in usage fees to not burden the local taxpayers.
Market research shows this monthly goal could be accomplished by a combination of methods:
- Subsidized rentals to public groups at $50 per day
- Unsubsidized rentals for private functions (such as weddings) at $300 per day
- Consignment sales in the church with a 20% commission
This is the only option that makes fiscal sense.
See Pro forma