John E. Richardson, Jr.
CPA - CFP
Certified Financial Planner
Senior Financial Advisor
for Strongtower Financial
With all the complex investment strategies in the marketplace today, it's nice to write about something that is straightforward: church bonds.
Here's how they work. A church wants to borrow money, typically to build or buy a new facility. Strongtower Financial underwrites the bond which is offered to the public.
Church bonds are very similar to corporate bonds in many ways. They are purchased in denominations of $1,000 with a fixed coupon or interest rate. Interest payments are made every six months. On the maturity date, the principle is returned to the investor. They are offered only by prospectus filed with the Securities Exchange Commission (SEC). However, there are a few differences that make church bonds unique.
First of all, the underwriting guidelines for Strongtower Financial to issue first mortgage church bonds are conservative. They will lend no more than 75% of the value of the property to be mortgaged. In other words, the church must have at least a 25% equity position in the real estate for the bond to qualify.
Secondly, the loan payments can not exceed 33% of the annual revenues of the church. This is to demonstrate that the church has the cash flow necessary to service and ultimately pay off the debt. The last thing Strongtower wants to do is foreclose on a church. They were chartered to help churches build churches. However, the primary responsibility Strongtower has to its investors is to make certain they don't lose their money. These first two lending requirements have served Strongtower and their investors well over the years. Honestly, if our banks had similar lending requirements to issue mortgages on homes, we wouldn't be in the mess we're in today!
Thirdly, many people like knowing that their investments are going to help churches and Christian organizations further their ministry. Have you ever given much thought to how your investment dollars are used? Exactly what holding does your mutual fund or money manager have in your portfolio? What businesses do those corporate conglomerates you own stock in profit from anyway? Do they align with your values? Strongtower church bond investors can certainly answer those questions.
Fourthly, they provide a source of income for investors without all the market volatility that we have seen over the last nine months. They can be an excellent component of a diversified investment portfolio. That's what's so great about church bonds.
John E. Richardson, Jr., CPA, CFP® is a Senior Financial Advisor with Strongtower Financial in Escondido. If you have any questions or comments, please contact him at (760) 705-3520 or by e-mail at firstname.lastname@example.org.