Understanding the costs of renting

Steve Petty
Written by Steve Petty

My guess is that most churches have almost no idea what it costs them to operate their buildings as rentals.  Plus, if you are United Methodist, you have additional hidden costs which can be cancerous to the operation, which we will discuss later.

When you operate a business, it is important to understand your costs.  Imagine you are selling widgets:  You do a study and discover it will cost you 95 cents to design, manufacture and bring a widget to market, then you can easily understand that selling it for 75 cents would be disastrous.  You would be losing 20 cents with every sale.

Most churches assume that the building is just sitting idle all day long, so renting the building for any amount would help them financially.  I often find churches renting classroom space to groups for $5 to $25 an hour and thinking it is all pure income.

Knowing how much to charge for a building rental requires us to understand how much it actually costs us to maintain and operate that space.  Usually this money is seen as simple income and is used for a variety of ministry purposes, salaries, materials, supplies, music, etc.  However, the reality is that a high percentage of every rental dollar goes to build, operate and maintain the building, then there are the less obvious costs that are hidden away in the budget that will increase exponentially when you start to rent the space.

When you add all of these rental related costs, most churches operate their rentals at a significant loss.  They don’t understand why year after year, they increase their rental income; and, at the end of the year, they have lost more money.

Since you spend the money on the building and the congregation isn’t using it during those hours, the congregation is subsidizing the cost of your rental groups, which is something they are probably not aware that you are doing with their pledged money.

So, what are these costs and how can we account for them?

Program Costs

This isn’t a monetary cost, so there is no way to account for it.  Yet, it is the most expensive cost you will pay if you overrent your buildings.  There are churches that are so excited to rent their buildings that they remove the space available for their own use.  I know of a church facility manager who put the Children’s Sunday School in the church library because she had allocated the Sunday school classrooms to other purposes.  Was it any surprise the new young families didn’t come back after visiting?

Always remember:  The number one use of the church facility is for church programs.  If there is ever a conflict between a church program or ministries’ need for space and some other purpose, the top priority is the program or ministry.

The Magic Formula: Square feet hours.

The actual costs are pretty obvious but I am constantly surprised when churches can’t tell me what they are:

Building related costs: mortgage, cleaning supplies, building supplies, gardening and grounds routine maintenance, utilities (gas, water, electric, telephone, internet, waste management), etc.

Operational costs:  insurance, property fees (taxes), capital improvement, repairs.

Staff costs: salaries related to buildings, custodian, janitors, facility managers, wedding hostess, reception hostess, administrative time spent renting buildings.

Hidden costs:  recapitalization of space due to wear and tear and conference apportionments.

For every dollar the Trustees receive in rent, they should set aside into a designated fund for recapitalization 10 to 15%.  (If the building is less than 10 years old, 10% will probably do fine.  If the building is older, then 15% should be used.  If the building is over 50 years old, you may need to go to 20% depending on how much deferred maintenance the church has accumulated.)

It is important to understand how your denomination decides to tax you.  In the Cal-Pac Conference of the United Methodist Church, 80% of your conference benevolences are based on the money you spend every year.  If you begin to rent to outside groups, your expenses will go up.  On average your conference asking will be 10 to 17% of your budget, depending on the year.  Whatever percentage that is, for every dollar you receive and then spend, the conference will be asking for that percentage within 18 months.

You can see that these two hidden items will easily account for 25 to 30% over and above every dollar received.  When you properly add all those items, it becomes a really large number.  This is your total Building Related Costs.

So, how do we account for the cost to operate each room?  You have to do a complete church inventory of space, time and expense.

Catalog the Space

The first task is to measure every room in the buildings that can be occupied and that is in use for as much as one hour per month.  Do not include bathrooms, closets, kitchens (we will look at kitchens separately) and passageways.  Do include the sanctuary, narthex, choir rooms, rooms that are exclusively used by the church, offices, recreational spaces indoors, youth rooms, craft rooms, etc.

Total up all the room space in the church that can be occupied; when you have that number, it equals 100% of your Available Space.

Inventory the Uses

Go through all the uses of every room over the course of a typical month.  Include every group that has a contract for building uses, every sponsored group, every church group that uses the space, including Sunday morning worship in the sanctuary and coffee in the social hall.  Keep time use in whole numbers, when in doubt round up.  Begin counting hours from the normal time that the HVAC would be turned on.  If the custodian turns on the sanctuary heaters in the winter two hours before worship time and worship typically lasts an hour but people linger another thirty minutes after worship, then Sunday morning in the sanctuary gets four hours per Sunday.

For the sake of this first pass, do not include one-time building users, weddings or memorials.  Add up all those uses:  It gives you the total Building Use Hours.

Now for every space in the church, multiply Available Space times the Building Use Hours.  This gives you the Total Square Feet Hours.  If you have a small church and few users, this will be a small number.  If you have a large multi-building plant and many users, this number will be astronomical.

Now take the total Building Related Costs and divide it by Total Square Feet Hours, and you now have an educated guess of what it costs to operate every square foot in the building for one hour Square Feet per Hour.  Your church uses should account for more than 50% of these costs.  If you have a church owned pre-school and your operational understanding is that they will pay the costs to operate their own space, this will give you an exact number to help them defray their costs to the church.  If you rent to an outside pre-school, this will give you a baseline for quantifying your operations costs.  Typically outside pre-schools take space away from church use, so make sure to add 10 to 20% onto the fees charged so that there is clear profit to the church to recoup its lost space available.

So, if class room A-1 is 15 by 20 feet, and the Ding Bat Honor Society wants to rent it every month for a two-hour meeting, you can take your Square Feet per Hour number times 300 square feet times two hours, and that is the minimum you should rent classroom A-1.  Each room with a different size is going to have a different factor.

You can create a spread sheet to handle all these factors.  If the sanctuary has a very high ceiling, over 20 feet, you can double the utilities expensed to account for the increased costs of HVAC.  You can add extra for users that want to use the kitchen to cover higher utility costs and cleaning costs.  You can figure exactly what a wedding rehearsal will cost and how much to increase if the wedding party wants to come two hours early.

Remember at the end of every month to set aside the two special funds: Recapitalization Fund and Future Apportionments Fund.  The first should be allowed to build up to at least $50,000 before you take anything out of it.  The second should be totaled annually and made available to pay apportionments two years after it is collected.

The Public Costs

There is one final cost that needs to be understood, the public costs of renting to groups of questionable value.  Be clear with all of your users that they are to respect the values of their hosts.  If you invited a visiting clergy to officiate at a wedding, you need to send that person a letter inviting them to officiate, and also making it clear that certain standards will be maintained.  It is also expected that in their welcome statement they should thank your church by name for inviting them to officiate, thereby making it clear that they are not the pastor associated with that church.

People who attend events at your church will assume that anything that goes on at that facility has the full blessing and approval of your church.  Make sure that whatever happens in your buildings is something you are happy to be associated with publicly.

Articles in this series:

  1. Who can you rent to?
  2. Understanding the types of rentals
  3. Understanding the actual costs of renting.
  4. Creating a policy for community groups and events.
  5. Creating a policy for sacred events.
  6. Creating a contract that protects everyone.