Historic districts..good or bad…??

Question

Are well maintained old homes in historic districts good investments for rentals and/or to live in for a while too…???

Alison M. · Answer

Hi James,  I have some experience with houses in historic districts here in Washington DC.  I agree with Bill Gulley and his comments above.

One other recommendation - no matter what you choose to do with it, make sure your margins are *much* bigger than they would be on a similar house with a similar exit strategy in a different area.  Two reasons for this - your rehab costs will be higher on an historic property because of age and stringent rehab rules, and on the sell side you have a smaller pool of prospective buyers.

I have a contract on an historic property in DC right now that will involve undoing someone else's non-code-compliant non-historic rehab ;-).  I'm building in a 50% cushion for rehab costs on it.

Eric Shontz · Answer

Michael Seeker

Thanks for the reply.   It sounds like a similar process, with strict guidelines in preservation of the neighborhood which is understandable.  In Shreveport, it takes about 2 months and a $600 filing fee to include a few other hoops with a final review of board members.

I also liked your website, very nice work with your place on Ormsby Avenue. Your team really brought it back to life.

Michael Seeker · Answer

Hey Eric, the majority of properties in this district are zoned TNZD.  It is a transitional zoning established in the 70's or 80's that allows for grandfathering of multifamily conversions.  Most properties were converted in the 50's and 60's and have been updated from time to time since.  There are very strict requirements around adding density (i.e. converting from SFR to MFR) which would not require a zoning change but does require a board review and approval.

Michael Seeker · Answer

Bill Gulley - you can actually get some pretty great tax credits for restoring a home/building that is part of the national register (which would likely be the ones having the highest costs due to restrictions).

All of my rental properties are in old homes that have been converted to multifamily by somebody else long ago.  In my area, they limit the unit density, so it's nice to know that nobody can come in and convert a bunch of old homes to 3+ units and kill the rental market.

I like old homes as they tend to have a lot of character that you can't find in newer construction, but they can definitely be a lot more costly to do repairs if they weren't properly updated/converted over the years.

James Mudd · Answer

Thank you for the responses…I really like old houses too…they most definitely have more character!  I will definitely do some more research before jumping in.

Bill Gulley · Answer

Yes, tax credits can be had federally, at the state and city levels.

Homes are usually not a real headache, depends on what and where, but an apt. building or commercial property can really be a pain and costly. I'd suggest you stay away, as a small investor type, from ornate plaster work and trim as it really takes master craftsmen having lost skills to do repairs right.

For a building here, craftsmen were flown in for much of the plaster and painting. Paints were custom made, you can't buy it at some paint store and slap it on. Iron work is an art. Moldings are custom made as are doors and windows, just finding the wood was an issue, tiger oak isn't at a box store.

Beware too, that politics will be involved in historic rehab projects, inspectors, historic committees, city council, having tax credit programs approved and the community can all influence what must be done.

My SO's sister and her husband are the largest historic non-profit in Cali doing historic preservation work. So political he's running for mayor out there.

Alison, I'd bet in your area historic rehabs could really be tough and 50% fudge factor.....well, I hope that's enough, don't know the scope of work, but I've seen rehabs run 3 times what was estimated. Takes experience. :)

Bill Gulley · Answer

You might check for tax credits as an owner occupied home. Any rental benefit, better vacancy rate, hopefully more responsible better paying tenants (higher valued homes) will be shown in the market. I'd say you're on the right track thinking of living there and moving after a year or two. :)

James Mudd · Answer

Thanks Bill…is there any benefit to buying it and living there for a couple of years…then moving out and using it as a rental..??….or is it best to use it as a rental from day 1…?

Bill Gulley · Answer

They can be excellent properties, so long as you don't have to rehab them.

We have a historic theater here in town that is on the auction block arising from the rehab costs going way over what was expected.

It really depends on the historic nature of a building, the restrictions imposed and your market. Here, the restrictions aren't too bad as to residential, if they are on a federal register you may have other issues.

The market is so unique that values may not be impacted at all by local market fluctuations, economic conditions or other factors that usually influence other homes, at least here. There are historic homes here that won't be on the market a week and they will sell at a premium with able buyers. That may not apply in all markets, but they are certainly in demand here, if they have already been updated. :)

Historic districts..good or bad…??

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