Historic Preservation Zone: Added Cost to Consider

[Benjamin Riehle]

What's up, BP? A few months ago, I posted an article on a flip that was in the beginning stages in a historic district of downtown Tucson: https://www.biggerpockets.com/forums/311/topics/55.... That project has now been completed, and the results are outstanding! Traditional, flipping a home in Historic Preservation Zones (HPZ), can come with great difficulty as these neighborhoods come with an extra set up rules and regulations to ensure that the "historical aspects" are well persevered. I will outline some of the regulations and hoops we had to jump through while completing this project. Previously a duplex, with one bedroom one bath units, we transformed the property into an SFH with three beds and three baths, the property has a ton of space, which is excellent for the crowded downtown location. On most of our rehabs, we add SQFT with an addition or by closing in a garage or carport (perfect example here: https://www.biggerpockets.com/forums/311/topics/55...). On this project, we were able to utilize dead space to add some much-needed square footage.

The Numbers

Initially, the ARV for this project was $360,000, with a rehab budget of $122,000 and a timeline of 9 months. We were able to purchase the property off market for $170,000. This property is now active on the MLS $425,000, $65,000 over the original ARV. The actual rehab cost was $125,000, and we have delivered the property on time. The original numbers made for a substantial return, but a competitive housing market in downtown Tucson has made this deal a home run. We are excited about the results and look forward to doing more projects for this investor.

Number Comparison (Budget VS Actual)

 Budget:                                                                                                                 

Actual:

Working in Historic Preservation Zones (HPZ):                         

When contemplating doing a flip in an HPZ, it’s essential to understand all the extra work and cost that goes into a project like this. I recommend contacting a company that has experience in rehabbing homes in HPZ for advice and mentorship. Although the returns can be very appealing for investors, If you are unaware of the additional procedures and cost, it may end up costing you more than expected. Luckily, my team has a reputation in Tucson of delivering high-quality homes. We have also built a relationship with members of the historical society, which has allowed us to operate in this challenging environment. A few of the challenges we had to face on this project were: keeping the historic exterior paint color, white with unique teal trim. Second, we had to use a custom-built wood front door. The door turned out amazing and might have be worth the added cost. Third, we used real wood floors in most of the living space. The genuine hardwood was more expensive than other alternative options, but HPZ requires the use of actual wood floors.  Fourth, and most costly was the custom-built wood windows. Although, not the most energy efficient window, it does give a great look to older home! Understanding, the added cost that comes with working in this area allowed us to provide very accurate numbers to our investor. Understanding the added expense is a key when working in an HPZ, lack of understanding could cause a good investment to go south.

Enjoy the before and after pictures and feel free to reach out with any questions!