Wanna do a Value add? Wanna use the government's money for your down payment?
This post hopes to fill a surprisingly big gap in available Real estate investing education. Securing Historic Tax Credits and turning those tax credits into cash or equity in your deal.
To preface, this does take work, can add some stress, and will extend the timeline of your project.
However, if you approach it with a systematic and business mindset, you could open up massive opportunities for your investing.
To date, we have been approved for over $8,000,000 in tax credits that we have used as equity in our large renovation projects.
Also, this does not cover every aspect of Historic renovation. Rather, I hope that is can give the basics and help point people in the right direction.
If this interests you, Keep Reading!
There are 3 parts to the tax credit application process...
Step #1
Your renovation project needs to be at least 50 years old. then Google a "historic tax credit consultant" These people are the ones who can tell you everything you need to know about how to apply for and secure your credits. And you get tax credits on their fee as part of the cost of development!!!!!
Your consultant can tell you if your building is in a historic district, or if it is individually listed on the National Register of Historic Places. you will be surprised by how many houses and buildings are already in these districts or individually listed. If you are near a downtown area, you are most likely good to go.
If your building is on the national register, then your Part 1 is already done.
If its not on the register and you would like to add it, your consultant can help you with that.
(If you are in or near Missouri I can connect you with some great consultants)
Step #2
Assemble your development team!!
If you are working on a larger project ($1,000,000+) you'll want to find an architect who can usually also recommend great general contractors or developers. These people along with your HTC consultant will be able to put together your Part 2 Application, which is basically just your renovation plan. This usually takes a couple of months to put together, but if you are working on it while you are still under contract to buy the building, it can speed things along.
Once you turn in your Part 2 Application it will usually take a couple more months to get approved. However, once you turn in your application, all the work you do on that building is tax-credit eligible. In the past, we have used this time to get all the demo work done to keep the project on track.
Also during this time, you will want to find a group that will buy your tax credits (if you are looking to put that money back into your deal). The best way to find these groups is to start with your local banks or just google them.
(I don't mind giving you some names of lenders as well if you message me)
Once you get your Part 2 approved they will give you an allocation letter. the bank or lender you are using to finance your deal should accept this letter as a down payment for the rest of your project.
Once your Part 2 is approved move forward with development as normal. But make sure you are keeping close track of all expenses. every little thing counts.
Step #3
Finish your project! Once you receive your certificate of occupancy your consultant and CPA will help you wrap up all the details and you will hopefully have a building renovated with close to 40% extra equity that you don't have to pay back or pay interest on and in today's market that can turn an ok deal into a slam dunk.
We use this as the foundation for how to invest in real estate and can't recommend it enough.
There are many more benefits to using this strategy but I really wanted to get some information out there and hopefully start a conversation around historic renovation.
