You know what they say, what’s old is new again. Buying an investment property in a historic district is probably the most unique investment you could ever make. You own a relic of history, and allow tenants to have a one-of-a-kind rental experience too. That being said however, buying an investment property in a historic district can present its own set of challenges that you would not face by buying a traditional investment property. It could definitely be worth it in the end of the day if things are properly executed. Here are pros, cons, and tips for buying an investment property in a historic district.
Pros:
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Stunning property
The designs and architecture of historical properties are simply breathtaking. Some designs have existed for decades, or even centuries! The era a property is built in will dictate many of its features. Some will have cool features, like stained glass windows, colored bricks, and pocket doors, that will make the property stand out. This is enough of a reason for some tenants to rent. Historical properties are also hot on Airbnb. Some people like to enjoy a week on the beach, while others would rather hang out in a Victorian house.
Related: The Best Time for Buying Real Estate Investment Properties
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Tax benefits
Maintaining a property in a historic district takes a lot of responsibility. To encourage investors in buying an investment property in these districts, government at the local, state, and even federal levels have put in place certain tax benefits and credits. You could also qualify for easements. An easement is an agreement between the owner of a historical property and a preservation group whereby the owner’s income tax, property tax, or estate tax is reduced. Another great thing about easements, they last forever. You could be eligible for different kinds of benefits too, be sure to check with your local and state government. So, you get to preserve great history and earn tax benefits at the same time! What more could you ask for?
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Higher Appreciation
The value of a historical property in a historical district is much more than that of a typical property. They tend to be 26% higher, on average, to homes that are not historic. The return on investment in historical properties is also higher in historical homes. Many studies of historic districts in Texas, Maryland, North Carolina, South Carolina, among others, attest to this.
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Long-term tenants
Many tenants in historic districts tend to stay long-term. This is great for you since it reduces vacancies. But still, if traditional renting is not your thing, you could always rent your historic property on Airbnb. As previously mentioned, visitors love to stay or even tour historic properties.
Cons:
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Very tight restrictions and regulations
This is not so much of a negative as it is a likely nuisance. Historic properties must follow certain guidelines for any renovation, repair, or change. Since these properties are extremely unique due to their history, anything that could possibly alter that is scrutinized with a watchful eye. These guidelines will vary depending on the property and location, but some themes remain constant. Things as simple as paint color to anything as time-consuming as additions must be approved by a certified authority. It gets even more complex when interior changes are considered. Find out what guidelines apply to your property.
Related: 6 Rental Renovation Tips to Know Before Spending Any Money
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Problems from old age
Typically, when you are buying an investment property, it is looking great and functioning well. This mostly holds true for historic properties. But even if functionality is swell at the time of the purchase, things could deteriorate more quickly than in a traditional property. Old homes are known to have lead and asbestos problems. These two substances are safety hazards, so make sure the property is regularly checked for them to be removed. Historic homes are also usually behind in electrical wattage; you will need to upgrade it. Plumbing systems should also be inspected and enhanced.
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Higher maintenance and costs
Buying an investment property requires high maintenance. Buying an investment property in a historic district requires higher As you probably assumed based off the last two points, costs for maintenance in historic properties will be pretty high. Even the permitted ways in which you can repair and renovate will cost more. For example, let’s imagine that a historic property had just had a door broken. Normally, you would just buy another door, right? For a historic home, you may need to purchase an entirely new door frame, taking another hit from your wallet. Renovation supplies and materials for historic homes are also more expensive than the usual counterparts.
If you’re considering buying an investment property in a historic district, take note of these tips.
- Make sure the property is actually historic. Check to see if it’s on the National Register of Historic Places, or any other government or group listing.
- Have the property inspected by a certified inspector who specializes in historic properties. This is especially important when planning a repair or renovation.
- Make sure the structural foundation is suitable. If time has taken its toll on the property, avoid it.
- Check with contractors to get ideas of the price range for various changes. If you’re interested in calculating other expenses, check us out.
- Before buying an investment property in a historic district, find out what exactly is allowed and forbidden to do in terms of renting and structural additions.
Related: 11 Costs First Time Real Estate Investors Should Consider
Buying an investment property in a historic district can be a surefire way to turn old into gold. Regulations will be rough, but only to the betterment and preservation of the properties. If you’re willing to put up with that, you could be in for great chances to find tenants, qualify for tax benefits, and increase the property’s value.
To find any kind of property, historic or not, start your property search at Mashvisor.