I am interested in using a FHA 203K loan to renovate a Mixed-Use building. I am looking to have four residential units and two commercial units. Does anyone have experience with historical renovations? How does the process usually work?
@Devonte Dinkins hey you've got a fun project on your hands but it will likely be very expensive. I helped revitalize a historical theater and managed several renovated historical building. You will run into surprises. Budget accordingly. Enjoy the journey.
@Al Williamson thank you for the reply. I am looking to take advantage of some grants to complete the project as well. What should my first step be, should I have a developer go out with me to the property I'm interested in? By the way I am a young property manager, and I love your Leading Landlord blog site, it's very informative and has really helped me out.
@Devonte Dinkins glad you're enjoying the blog. Hope it leads to a big payday for you.
Bringing a developer along can't hurt. You're going to need estimates of what the work will cost. But my biggest tip for you is to be resourceful. If you're going to tackle a historical project then you're going to need a BIG compelling story to get others to help you.
Even with grants, you need to demonstrate resourcefulness to complete the project - otherwise the nickel and dimes will run out as soon as the 50th surprise catches you off guard. Recruit others to help you - historical projects need a big group of cheerleaders to help out.
@Al Williamson Thanks for the advice, I appreciate it.
@Al Williamson Thanks for the advice I appreciate it.
Is it already on the register? I do lots of renovations but avoid historical projects because my focus is income and they take a lot of love...that said there are architects who really know the process and who to help you through. I know who to go to in my area and I wouldn't consider trying it without them. Find those people in your area and your job will be much easier. If you need a referral, get back to me and I'll ask who they know in your area. Enjoy the process.
@Dawn Vacek Thank you for your response I have not been on bigger pockets in a while. I would love for you to connect me with an architect in my area. I currently have a small historic apartment building under contract.
@Devonte Dinkins congrats on getting it under contract and I'm looking forward to hearing how this goes. What is your game plan for the property?
@Joe Fairless the property that I have under contract is different from the one mentioned above. The property is a large historical home converted into three units, that is zoned as a office/residential. The city I am investing in has several incentives for business offices, so I hope to at least create one more apartment unit and a small office space.
Massachusetts has great historical rehab incentives, check out below:
20% Rehabilitation Tax Credit: applies to any project that the Secretary of the Interior
designates a certified rehabilitation of a certified historic structure. It may be for
commercial, industrial, agricultural, or rental residential purposes, but it is not available
for properties used exclusively as the owner's private residence. The building must be
listed individually in the National Register of Historic Places, or in a registered historic
district (state or local) and certified as contributing to the district. The rehabilitation work
must be certified by MHC as consistent with the historic character of the property or
district. (A 10% Rehabilitation Tax Credit is available for the substantial rehabilitation of
non-historic, depreciable buildings on their original site and built before 1936).
Charitable Contributions for Historic Preservation:
(may be combined with the rehabilitation tax credit) The Internal Revenue Code
provides for income and estate tax deductions for charitable contributions of partial
interests in historic property (principally easements or restrictions). Generally, the IRS
considers that a donation of a qualified real property interest to preserve a historically
important land area or a certified historic structure meets the test of a charitable
contribution for conservation purposes. For this purpose, a certified historic structure
need not be depreciable to qualify, may be a structure other than a building, may also be
a portion of a building such as a facade if that is all that remains, and may include the
land area on which it is located.
Investment Tax Credit for Low Income Housing
This credit is for the acquisition, construction, or rehabilitation of low income housing.
The credit is approximately 9% per year for 10 years for each unit acquired, constructed,
or rehabilitated without other Federal subsidies, and approximately 4% for 10 years for
units involving the 20% rehabilitation tax credit, Federal subsidies or tax-exempt bonds.
Rehabilitation Mortgage Insurance (Section 203(k)
This section of the HUD program enables homebuyers and homeowners to finance both
the purchase (or refinancing) of a house and the cost of its rehabilitation through a single
mortgage - or to finance the rehabilitation of their existing home. This may apply to
many historic homes, and may be combined with specific historic preservation
incentives. See: http://www.hud.gov/progdesc/203k
State Building Code: Section 34 Existing Buildings, Provisions for Historic
Buildings This section of the state building code contains exemptions from the
regular code for National Register listed and other Massachusetts Historical
Commission designated structures.
The Massachusetts Preservation Projects Fund: This state-funded matching grant
program is available for the preservation of properties, landscapes and sites listed on the
State or National Register of Historic Places. Applicants may be a municipality or a
non-profit organization, and funds may be used for stabilization, protection,
rehabilitation, restoration and acquisition. See www.state.ma.us/sec/mhc
Preservation Restrictions: MGL Chapter 59 Section 11, MGL Chap.184 Sec. 31-33)
allows a property with a perpetual preservation restriction to be reassessed on January 1
of the year following the implementation of the restriction. Any property listed in the
State Register of Historic Places qualifies, but such listing is not required. The property
must be historically significant for its architecture, archaeology, or historic associations
to be eligible.
Local Option Property Tax Assessment: MGL Chapter 59; Section 5J. Special
Assessments; Historic Owner-Occupied Residences regulations at 950 CMR 72:00
In 1996, the State Legislature passed legislation which allows cities and towns to adopt
an ordinance or bylaw known as the Local Option Property Tax Assessment. The purpose
of this bylaw is to provide tax relief for homeowners of State Register listed property
undertaking substantial rehabilitation. Within this bylaw, the increased property taxes that
result from a rehabilitation can be phased in over a period of five years. Massachusetts
Historical Commission certification of the work is required.
Massachusetts State Historic Tax Credit: Chapter 141 Sect. 22 of the Acts of 2003
MGL Chapter 62, Sec. 6J. This new legislation, intended to provide economic stimulus
for the substantial rehabilitation of depreciable historic structures at least 50 years old, is
a five year pilot program similar to the 20% Federal Tax Credit. It will make $10million
available each year from 2205-9. MHC certification of the structure, plans and work is
required. The credit could be combined with the federal 20% historic and other tax credit
programs when applicable. Guidelines similar to the Federal standards and the Secretary
of the Interior's Rehabilitation Standards will apply. See www.state.ma.us/sec/mhc
Local Option Property Tax Assessment (see State Programs)
This program is unique in applying to homeowner occupied historic buildings.
Preservation Restrictions: (see State Programs) under the provisions of MGL Chapter
59, Section 11, a preservation restriction may be held by the state or local historical
commissions, or a charitable trust with the power to acquire land. Restrictions must be
approved by the Massachusetts Historical Commission.
Brownfields Municipal Tax Abatement: a local option tax abatement bylaw gives the
municipality freedom to negotiate with a purchaser/developer when property taxes owned
stand in the way of redevelopment of historic commercial and industrial buildings. (used
Community Development Block Grants: these funds may be used for the rehabilitation of
historic buildings in designated downtowns, neighborhoods or commercial and industrial
areas, and may be combined with federal or state preservation programs.
@Devonte Dinkins those pictures were inspiring. your day job looks interesting.
thanks @Colleen F. ! We've been fortunate to have inspiring work! Sometimes I see the craziness my developer clients have to deal with and I wonder why I want to be in on the investor size!
@Devonte Dinkins and I were talking about how to use for-profit development as a means to effect targeted revitilization... I.e. Selecting an outcome you'd like to produce (i.e. Mission) and finding the right investment / development strategies to accomplish this.
It seems like we (investors) start looking for a return first, and then an outcome second. I think if we want to give our work meaning and be part of a bigger narrative, we need to flip the equation.
@Colleen F. I have closed on the property and I will try to keep you posted on my progress. Im excited about taking on the challenge of improving and sustaining a historic district. Do you have any tips or advice from your renovation?
@Eric Army I agree completely with the fact that as investors should look to provide value to the community, and returns will come.
@Devonte' Dinkins good luck with the project! Keep us posted on how it goes.
@Eric Army I find your investing philosophy inspiring especially in our area of the country. We're blessed to have gorgeous architecture and history in New England and I hate to see it being torn down for the same old condo blocks. I'll look forward to seeing what transpires at the Mechanical Fabric Mill. Such a cool space.
@Devonte Dinkins one thing I would advise is pay attention to sound. There are lots of obvious pieces of advise but this is thing I wish I had managed before occupancy. The building has older high ceiling and hardwood floors that you don't really want to cover but I wish I had made some sound improvements in the downstairs bedrooms. It is too hard to address after occupancy. It is just more of an issue in older buildings.
Also fire codes- know what you need to have and lead laws. Good luck!
@Colleen F. I am currently living in the downstairs unit and my property is similar to yours ( high ceilings/hardwood floors). What sound improvements would you suggest?