Investing in a Historic District: Potential Benefits and Considerations

CNBC recently conducted a cost per square foot survey that revealed San Francisco’s South of Market is the United States’ most expensive real estate market, featuring historic Victorian buildings surrounded by Beaux-Arts and Neoclassical government structures. Meanwhile, Brooklyn Heights in Brooklyn is New York is known for being more expensive – this leafy neighborhood of century-old brownstones.

Both neighborhoods have historical status, which means their period architecture cannot be changed. Not all older neighborhoods qualify as historically significant; for investors seeking maximum equity appreciation, buying an older home just shy of attaining historical recognition is essential.

Historic Districts Can Achieve 20% Annual Appreciation
There are over 2,300 local historic districts across the United States, and new ones are emerging daily. Every state offers them, making them accessible for most investors at reasonable costs; grants, low-interest loans and tax breaks may even be available from government to help renovate homes in these neighborhoods.

Donovan D. Rypkema’s real estate analysis of Washington, D.C. showed historic districts can increase property values. Furthermore, his 2011 study on Connecticut historic districts and property values demonstrated they could even raise them up to 20% annually in some locations.

Step one in creating a historic district is being designated a landmark. Neighborhoods with historic churches or older buildings that have already been listed or eligible for listing on the National Register of Historic Places tend to make good candidates.

Landmarking may not be straightforward or effortless, but investors often underestimate its power as an asset. When neighborhoods receive historic designation, older buildings gain prestige because they’re protected from developers, raising property values in cities with tall condominium towers like New York. Preservation can have profound effects on property values in such cities.

Crown Heights North in Brooklyn was granted historic status in 2011. All metrics point to a dramatic change in not only property values but household income (wherein in 2000 the majority earned under $20,000 annually versus $100,000 to $250,000 by 2021). Poverty levels had dropped significantly compared with citywide; rents had also seen significant increases between 2006-2021.

Things to Consider When Purchasing an Older Home
If you’re buying in an area designated or historic district, chances are it will likely be older and in need of renovation. Here are some important points that could arise that need your consideration:

Restoration can often take the place of renovation. Living in a historically significant or landmarked neighborhood often necessitates adhering to strict codes for renovation.

Rehabbers typically choose window casements made of wood to match those originally provided with the house rather than replacement models made of metal and vinyl, replacing exterior railings, gates, doors with similar items or restoring them back to their previous state if possible – this may also apply to moldings, motels, and fireplaces; while mechanical walls, such as plumbing and electrical upgrades will likely remain undamaged while being upgraded with modern materials.

Homeowner’s insurance could cost more Historic homes typically incur higher insurance costs due to the expense associated with rebuilding them according to historic specifications in case of total destruction, while larger properties with multiple outbuildings as part of their parcel can increase this figure further.

Finding Financial Assistance for Renovations
Grants and loans may offer investors additional financial aid when renovating. Your state Historic Preservation Office should be your go-to source to learn about funding options available to them.

National Trust for Historic Preservation’s Historic Tax Credit program (HTC) can also be an invaluable source of guidance, as are historic preservation easements; should these apply, they could bring additional tax benefits as well.

Historic Homes Can Make Excellent Vacation Rental Investments Owning an historic home located in either a scenic countryside locale or bustling urban environment could be a wise investment when used as part of a vacation rental business.

There’s an old proverb: an apple doesn’t fall far from the tree… Cultural tourism (defined by the UN World Tourism Organization as “travel with cultural motivations such as study tours, performing arts and cultural tours, travel to festivals or cultural events, visiting sites and monuments, studying nature or folklore or art and pilgrimages”) accounts for 40% of tourism in some countries; Airbnb, VRBO and Joybird offer rental homes offering distinctive, historic stays that appeal to travelers looking for something more welcoming than typical corporate hotels. Marketing the historical status and selecting tasteful interior designs of your home will appeal to visitors immensely. Additionally, historic homes may even benefit from state websites (here’s one from Pennsylvania) promoting it to attract more guests.

Final Thoughts
Historic homes boast distinctive character and are usually situated in picturesque or older parts of towns and cities that people want to live, making them highly prized assets that quickly appreciate in value, creating high rental demand. Be sure to consult the rental laws in your city to make sure your home can accommodate guests!

Renovating an historic home requires time, patience, and experience when adhering to local guidelines. You can be certain that if you take good care in maintaining the property it will likely appreciate faster than non-historic properties in its vicinity.