Owning a home within a historic district provides a unique opportunity to celebrate and share the history of your property. It can also be a worthwhile investment since historic homes tend to maintain great property value even in slow real estate markets. To better understand the pros and cons of this type of investment, consider the following.
It comes with limitations.
If you choose to buy a home in a designated historic district, there may be certain restrictions on what you can do to your property’s exterior. This can include everything from painting to installing new windows. Before you begin any type of renovation or upgrade, you will need to check with your local planning department to get the ok.
Districts listed only on the National Register of Historic Places don’t typically restrict what you can do to your property; that said, areas on a local or state registry often impose restrictions. While such restrictions can limit your options, they apply equally to everyone. This means you won’t have to worry about your neighbors painting their exteriors with an atrocious shade of pea green.
Easements are binding
When you set up a historic preservation easement, it will protect the historic integrity of your property in perpetuity. This legal tool imposes restrictions on what can happen to the home and requires any future owners to adhere to your rules.
You will typically pay a government agency or qualified preservation organization to hold the easement, and your payment may qualify for a federal tax deduction. Before buying a historic home, it’s important to find out if any sort of easement is already in place. You should also determine what the easement entails and who holds it.
Maintenance can be expensive.
Historic homes stand the test of time because they are structurally sound. Many people are surprised to learn that homes built in the 1980s can actually deteriorate faster than homes built in the 1800s. It all depends on the original workmanship and the quality (and consistency) of maintenance.
If any of this is lacking, you could end up paying thousands of dollars in repairs and restorations. It’s best to exercise caution if you’re thinking of purchasing a historic home that needs extensive work. Some state historic preservation offices will provide grants or tax benefits for homeowners. These can help with maintenance and repair costs for the exterior of registered properties.
Whatever the case, even structurally sound historic homes are likely to require steady maintenance to help them hold up against Father Time.
It can be difficult to get insurance and financing.
Some lenders may hesitate to provide financing for a historic home that needs extensive repairs. In some instances, you may be unable to secure a traditional loan backed by the U.S. Department of Housing and Urban Development. You may, however, be able to acquire a private HUD Title 1 loan to cover smaller repairs.
You can also look into acquiring rehab mortgage insurance which can help pay for the purchase of the home and some of the rehab costs. You may also be able to apply for a Fannie Mae HomeStyle Renovation mortgage for similar purposes.
Bear in mind that some insurance companies are reluctant to provide policies because they often assume that replacement costs are higher for designated historic homes. You will have an easier time getting insured if your property is only federally registered and free of restrictions. Whatever the case, expect to spend some time shopping around for a decent homeowner’s insurance policy.
Historic homes are old.
Although most lenders typically won’t demand a home inspection, it’s best to get one before purchasing an older home. While an average inspector may be great at uncovering problems with modern homes; they may not have the expertise to properly inspect a historic property. It’s best to find an inspector who has extensive experience with historic homes and the unique issues they present, such as the possible presence of asbestos and lead paint.
It’s also important to understand that historic homes may not be able to satisfy your modern-day desires. You simply may not be able to install a fully equipped kitchen or expansive master bathroom amid historic architecture. What’s more, any upgrades you make could actually devalue your home.
With this in mind, it’s best to ask yourself a few questions before you consider making a purchase. Are you viewing it as an investment or a home? Can you live without modern conveniences, and how will any changes you make affect the home’s character and resale price? It’s important to carefully assess your goals, so you won’t be blindsided by the realities of owning an older property.