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REAL ESTATE I Love Old Houses!

Russ H

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The town of Napa has more pre-1906 homes than any other city in Northern California.

We own several:

-A 9-rm B&B (about 5,500 ft2)
-A 30-rm "project" (about 8,500 ft2)
-The house we live in (about 2,800 ft2)
-The house next to it (about 1,200 ft2).

And soon we may own a few more in the local vicinity. ;)

Part of the reason I love old houses is the way they're built: Massive old growth lumber, high ceilings, shallow hip roofs (less costly to reroof), and usually great attic and crawl spaces for the inevitable new electrical and plumbing. Makes 'em easy to work on. :smash:

Lots of folks are afraid of fixing up old houses (b/c they can be money pits). But once you confirm that the foundation and bones are good (w/no settling or termite/dry rot damage), we can go through a house in 7-9 months and completely replace the utility infrastructure (plumbing, HVAC, and electrical).

So what we're left with is a house that's "new" on the inside (updated appliances and utilities), but has the charm and warmth of an "old house".

Some day I'll get around to posting some of my projects. We've rehabbed and sold (or 1031'd) four so far. We're in the process of rehabbing the ones I mention, above.

I know that old houses are a favorite topic of Diane Kennedy's (I actually didn't own any historic homes until I had read some of her posts on this over at RD.com).

So Diane, if you want to chime in about the tax advantages of old houses, I'd love to hear about them--especially if there have been any changes in the tax laws in the past 5 years. :)

-Russ H.
 

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Diane Kennedy

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Aug 31, 2007
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I'll do a couple of posts to this thread. First, the tax advantages:

If you buy a property built pre-1936 and meet the qualifications for the rehab (75% of the exterior walls still standing and rehab costs exceed the purchase price), you can take 10% of the cost of the rehab as a TAX CREDIT. That means that 10% of the cost will go directly against the tax due on your return...it's like cash in your pocket. Even better, it's not like depreciation. You do not have to recapture when you sell the property, provided you hang on to it for 5 years or more.

Also, if the property is designated historic, or is in a historic neighborhood, then you can take another 10% tax credit. Same rules and same no-pay back when you sell, if you hold it for 5 years or more.

Then, let's say that you also do ADA improvements. That's a 50% tax credit.

As an example, my husband and I bought a property in historic Phoenix for $135K. We put about $150K into the property. It's now on the market for $825K. We got an offer for $735K, but couldn't get them any higher than $750K. We're going to wait a little bit because the light rail is coming in and the station will be less than 2 blocks away. We can afford to wait for another buyer at a higher price.

Anyway, on the $150K of improvements - we took 70% tax credit on most of it! That's because we made wider halls, made the bathroom ADA and added a ramp from the back parking lot. It was going to be used as an office so we had to do those changes anyway. The tax benefits made it even better.

I'm with you Russ - I love old buildings!
 

Diane Kennedy

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Aug 31, 2007
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Another example from when the historic Phoenix downtown was still scary (drive by shootings and crack houses).

We went together with friends to buy close to each other in a neighborhood and then fix the houses at the same time. It started chain reactions of improvements. Prices went from $50K to $150K to $350K in no time for the fixer-uppers.

We don't do the fix and flips anymore. But, as I'm writing this tonight, I have to say I miss it. There is the excitement of discovery when you peel off the poorly planned additions to discover the beautiful bones of an old house. What secrets do those walls hold?

One year we bought a place just before 3/15. This is back when I was running my own full service CPA firm and 3/15 is the corp filing deadline.

We closed on 3/14 and saved the demo for a party on 3/15. We put big x's on the walls to knock out, furnished gloves, sledge hammers, protective eyewear...and wine & appetizers... and then got out of the way! We added in another little touch - furnished magic markers so people could write whatever they wanted on the wall before they smashed it. We called it our "Tax Season Bash". It was so much fun!

But, that's not the only reason I love old houses...... At least in Phoenix there are a number of special programs, such as lower property tax and grants for restoration of historic properties.

There are two areas I'd buy into in a heartbeat right now in the downtown. It's just, sadly, not our game anymore.

For those of you wondering how to get started in real estate - consider doing a rehab and if you can stand, it live there while you do it. Couple the big gains possible in the right historic districts with the principal residence capital gains exclusion and you might not ever have to work again....or rather, never work for someone else.

Our biggest secret to old home rehab - find a problem no one else can solve and then fix it. You will make millions.
 

canon94

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Sep 1, 2007
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The tax advantages are not the same in every city. Be sure to check if you are planning on buying and the historic districts can be a nightmare to work in due to the heavy red tape.
 
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Russ H

Russ H

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Be sure to check if you are planning on buying and the historic districts can be a nightmare to work in due to the heavy red tape.
Canon94, what specifically have you had problems with?

In CA, there are a LOT of preservationists. So the "red tape" here is copious.

But we've found that if you don't mess around with the facade facing the street (and, in fact, if you improve it), word gets around downtown, and you are supported by lots of folks in the red tape sector. By far the best help we got was from these folks-- b/c they *wanted* to see these houses restored to their historic splendor, and they fought (actually fought) for the folks that they thought were doing a good job.

NomadJanet mentioned this in another thread: Who you know is so important, esp for construction projects. Her example was with the local utilities guys (who saved them tens of thousands of $$, as I recall).

If you stage your project as a win-win for the city/municipality, good things can happen.

Sure, you always have the risk of a neighbor who hates your guts. But that's just another chance to hone your negotiating skills.

I remember being at a cultural heritage comittee meeting (the equiv of the city historic district folks-- who could stop a project dead in its tracks if they didn't like it). A man presented his project, and a neighbor got up to complain.

The neighbor's complaint was simple: I just bought a place here, and I don't want *ANYTHING* to change. I remember listening to the guy and thinking this was our worst nightmare.

After he'd "testified", the architect/owner of the property asked if he could chat w/him outside the council chambers. They came back in after about 10 minutes, all smiles.

The neighbor got up and withdrew all of his complaints from the record. He said he'd just had a great talk with the architect/owner, and that after this talk, he felt like the architect's intentions were on the same page as his.

I remember being totally blown away by this, and very impressed at the skills of the architect.

Whenever I encounter red tape these days, I try to see who's got the red tape dispenser.

Then I stop by and have a friendly chat.

Works even better if you know the person ahead of time, b/c you go to council and historical commission meetings. :)

Sorry for the long-winded story. Canon94-- what happened to you?

-Russ H.
 

andviv

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Great post Russ, rep++ (I love the way you are always teaching based on FACTS)

Diane, I really appreciate your input. This Fed tax benefits (that I had no clue about) just made me think of many opportunities here in Norther Virginia. There are lots of places classified as historic being this close to DC and having many places that were battlefields and colonial cities. I used to see them as problems, now I have a different perspective. Rep++
 

AroundTheWorld

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I've got a real life story on this.

SETTING

  • 2 brothers
  • 2 subdivisions
  • 30 miles apart
  • 1 success
  • 1 failure

STORY

Brother number one had experience in development. He located the property and brought it under buy-sell with a contingency that prelim plat approval is granted.

Brother number two had no experience in development, but saw what is brother was doing and decided to try it out. He found a property nearby. He put an offer under buy-sell. There was no prelim plat approval contingency.

Brother number one then went and had a face to face meeting with each and every property owner in the area. He listened, explained his intentions, and took suggestions (even implemented a few)

Brother number two did nothing.

Time for the meetings. Brother number one got approval with NO ONE speaking against the project during the meeting. Brother number two had 6 to 7 neighbors speak out against the project during the meeting. The project was denied.

Brother number one was able to close on his property, knowing his plan had already made it through the red tape. He has a project that is proceeding according to plan.:hurray:

Brother number two had already closed on his property prior to the meeting (remember, there was no contingency) and now has a project that has been stopped dead in it's tracks because he did not take the time to speak to the neighbors. :mad:
 
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Russ H

Russ H

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GREAT story, Sonya!

We should start a series of children's books based on this kind of stuff.

They'd be short, with a simple message, and would teach kids from the get go about important business topics.

-Russ H.
 

AroundTheWorld

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GREAT story, Sonya!

We should start a series of children's books based on this kind of stuff.

They'd be short, with a simple message, and would teach kids from the get go about important business topics.

-Russ H.
When do we start?

:banana::smxA::driving:
:banana::smxA::driving:
:banana::smxA::driving:
:banana::smxA::driving:
:banana::smxA::driving:
 
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Russ H

Russ H

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PM me w/good times for you (1 hr of emailing back and forth), and we'll schedule a brainstorming session.

-Russ H.
 

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KyJoe

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Aug 28, 2007
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I love them too. I keep looking everywhere when I gut one or do some work for anything of value. In 15+ years I have found a few coins, but really not much. I have probably found more in the alleys where people have thrown out mantles, claw foot tubes etc during their remodeling. That's pretty good about the tax credits. That's one area that I have never taken advantage of & should.
 
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Russ H

Russ H

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KyJoe
I love old houses too. I keep looking when I gut one for anything of value. In 15+ years I have found a few coins, but really not much.
We've never found any coins.

But we have made over $2,000,000 in profits from selling them.

So I'm OK with no coins! :banana:

-Russ H.
 

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