A recent CNBC survey based on cost per square foot revealed that the United States’ most expensive real estate market is San Francisco’s South of Market, which contains historic Victorian buildings surrounded by Beaux-Arts and neoclassical government buildings. On the other coast, in New York, Brooklyn’s most expensive real estate market is Brooklyn Heights, a leafy neighborhood of century-plus-old brownstones.
Both have designated historical status, meaning their period architecture cannot be changed. However, not all older neighborhoods are historic. For investors looking to maximize equity appreciation, the key is buying an older home on the cusp of receiving the historic designation.
Historic Districts Can Gain 20% Appreciation Per Year
There are more than 2,300 local historic districts in the United States, and new ones are being considered constantly. Every state has them, and they aren’t out of most investors’ price range. The government often offers grants, low-interest loans, and tax breaks to renovate homes in these areas.
A real estate analysis of Washington, D.C. by economist Donovan D. Rypkema showed historic districts can increase property values. Indeed, a 2011 study of Connecticut historic districts and property values found this designation could raise it almost 20% per year in some areas.
The first step in becoming a historic district is to be designated a “landmark” status. Neighborhoods with historic churches and older buildings are particularly good candidates, as they are most likely listed in or eligible for listing in the National Register of Historic Places.
Becoming landmarked is not fast or easy, but it’s a resource that investors often overlook. Once a neighborhood is afforded a historic designation, the older buildings attain prestige because they are immediately protected from developers. Preserving architectural gems can profoundly affect property values in cities with new,…