Maximizing your dollar: Renovating a historic house for the rental market
This story comes from Anastasia Mann. Anastasia Mann is an associate at Trimark Properties, a leading provider of historic house rentals, student housing and apartments in Gainesville, FL. To check out their historic infill developments, visit their website.
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Renovating a historic house isn't as easy as the experts on HGTV make it seem when they remodel older homes in the blink of an eye, especially as a private owner. As an associate at a property management firm, I am constantly confronted with the difficulties that come along with renovating historic homes. Luckily, I work with an experienced team that consists of contractors and project managers who are familiar with the city's regulations regarding historic homes. For individual property owners who do not have much knowledge about the historic housing market, there is a long list of factors to consider in order to ultimately become profitable with your rental property.
Know your market
Whether you already own a rental property or are looking to purchase one, it's important to be widely aware of your demographic. Knowing your market will allow you to save money in areas where spending is unnecessary. For instance, I work for a firm that is heavily focused in the college student demographic. We look to install features that are durable, cost-efficient, and will outwear the living conditions of students. By understanding the amenities that are in demand in your particular market and the associated costs, we can enhance upon features that will yield the highest return on investment when we put the house on the rental market.
Research the area you are looking to invest in, and build from there. Keep in mind key features such as age, income levels, area development, and so forth. In our case, we purchase houses and historic apartments near the University of Florida, so we are looking for amenities that appeal to student renters such as high-speed Ethernet ports and privacy-lock doors—but we are also looking to highlight and restore features that create a ‘wow' factor, such as hardwood floors, built-in curios and bookcases, internal staircases, trim features, and other historic accents.
Leave it to the professionals
Depending on the extent of the renovations, you might need to hire a licensed professional to help you. If your remodeling project involves making simple modifications like changing a light fixture or a kitchen faucet, it is acceptable to handle these alterations yourself. However, if your project involves more extensive work like plumbing, air conditioning, or roofing, you'll need to get a permit for the work, and a licensed professional should be hired. Licensed professionals will handle pulling city-specific permits, which are legally required for any changes that materially affect the building's usability. If you're dealing with zoning questions, contractors can also offer helpful insights about what areas of your home are feasible for improvements and will yield the highest return on investment. When choosing a professional, research their relationships with the city's government or the overriding jurisdiction. Builders associations are great resources for finding licensed contractors who have good reputations based on previous work. They can enlighten you on who is active in the community. Their recommendations will be based on the professional's quality of work, activity, and who they have built rapport with in the area.
In many areas, in addition to development review boards, your renovation work will also need to be approved by a historic board that oversees these types of renovations based on the house's age, historic value, and the historic character of the surrounding neighborhood. Before you begin the improvements, you'll need to get permission from the historic board. In Gainesville and the neighborhoods around the University of Florida where I work, the interior details are the owner's free choice but exterior changes must be approved by the board. Every city's board is different, so ask a professional about the feasibility of renovating the house and possible restrictions.
The best of both worlds
Most historic homes are outdated and require a great deal of money and physical labor to bring them back to their former glory—but the rental rates post-renovation may make it feasible. You may need to perform appliance upgrades, paint the exterior, replace outdated plumbing and electrical systems. While these improvements might be necessary to put the house on the rental market, they may be hard to justify unless you can add additional rentable space. Adding additional bedrooms and bathrooms to your historic home will have the largest impact on your profits. In addition, as you consider exterior renovations, look into changing your property's landscaping to a parking zone area with landscape borders. In cities and neighborhoods with limited parking, this could turn into a competitive advantage for your property. In university towns like Gainesville, parking is at a premium, so our rental district allows us to charge extra for parking. Another idea to consider is inserting community amenities like lighting, fountains, and benches. Landscaping the area adds value to your rental property as well as curb appeal to potential residents.
Upgrading the electrical panel in your house to prepare for a modern day appliance package is also critical. Panels of the past were around 100 amps while today a minimum of 150 amps are required in order to power things like dishwashers, microwaves, washer/dryers, and hair dryers that did not exist when many historic houses were built. Therefore, before beginning a renovation project on a historic house, be sure to check on the maximum amps that you can power given the current electrical panel.
In many historic houses, you will find very tall attic space. To create more space in your historic house, consider converting this space into another floor of bedrooms. This might mean that instead of having a two bedroom house, you now have a four bedroom house with a rent of $450-700 per room based on the market rates in your area; this can equate to an extra $1400 per month which in the long run will more than pay for this addition. Having this extra income each month will greatly increase your budget for improvements and allow you to do other things with your money.
Some other features to consider when updating a historic house are adding appliances such as dishwashers and washer/dryers. Think about the details that you would look for in your new home. Dishwashers and washer/dryers are necessities for many, so you add value to your home by adding them. Also, wall insulation is key to improve appliance efficiency and ensure the happiness of tenants—and remember, happy tenants are more likely to renew! Most historic homes do not have any insulation or central heating and air. If your property contains additional exterior space, consider adding extra buildings. At Trimark Properties, we build historic infill developments. Infill development allows for many of our projects to become feasible financially. You want the money you make from renting each unit to cover a substantial return over the cost of construction.
Not sure where to start? Check out the other historic homes surrounding your house. Have they been renovated? Which houses are obtaining the highest rental values? Ask to take a tour to get ideas on how you can bring your house up to the same standard. While it may sound unrealistic that your future competition would give you a tour, a smart landlord wants you to improve your historic house, too—after all, increasing the value of your house will also increase the value of neighboring houses, yielding them a higher return as well.