The story below is a preview from our September/October 2018 issue. For the full story Subscribe today, view our FREE interactive digital edition or download our FREE iOS app!
Individuals wanting to renovate historic buildings and houses should be made aware of incentives and challenges in the local market.
Sprouting from the seeds planted by the railroad before the turn of the 20th century, Roanoke City grew and neighborhoods were built sprawling out in all directions.
Through time, as the railroad’s influence diminished, Roanoke had to reinvent itself. The city took a progressive approach by involving the creative and motivated citizens of our community to come up with ideas that would attract new employers and promote recreational tourism to our beautiful valley. It worked. That meant more jobs and more people needing housing.
With many buildings a hundred years old in the downtown district, and many of the surrounding homes of about the same age, the city again wanted to encourage community involvement, so it started offering incentives for individuals to rehabilitate and renovate those old buildings and houses.
Downtown and industrial renovation tend to be big projects involving lots of planning, lots of money and tend to be handled by teams of professional investors, lawyers and developers who work in coordination with Roanoke City and the Department of Economic Development. The incentives offered in those areas have been, and continue to be, successful.
Our focus here, however, will be on the programs aimed at the surrounding neighborhoods. Incentives are offered for the renovation, rehabilitation and upgrading of single or multifamily homes and neighborhood business properties. They are primarily in the form of tax breaks that frequently make it worthwhile for an investor to buy, renovate and either sell or rent in an area where the value of the house once it is finished would not normally make it an attractive proposition without them. The benefits are numerous. Unoccupied houses get reconditioned and become nice places to live again. Existing houses become safer and more energy efficient. Neighborhoods become more attractive and safer places to raise a family again. Meanwhile, the City continues to do their part by being progressive about infrastructure upgrades like repaving, upgrading water lines and adding bike lanes. All parties benefit.
For these programs, the Office of Real Estate Valuation for the City will be a key player. They are responsible for appraising properties at 100 percent of their market value each year, which is then used to calculate the annual real estate tax bill. Their appraisals are also used to calculate the tax breaks offered for these renovation incentives. When you apply for one of these programs, (which includes a $50 application fee), the city will come out and do an on-site inspection to determine the value of a property before renovations. Then they will come out again when you are done to determine the value of the property after the renovations. Of course, all renovations need to done to meet current city code.
If you meet the guidelines of the incentive program, you get partial tax relief by only paying real estate taxes on the unimproved value, before renovations of the property for a period of time. (Usually five or 10 years depending on the areas targeted for the incentives.)
Basic eligibility details for residential properties include single family dwellings, duplexes, multifamily dwellings and townhouses. The structure must be at least 40 years old, the assessed value must be increased by at least 40 percent by the renovations, and it must remain suitable for residential use.
Let’s put some example numbers on that. Buy an old house that needs work for $50,000. Put $20,000 into it fixing it up. End up with a house worth at least $70,000, (or hopefully more) and you would qualify for the tax break. You only pay real estate taxes on $50,000 because you increased the value by at least 40 percent. ($50,000 x 1.4 = $70,000). If it is to be a rental, the tax break can be added back into the cash flows, or if it is to be sold, the tax break is transferable, adding to the appeal for a buyer. There are a few more details in regard to historic properties and very low value properties where it is better to demolish and start over.
For commercial properties, the program operates the same way, with the eligibility numbers being a bit different. The structure needs to be at least 25 years old, and the value needs to be increased by at least 60 percent. This might apply nicely to neighborhood storefronts with a residential apartment added upstairs.
... for more from our September/October 2018 issue, Subscribe today, view our FREE interactive digital edition or download our FREE iOS app!