Building renovations are expensive, but a recent Wilson Downtown Development seminar highlighted ways investors can use historic tax credits to offset construction costs.
“The benefits of this tax credit (for approved projects) is a 20 percent federal credit and, in this county, 20 percent credit from the state, so if you spend $100,000, you are eligible for a tax credit of $20,000 from the federal government and $20,000 from the state,” said David Maurer with Maurer Architecture in Raleigh. “That is a tax credit, not a rebate or a grant. It is applied to your income taxes, but the net result is you’re spending 60 cents on the dollar to renovate your building, and in a lot of cases, that makes a huge difference in these projects.”
Historic tax credit guidelines differentiate between income-producing projects — such as a downtown building leased to a store on the first floor and a residential tenant on the second story — and non-income-producing projects — such as renovating a historic home for the property owner’s family. For approved income-producing projects, investors are eligible for up to 20 percent each from the federal and state whereas projects that fall into the latter category are eligible only for up to 15 percent from the state with a maximum of $22,500.
Maurer has been a part of a variety of historic property renovations across the state, including several in downtown Goldsboro, Wilmington and Raleigh. He used that experience to give a basic overview of the possibilities.
“When you have a historic district listed by the National Park Service, every building is evaluated and listed as either a contributing building or a non-contributing building,” Maurer said. “Every contributing building is eligible for historic tax credits.”
The designation differentiates structures that have architectural elements relevant to the time period of the district.
“This is a preservation tax credit, so that means you preserve anything that was historic in that building from the period of significance,” Maurer said. “It does not mean that 1970s storefront has to be renovated back to what it looked like. This is not a restoration tax credit. It is a snapshot in time, so anything right now that is historic within the period of significance should be preserved.”
One such project Maurer worked on was a former drugstore in downtown Goldsboro that was transformed into a dining room for a restaurant with upstairs apartments. The $125,000 building had been gutted, but the owner invested roughly $325,000 to renovate it. Financing for the project was $2,150 a month, but income from leasing the spaces is $3,520, so the investor nets $1,370 a month while getting $130,000 in tax credits spread over several years.
One of the qualifications for tax credits is spending at least the value of the building on renovations, but Maurer noted that is rarely an obstacle when it comes to historic preservation projects.
“When you look at it, he gets a positive cash flow on 10 percent of his investment and if he puts all that toward his initial investment, he’s only put $27,000 into this,” Maurer said. “And he ends up with a building that by now is easily worth over half a million dollars.”
Not all of the projects need to be investment projects, though. Maurer talked about the possibilities posed by buying a small bungalow or something in a historic district, then fixing it up and either renting it for five years to take advantage of the state and federal credits or just living in it.
“Think about the opportunities just in terms of this credit for revitalizing neighborhoods,” he said. “I have plenty of developers and friends who have built a big portfolio owning small historic homes. They’ll buy one for $100,000 and put in another $100,000 in renovations. You might not get enough rent to justify the mortgage payment, but you’re getting 40 percent back on your investment.”
Kimberly Van Dyk, Wilson planning and community revitalization director, said she was hopeful the presentation opened some minds to the potential in Wilson’s historic areas.
The presentation comes on the heels of the city being reaccredited by the National Main Street Center along with 46 other cities across North Carolina.
“We are thrilled to honor this year’s 829 nationally accredited Main Street America programs for their commitment to preservation-based economic development and the revitalization of their commercial districts,” National Main Street Center President Patrice Frey said in a press release. “The power of Main Street shines across the country through these vibrant communities, who have all worked to generate impressive economic returns, preserve community character and celebrate local history.”
The process of accreditation is extensive, with staff devoting hours to meeting 10 national performance standards such as public-private partnerships and actively preserving historic buildings. North Carolina Main Street programs generated $200 million in local reinvestment, helped open 219 net new businesses, generated 2,000 net new jobs and catalyzed the rehabilitation of 259 buildings during fiscal year 2017.
“The communities accredited today have worked with the center to establish practices that will fuel their efforts to bring jobs and development to their town,” N.C. Secretary of Commerce Anthony M. Copeland said in a press release.
For more information about opportunities for investment and upcoming events in downtown, visit http://historicdowntownwilson.com/.