Photo by Eastman Creative
There’s nothing like living in the city of Richmond. The historic homes are unique, and the iconic, tree-lined streets offer a visual array of architectural styles such as Victorian, Federal, Arts and Crafts, Italianate, Colonial, Art Deco and more. As you travel down the neighborhood streets, you see a diverse community and neighbors waving hello.
And you can’t help but imagine living here and being a part of it all.
Homes in The Fan, Museum District, Carytown, Church Hill and Northside are great options for anyone who’s interested in moving to the city and looking for a home renovation project, says April Straus, Principal Broker at Bobby + April, a boutique real estate agency in Richmond that specializes in historic homes.“It’s the walkability score,” says Straus. “It’s the size and historic coolness aspect to it. But for most people who are looking in those areas, it’s definitely a lifestyle thing. It’s restaurants, entertainment and the cool factor of it.”
Before you find a property you fall in love with, you need to make sure you have your realtor, contractor and loan officer on the same page, says Bobby Hicks, a local Class “A” Contractor. Not only will this help set realistic goals for what you can afford, but it will help speed the process along to purchase and renovate your new home.
Starting the home-buying process
Whether you’re interested in putting down roots, or starting a new chapter in your life, the first thing you need to do before looking for a home is to get organized and pre-qualified for a mortgage loan.“Sellers are obviously more inclined to accept offers from buyers with demonstrated financial ability,” says loan officer Justin Friedrichs with Citizens and Farmers Bank.
“Unless you plan to purchase a home with cash, you should get pre-qualified with a lender before shopping. By getting pre-qualified, it allows your offer contract to be accompanied by a letter from your lender demonstrating your ability to secure funding to purchase the home. If you are self-employed or own multiple businesses or properties, you may want to seek out a loan officer who has experience working with similar clients.
“If a realtor calls me on a Friday night and they want a letter to make a offer, because they are concerned about qualified competitive offers coming in over the weekend, they need someone that can qualify their client within a couple of hours,” explains Friedrichs. “There’s a lot of paperwork involved and calculations to be done, but it can make the difference between the buyer getting the house or not.”
Friedrichs, who’s been in the financial planning business for more than 20 years, says that when it comes to considering the costs associated with buying and owning a home, buyers should use discretion when balancing how much they qualify for when and what they will be comfortable paying on a monthly basis. He says as a general rule of thumb, when trying to determine what to spend on your mortgage payment, start by multiplying your monthly gross income by 45 percent; your monthly debts, including the mortgage, should be less than this number.
In addition, home purchasers need to determine what amount of money they are willing to part with for their upfront investment, including their down payment, closing costs and other items such as real estate taxes and homeowners’ insurance.
The amount that you plan to put down on a new home is an important conversation to have with your lender.
“If you put down less than 20 percent on a conventional loan, then the lender will require you to pay private mortgage insurance also referred to as PMI,” says Friedrichs. “It’s a nuisance and an expenditure that’s not tax deductible. It goes out the window and there’s no recapture.”
Friedrichs suggests that a better option for homebuyers is to purchase single premium mortgage insurance. Instead of making a monthly payment to cover the PMI, you make a one-time payment for the cost of the insurance.
If paying that lump sum upfront seems like a financial burden, then another solution could be to obtain a lender credit to help offset the upfront premium, in return for paying a slightly higher rate. Usually the resulting payment is lower than if you are taking on PMI and more of that payment is tax deductible. Friedrich says that if you typically live in your house longer than three to four years, then the upfront premium is actually lower than the sum of the monthly payment.
Purchase and renovation loans
The craftsmanship of older homes in Richmond can’t be beat – vaulted ceilings, arched doorways, ornate molding, glass doorknobs and detailed fireplaces are just a few of the characteristics that don’t come with most new homes. But despite the underlying beauty, sometimes these homes are in desperate need of a major renovation.
“The house that you want is the house that someone has been in for 45 years and hasn’t done any renovation,” says Straus, adding that those are the homes that are worth making awesome. “They’re not always easy to spot, but we know what we’re looking for.”
There are renovation mortgage programs available that allow potential homeowners to borrow based on what the home is expected to be worth after the renovation project is complete. These loans combine the purchase price and cost for the renovation into a single mortgage, which helps alleviate the need for cash up front for what could be a costly renovation.
When determining the renovation costs for a home, Hicks says it’s done on a case-by-case basis. Many homes he works on need new plumbing, updated electrical, central air installed, kitchen size increased and the addition of a master suite. Sometimes that means altering the internal structure of the home, and other times that means building an addition.
“There are certain neighborhoods that can handle certain improvements, but you can only do so much,” warns Friedrichs.
The best way to make money off a major home renovation is by adding square footage, especially in neighborhoods that already have a high dollar-per-square-footage cost. For example, if a house is priced at $150 per square foot and you add 500 square feet, you’re more likely to get a greater return on your investment by changing the footprint of the home, rather than just improving the inside with cosmetic updates.
Assessed property value
Market value per square foot
Renovation expense for adding 500 square feet
Post renovation added value (market value per square foot * additional square footage)
For properties that qualify, the Richmond tax abatement incentive program offers homeowners another option to consider that gives them more flexibility with their renovation project.
‘literally the coolest slippers
you can buy’ -
“Abatements are simple and very easy to comprehend,” says Straus.
Homeowners who utilize the city’s tax abatement program can receive a partial tax exemption based on the higher assessed value of their property for eight years, and then this exemption decreases by 25 percent consecutively in years nine and ten.
For instance, if you start off with a house that’s assessed for $200,000 and complete a renovation that increases the value to $600,000, your tax abatement would be $400,000. And next year when your house is hypothetically worth $700,000 you pay taxes on only $300,000.
Value after renovations
Rehab abatement (Initial value-Value after renovation)
Post abatement assessment base (Annual assessment–rehab abatement)
Taxes without abatement
Taxes with abatement
$300,000/100*1.20 = $3,600
Savings (taxes without abatement – taxes with abatement)
$8,400-$3,600 = $4,800
“It’s a huge, huge thing,” says Straus. “We’ve got clients who save nearly $5,000 a year on their taxes because of their abatements.”
There are many specifications, but generally speaking the property must be a minimum of 20 years old and the renovation must increase the value by at least 20 percent.
Hicks says that Bobby + April was able to put their last client into a bigger house because once the tax and personal property savings were factored in, they could get more house for nearly the same monthly payment.
Using federal and state historical tax credits can provide substantial incentives for homeowners who choose to preserve the original integrity of the home they’re renovating.
There are many regulations to follow when using historical tax credits, but often these programs can match the expense to the tax reductions dollar-for-dollar and are determined by your total renovation costs.
Taxpayers can be eligible for both state and federal credits, which are 25 percent and 20 percent, respectively, of qualified renovation costs.
In addition to a multi-step application process, only certain homes are qualified under these programs and there are stringent guidelines on what modifications you can make to the dwelling.
For homeowners who choose to pursue historic tax credits for their home, Straus strongly suggests hiring an accountant that specializes in these programs to track the renovation project and file the proper paperwork.
Homebuyers who want to make historic Richmond their home have options when it comes to purchasing and renovating a property. It’s easy to fall in love with Richmond’s historic neighborhoods -- the grand homes found throughout, locally-owned boutiques and bustling restaurants are all a part of the perks. It’s also within a lot of buyers’ reach to make a historic address their home.