How to purchase or remodel a historic commercial building


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Ask a Lender
October 25, 2017 | Updated October 30, 2017


Row-of-historic-retail-commercial-buildings-downtown

Key Points

Tips to buying or remodeling a historic commercial building

  • Historic buildings are often eligible for tax benefits.
  • Be aware of the limitations a historic designation places on your property.
  • SBA offers financing for commercial real estate, including historic buildings.
  • Historic preservation organizations may offer financing or financial assistance.
  • Grants from governments or private organizations may help with historic building purchases.

Historic buildings can exude charm, and be integral features of the local community. Purchasing or remodeling a historic commercial building can be a great way to add character to your business while immersing yourself in your community’s history. But you should be aware of special considerations that go into the purchase of a historic building.

Historic commercial buildings

Though potentially rewarding, purchasing a historic building can be a complex endeavor. As you browse historic commercial buildings for sale in your area, you’ll want to keep in mind some of the following factors.

  • Inspections are important. Before purchasing a historic building, be sure to have it inspected. Historic homes have a reputation for being built to last, but they’re not immune to structural defects that could sink your investment. Look for an inspector who specializes in older properties.
  • Limitations abound. Because the idea behind designating a building as “historic” is to maintain the elements that give it historical value, you may need special permission to make any changes. Although the federal National Register of Historic Places doesn’t place restrictions on what you can do with the building, state or local jurisdictions may enforce such restrictions. Find out what limitations are in place before you purchase a building.
  • Complicated insurance. Historic buildings can be more difficult — and possibly more expensive — to insure than newer buildings. Older buildings may have been constructed with techniques that are no longer used today, making it difficult to calculate the cost to rebuild. And certain safety standards may lead to increased risks. For example, many historic buildings lack fire-retarding materials, which leaves them more vulnerable to a fire and increases the risk to the insurance company.

Financing historic buildings

Once you find a historic building to purchase, how do you finance it? Loan programs exist to help you purchase the buildings, and a variety of programs are available to help defray the purchase cost.

  • SBA loans. Loans guaranteed by the U.S. Small Business Administration may be used to purchase or remodel historic buildings. Specifically, the SBA offers two loan programs — the SBA 504 loan program, and the SBA 7(a) loan program  — that can be used for historic building purchases.
  • Historic preservation organizations. Some local organizations may offer low-interest loan programs that can be used to purchase historic buildings. Check with your state or local historic preservation organization to see if they offer any financing or other incentives.
  • Grants. Grants for historic preservation may be available from federal, state and local governments, or from private organizations. Be aware, however, that many grants are only open to nonprofit organizations or for residential use.

Historic properties and tax benefits

If you purchase a historic commercial building, you may be eligible for a variety of tax benefits. Check with a tax attorney for guidance.

  • 20 percent historic preservation tax credit. This tax credit is available for rehabilitating historic, income-producing buildings that are “certified historic structures” as determined by the National Park Service. The rehabilitation work is reviewed to ensure it complies with certain standards. Owner-occupied residential properties are not eligible.
  • 10 percent historic preservation tax credit. This tax credit is not technically available for historic properties, but rather for non-historic buildings placed in service before 1936. To be eligible, the building must be rehabilitated for non-residential use. 
  • Tax benefits for historic property easements. Owners of historic properties can enter into a voluntary legal agreement, called a historic preservation easement, that ensures the preservation of a property’s “historic character.” The money you pay to obtain an easement may entitle you to federal tax deductions, a reduction in the federal estate tax, or to state and local tax benefits. Such easements last in perpetuity, so it’s a good idea to check whether such an easement is already in place for any building you’re interested in purchasing.

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