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Monday, March 16, 2015

Are heritage homes worth investing in?

Mar 17 2015 at 12:51 PM Heritage homes are rarer but there are additional costs involved in maintaining them. Properties with a heritage overlay represent a unique conundrum for investors. While the buildings are frequently found in top locations and feature desirable design elements, they can also be difficult to renovate and costly to maintain. So when it comes to purchasing a heritage home as an investment property, are they worth the hassle? Overall, this depends on your budget, and your strategy. There are various types of property that may have a Heritage overlay, such as Victorian, Edwardian and Art Deco. The charms and character of homes built in later years are less apparent however they do offer renovation opportunities that can add value more easily. Heritage designation can be valuable Formal designation of 'heritage' provides recognition and in turn preservation of the character, charm and history of the property. Research suggests that there is more than an intrinsic value associated to a heritage-listed property. According to the NSW office of environment and heritage, "There is growing evidence to support the view that heritage listing has a positive impact on property values, and real estate advertisements are starting to reflect this". So what makes a heritage home desirable? Many of the features incorporated in heritage homes are no longer reproduced simply because they are too costly. High ceilings, timber floorboards, ornate cornices, double hung windows and solid doors are just a few examples of features that many find attractive. Properties from the Victorian, Queen Anne and Edwardian (also known as Federation) eras are all highly sought after. The Edwardian homes built during 1890-1915 drew on both Victorian and Queen Anne in their features but were less cluttered than Victorian. The clutter, dark colours and heaviness of Victorian is favoured by some, and the cheerful refreshing Edwardian style by others. Some studies suggest that Georgian architecture from the very beginning of the Victorian era is the most popular and many real estate agents are happy to confirm this. This may be because such homes are located in the wealthier and most well settled regions of our capital cities. Then again, some buyers prefer the stark geometry from more recently constructed designs. It is, as they say, a matter of taste. Heritage homes represent our history, a precious resource providing an identity and distinctiveness to an era, community or culture. Time has shown that properties with these appeals, and benefiting from being different and scarce, have weathered downturns in the market when compared to the many 'cookie cutter' homes and McMansions that saturate the outer suburbs. The cost of 'character' It is not all rosy though. Investors can be apprehensive when considering purchasing a heritage property, especially if they are considering knocking it down or subdividing and building next to it. Improving the value of an asset in some circumstances can be prohibitively expensive. Some try to renovate and restore these homes internally, but all too often they use inferior materials or clashing styles which can in fact destroy value. Maintenance and upkeep costs can also be much higher. Heating and insulation techniques were nowhere near as advanced as they are today. Some overlays require owners to maintain facades, fences and even colour schemes. Comparable sales are often hard to track down however valuers tend to underpin a heritage property with it's own intrinsic value that other properties simply lack the advantage of being able to benefit from. Owners of such properties must typically seek approval from council to alter in any way the elements of the property that give reason for its heritage designation. Do your homework It is these elements that the buyer should understand, and the biggest mistake is often not undertaking enough due diligence when purchasing. Owner-occupiers are often prepared to pay over the odds for top examples which makes it hard for investors who refuse to let emotion rule a financial decision. Another hurdle for the investor is that blue ribbon locations and high valuations significantly diminish the yield the property can produce. Tenants would normally prefer better internally maintained properties, and many of these heritage properties will be prohibitively expensive to maintain to the same standard they can find in a new development. Ultimately, around 80 per cent of a property's capital growth is attributable to the location. The powerful combination of top location and desirable features may contribute to outperformance from a capital growth perspective. The nature of restrictions over the property associated with the heritage overlay may vary greatly. They may differ depending on zoning, other overlays in the area, and extent of the recognition of it being heritage. Heritage properties can be beneficial for an owner-occupier and investor alike, but it can be prohibitive in price and later changes to the property are often more expensive. The individual's means, goals, risk profile, risk appetite, and investment strategy should always be taken into account prior to considering purchasing a heritage property. When it comes to making a decision about purchasing a property the investor needs to consider a range of factors such as services, amenities, quality of construction, land size, market trends and zoning. Heritage properties score highly on this criteria most of the time. It is certainly fair to say that the longer one holds onto an asset which is scarce, it will only become scarcer and from the investor's perspective, that can only be a good thing. This article first appeared on afrsmartinvestor.com.au.

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