The formula is tried and true by now. A developer purchases a lot in the Heights where a bungalow has long stood but detoriated, then tears it down and replaces it with a series of connected townhomes that look more modern, can accommodate more people and therefore produce a greater return on the investment.
When Neal Dikeman sees one of those old houses on a spacious lot, he sees an opportunity to do something different.
The Houston real estate investor and one-time politician, who ran for the U.S. Senate two years ago as a Libertarian, bought a pair of neighboring, century-old bungalows on Tulane Street in 2017. He left their historic character unchanged while making some minor additions and infusing them with modern amenities, and he now rents them out along with a pair of garage apartments in the back of the property.
“We view ourselves as the anti-townhome,” Dikeman said of his company, Old Growth Ventures. “People who are going to buy houses that I buy, people I compete with, are buying the dirt to turn it into a townhome.”
While Dikeman and other residential developers might bid on some of the same homes, his vision for them is more unique and would not necessarily work for other property owners looking to make a profit. He said he’s a history buff and appreciates the original character of the Heights, which was founded in the 1800s as one of Houston’s first suburbs, and he wants the cherished neighborhood to include smaller and more affordable homes as opposed to larger townhomes that are more expensive.
Dikeman said he has made his venture financially feasible by taking advantage of municipal, state and federal tax exemptions that are earmarked for properties designated as historic. In the case of 1217 and 1219 Tulane St., they already were part of a city-designated historic district, and he said he’s in the final stages of having the property certified as historic by both the Texas Historical Commission and the National Park Service.
The state and federal exemptions apply only to income-producing properties. Any home in Houston may be eligible for a historic designation from the city, and corresponding tax break for renovations, if it is at least 50 years old. Another exemption is available for Houston homes in low-income census tracts.
Dikeman said the dollar-for-dollar municipal exemption on his improvement costs – about $50,000 per home – will allow him to recoup about 10 percent of those costs over a 15-year period. He said he’ll get another 25 percent back on the state level and 20 percent on the federal level, meaning about half of his expenses for rehabilating the 98-year-old houses will be returned.
The two bungalows, which were expanded to include two bedrooms and two bathrooms apiece, are renting for $2,450 per month, Dikeman said. According to the Harris County Appraisal District website, the total size of the property is 8,712 square feet and it’s valued at $616,535.
Dikeman said his company is open to selling the homes to the renters after a period of at least five years.
“It’s an unusual model,” said David Bush, executive director of Preservation Houston. “I don’t know anyone else who’s done it. At least I haven’t heard of anyone else who’s done it, and I don’t just mean in Houston. People have done historic apartments, but not small houses.”
Dikeman said the houses on Tulane were the first projects associated with the Historic Preservation Fund, a joint venture between his family and about a dozen others. It followed a pilot project in Old Sixth Ward, where Dikeman and his team renovated a pair of neighboring homes on Sabine Street and subsequently received a Good Brick Award from Preservation Houston.
Dikeman said he has more similar projects in the works, and they could be setting a trend of sorts in Houston, which has a need for more affordable housing near its urban core. Multiple apartment complexes are going up in the Heights, Garden Oaks and Oak Forest areas, some of which are being met with opposition from nearby homeowners.
Margaret Wallace Brown, the director of Houston’s Planning & Development Department, said she’s been tasked by Mayor Sylvester Turner to find ways to promote more affordable housing options in the city and lure more people away from the suburbs and into the city. Some potential changes to development codes that would foster such a transition, she said, include reducing parking requirements for developments and allowing garage apartments to be larger than 900 square feet.
“The mayor has asked me to look at regulations that the planning department manages, development codes and even some of our processes and so forth, to figure out what we can change,” Wallace Brown said. “What are the roadblocks that prevent people from building or restoring affordable housing? Why isn’t everybody doing what Neal’s doing?”
Wallace Brown said the city has not gotten the level of residential participation it hoped for with its tax exemption program for historic buildings, which come with a financial benefit to both the property owner and the city. She said builders of commercial developments have so far taken greater advantage.
Dikeman said few people scoop up the “free money on the table” because the paperwork to have a home designated as historic is “abysmally hard” and the research required is extensive. He said his company takes care of the applications in-house, adding that the ventures wouldn’t be cost effective if outside help was needed.
But the process comes with a payoff, such as satisfied tenants. Dikeman said the houses on Tulane were rented by the first people who saw them, because they liked the quaint character of the homes, the desirable location and the modern amenities he added, such as dishwashers and washers and dryers.
John and Lindsay Socha, a married couple who both work and are about 30 years old, moved into the home on 1217 Tulane about two weeks ago with their dog, Mac. John said they previously lived in an apartment, and the house fit their space needs and was no less affordable than the other options they considered.
The Sochas love the location, and John said he likes the pine floors, weighted windows and the feel of living amongst history.
“We like the charm,” Lindsay said.
Dikeman said the purpose of the venture is to expand his long-term real estate profile, and his ultimate goal is to refurbish 100 historic homes per year. He also wants more Houston property owners, particularly those in neighborhoods such as Garden Oaks and Oak Forest where many homes are now more than 50 years old, to have their houses designated as historic.
He said the Heights in that regard, even though it includes three historic districts, remains largely untapped.
“There are probably another thousand houses in the Heights that deserve to be on the (National Register of Historic Places),” Dikeman said. “This is a very special collection of homes. A lot of these dumpy homes that are being torn down, that was Tulane when we started. They were literally sitting in the mud.”