Buy a Home, Get a $30K "Thank You" From Your Municipality

While it’s true that buyer competition is fierce and inventory is low, there are still ways to find great homes in fantastic neighborhoods without paying an arm and a leg or battling it out with several other buyers. If you buy right, you may actually earn you money!

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Previously, I’ve written about how choosing your neighborhood strategically could easily save you $40K or more and yield higher than average growth in terms of property value. Today I'm going to share with you how you can buy and renovate a home and essentially get a $30,000 "thank you" from the City.

If you like free money, learn about your local municipality’s financial incentives for buyers looking to renovate properties. Many local municipalities offer TIFs (Tax Increment Financing) to buyers looking to purchase and renovate homes, which, in turn increases the city’s tax base.

In Madison WI, a buyer can utilize up to $80K in TIF funds to renovate a 1-3 unit home in one of the city’s most desirable neighborhoods. Once the renovation is complete, the loan is forgiven. Restrictions apply, which you can read about on the two TIF district web pages here and here, but whether you stay in the home for 10 years or 10 months, you can essentially earn at least $30K in free money for making smart improvements.

Why does the City offer TIFs?

TIFs are a city’s a long term investment: it costs them up front, but down the road it yields returns. For example If 10 "fixer uppers" are assessed at $200,000, and are then renovated and reassessed at $300,000, the city's tax base would increase by $1,000,000. The mill rate in Madison is around 24, and since (Mill Rate X Assessment)/1000 = Annual Taxes, the city's annual tax revenue would increase by $24,000 for these 10 homes.

TIFs can also have a ripple effect- once 10 homeowners increase the value of their homes with TIF money, more homeowners are likely to improve their properties on their own dime. This could, in time, attract more (tax paying) businesses to the neighborhood too.

This is not only good for the city, but good for homeowners that get into a neighborhood before it "turns over". Look at how prices have shot up in Tenney-Lapham over the past couple years, for example, as more homes have been renovated and sold.

What homes are eligible for TIF money?

At this time, in Madison, the TIF districts include the Mansion Hill-James Madison Park neighborhood (a micro neighborhood of Tenney-Lapham)  & the Greenbush neighborhood. The property can be a 1-3 building but it must be rented out at the time of accepted offer.

The Mansion Hill-James Madison Park TIF actually spills over to the west side of the Capitol too now, as far west as Park St- see the brochure with map here. This TIF is set to close at the end of 2017.

Think you may want to utilize a TIF?

  • Choose a lender that’s able to work with the program (there aren’t many, but you can ask us for a list of these lenders). It’s crucial that you talk to a lender that’s not only able to work with the loan but also understands the nuances of this particular process.

  • Find a Realtor that’s familiar with the TIF and is willing and able to do the extra work involved in securing the funds for you. (Yes, we can help you with this!)

Offers can fall through when either your lender or Realtor don’t understand how to successfully work with the TIF, so make sure that the pros you choose have the time to jump the extra hoops involved with TIF funds.

This post is part of a series about secret ways to save money when buying your next home.

Our next post will be about how you can earn a big chunk of equity in your next home, off the bat, even in this crazy seller’s market. Subscribe to our blog to be sure not to miss it.

PS: Additional city funding to renovate any home in the City of Madison is also available. This program has an annual household income limit of $101,125. The program can be found here.