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The Investor: Dr. Roddy Tempest, 56, is an environmental scientist in

Chapel Hill, N.C. He has invested in real estate since he was a student in the 1970s.  He typically purchases buildings where he can occupy one unit and rent out the others. He currently maintains four investment properties, including this one.
The property

: The house is a Colonial Revival-style home in

Durham, N.C. The property is listed on the National Register of Historic Places because it was formerly the home of Richard E. Dillard, an early 20^th century businessman and architect. Located in

Duke

Park, a neighborhood near

Duke

University, the 4,071-square-foot home is set on a 0.45-acre corner lot. The property contains five units: Three one-bedroom, one-bathroom apartments; one one-bedroom unit with two bathrooms; and a small efficiency with a half bath and kitchenette. The apartments all include balconies.  Purchase price: $5,000 in 1977. Dr. Tempest got the home for a fire-sale price, literally: The house was severely damaged by fire and was set for demolition, but Dr. Tempest convinced the property’s owners to let him buy the charred residence for $5,000, the value of the land. He then petitioned town officials to place a “stay” on the property, giving him a 90-day window in which to secure grants and a loan to rehabilitate the home. 

  Additional investment: $123,500. Dr. Tempest invested $5,000 of his own money in the property and then secured a $100,000 rehabilitation loan, which he used to finance the conversion of the home from a large single-family property into a five-unit building. The funds subsidized installing separately metered electrical and plumbing lines for each unit and extensive plaster work. Dr. Tempest served as general contractor. He says since the home was rebuilt, he has spent about $18,500 on major renovation projects, which include replacing three HVAC systems (which averaged $3,500 apiece), reinforcing the home’s foundation ($1,000) and replacing gutters along the front porch’s columns ($7,000).

The five-unit investment property in Durham, N.C.

The strategy: Dr. Tempest began renting out the property in early 1979, as soon as its rehabilitation was complete. He has chosen to sell it now, he says, because he plans to build a new primary home for his family. This property’s historic status makes it popular with grad-student renters and he has a waiting list of interested renters, he says. He requires all tenants to carry renters’ insurance, naming him as a “third party beneficiary,” which cuts down on his property-insurance costs, he says.

The pitfalls: Buying a historic property can be time-consuming, Dr. Tempest admits. He says he personally enjoyed the challenges of rescuing and then operating the property as an investment. “What I’d warn people about is that they need to know what they’re getting into,” Dr. Tempest says, in terms of securing funding and maintaining an older building. The type of rehabilitation loan he secured required him to preserve the “historical integrity” of the property, he says, which meant his renovations had to respect the building’s original architecture. Of course, there are upsides to owning a historic property: Historic status means he pays only 50% of market-rate property taxes and that his property can’t be torn down to make room for roads or other public uses due to its historic significance, he says.

The transaction: Mr. Tempest found a buyer and expects to sell the home for $400,000 — $395,000 above what he paid to purchase it — in mid December. He’s consistently made $2,945 per month in cash flow (the profit from rental income after paying mortgage, mortgage insurance, insurance, taxes, and other expenses) for at least the past five years, Mr. Tempest says. He did not pay capital gains on the property due to other offsets with his investments, and he sold directly to another investor without incurring any real-estate agent commissions.n       

Ms. Hodges is a free-lance writer in Seattle. By Jane Hodges

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