That Old House - This New Money Pit

The neighbors didn't like it.

The city had condemned it.

But when Dottie Crotchett saw the 140-year-old house in Alton, Ill., she fell in love.

"I was standing right at this archway," she recalls. "I could see these two windows and I visualized right there what it would look like."

A year later, she and husband, Arnie, own not just a historic home but a profitable investment. The two-story house was recently appraised for $28,000 more than it cost to buy and renovate it.

It's a trend taking place across the United States. Old-house lovers are rehabbing historic homes. And amid those historic moldings and vintage wallpapers, many of them uncover thoroughly modern profits.

"There's a growing appreciation for historic houses on the resale market," says Gordon Bock, editor of Old House Journal, a bimonthly historic-restoration magazine based in Gloucester, Mass. "It has moved from being an individual obsession to a group movement."

"If [homeowners] put substantial money into a historic neighborhood, especially if it's a locally zoned historic district, they have a very high chance of that area increasing in value over time," says Peter Brink, vice president of programs for the National Trust for Historic Preservation, the nonprofit preservation group chartered by Congress.

The trick is picking the right house, the right neighborhood, the right budget, and - one more time - the right budget.

Keep an eye on costs

Some homeowners let their enthusiasm inflate their goals and their spending - using, for example, only authentic materials to put a home back into original condition. Such historic restoration (not renovation) usually costs so much that it only turns a profit in the most upscale of neighborhoods.

But careful research and judicious spending can turn ragged residences into rich treasures.

That's certainly the case in Alton, a Mississippi River town 20 miles north of St. Louis. Hit hard by the 1980s industrial downturn, the city's historic homes from a century ago are now attracting a surge of renovation.

"It's a good investment," says Rich Lewis, operations manager of Certified Property Restoration, a local company specializing in old-home renovation. "Per square foot, you can't build for the price you can restore.... A family can go into a restoration of an old home for half of what it can cost to buy a new home."

In its first two years, Certified Property Restoration has bought and rehabbed four old homes in the area. Two have been resold for gains as high as 50 percent. A third house is coming up for sale and the fourth is not on the market.

Of course, homeowners who lack the time or skill to do the work themselves may not realize such huge profits. But a willingness to do some jobs on your own helps.

"You have to trim those labor costs," says Anne Doucleff, a professional appraiser in Alton. "That's what eats into your profit margin."

Mrs. Doucleff has made small amounts of money on two of the three houses she has renovated within a block of home. (She rents out the third.) "My [real] profit was being able to sell them to someone who could make a good neighbor," she says.

Upgrading a neighborhood

Up and down her street, homeowners are renovating some of the grandest homes in town. It's too early to judge the impact on property values, she adds, since not enough refinished homes have come on the market yet. But if the experience of other historic neighborhoods is any indication, the signs are positive (see story, right).

Of course, it's easy to spend too much. "You will get your money out of it if you stay long enough," says Karen Tolbert-Land, who is redoing a huge historic home on Doucleff's street. But "if we needed to move [today], there is no way we would recoup our investment."

Across the street, Jim and Sandy Belote are trying to turn a former mansion into a bed-and-breakfast. But the work has dragged on. "We're certainly going to have much more in the home than what the home is going to be worth," Mr. Belote says.

Mary and David Anderson, a few blocks away, have done better. They've done well financially selling the half-dozen or so historic properties they've renovated over the years. They're currently having the porch redone on their 1895 home in Alton.

Still, "I think old houses are an emotional home-buying decision," Mrs. Anderson says. "You have to love them because a lot of your time is going to go into them."