I Walked Away from $100K Without Regrets
In the quest for our new property in 2024, we deliberately chose to bypass some significant tax incentive programs and subsidies. Our strategy was simple: find a project that aligns with our model, independent of incentives. If incentives came into play along the way, they would simply serve as an added bonus to boost margins.
This rationale stemmed from the understanding that most programs require intricate application processes laden with strings attached. Basing project selection on these programs would demand either firsthand expertise or the hiring of a consultant to navigate the labyrinth. The risk? Banking on incentives, only for the funding to fall through—a surefire recipe for disaster. In short, we planned for the worst while hoping for the best.
Our current project is nestled in the heart of the downtown historic district of Troy, NY. Location is everything here, as it opens the door to numerous programs and incentives. While many of these were on our radar before the purchase, assessing their full applicability or financial benefit prior to acquiring the property—and before crafting a concrete build plan—proved to be a daunting and costly analytical endeavor. For side-hustlers or solo operators in real estate, it’s nearly impossible to screen properties with full consideration of such incentives. Once again, we stuck to our strategy: find a project that works on its own merits.
Here’s a rundown of real estate development incentive programs we found for our New York state property:
NYSERDA energy efficiency incentives New York offers a slew of programs targeting different property types. For multi-family buildings, significant incentives exist for weatherization, insulation, and energy-efficient appliances. These can reach as high as $15,000. To unlock these benefits, new high efficiency electrical appliances (induction stoves, heat pumps, etc.)
Federal Opportunity zone - Established in 2017, these zones are designed to spur economic growth and job creation in distressed areas. For investors, the reward comes in the form of a capital gains discount when selling the property years later. It literally takes years to unlock this benefit, as its magnitude is based on how long you have held on to the property. The law creating this benefit stipulates three holding periods (5,7, or 10 years) required to realize the tax benefit.
National Grid Main St. Revitalization Grants - Aimed at breathing life back into downtown districts, this grant encourages the rehabilitation of commercial properties. Troy, NY is a prime candidate for such revitalization efforts. To unlock this benefit, the entire ground floor must be commercial space and only repairs of existing construction are applicable.
Federal Historic preservation tax credits - State and federal tax incentives can rebate up to 50% of the costs associated with historic preservation. However, the stringent requirements often make this an expensive endeavor, demanding restoration, rehabilitation, and reconstruction. To unlock these benefits, only components of the projects that are of a restorative nature will be considered. These programs prioritize historical preservation above all other considerations, including financial and engineering.
Of these four programs, we are currently pursuing two, while dismissing the others as nonviable for our goals. For example, meeting the requirements for the National Grid grant would have forced us to scale back the project by two residential units. The trade-off? Losing $36,000 in annual rental income in exchange for a one-time incentive capped at $100,000. With the lucrative residential rental market in Downtown Troy, this was an easy decision—especially when commercial rental rates in the area are a fraction of residential rates.
Meanwhile, the historic preservation tax credits presented another conundrum. Upon close inspection, it became clear these funds were not intended for basic renovations but rather for painstaking restoration work. The craftsmanship required to meet eligibility essentially doubles the cost. Restoration isn’t about building anew or making repairs—it’s about preserving history, down to the smallest architectural detail.
The real estate investment journey is filled with decisions that test both your patience and your principles. Walking away from a six-figure incentive isn’t the simplest choice, but in our case, it was the right one. Why? Because chasing incentives blindly can force compromises that dilute the original vision for the project. In our case, would have meant sacrificing long-term profitability for short-term gains. Real estate isn’t just about the numbers; it’s about sustainability, scalability, and the confidence to stand by your model, even when temptations arise.
As we look ahead, this experience reinforces a core tenet of our approach: every project must be able to stand on its own, without the crutch of outside programs or subsidies. Incentives are great when they enhance a well-thought-out plan, but they can’t become the foundation of that plan if you are a very small shop. The risks are simply too great, and the costs of pursuing them often outweigh the benefits.
It’s a lesson in balance, strategy, and the importance of staying true to your vision. As we continue our journey in Troy, we’ll undoubtedly face more decisions like this one. But armed with the clarity and conviction to prioritize projects that align with our goals first, we’re confident in our ability to build not just properties, but lasting success. Real estate is not a sprint; it’s a marathon.
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