Pros and Cons of Old Vs. New Rentals | Real Estate Investing

It’s no secret that old houses require more TLC than new. But that’s not necessarily a reason to avoid them.

If purchasing a property to rent, investors have to think about more than just maintenance, though. In some cities, rental properties need to pass inspections and thus may need even more updating than an old property you’d buy to live in.

As someone with experience buying old and new homes, here are my thoughts and considerations, which depend greatly on how you purchase the property and for what purpose. The reigning advice is to ALWAYS get an inspection and consider purchasing home warranties—on older properties especially.

Before diving into real estate investing, make sure you understand how to compare markets and properties. Whether you’re trying to decide between investing in Boise or Sacramento—or you’re just comparing two similar homes—this guide will walk you through all the numbers you need to know. From calculating cash-on-cash return to running a comparative market analysis, the experts at BiggerPockets demonstrate the steps you need to follow and the statistics you must know with The Beginner’s Guide to Real Estate Market Analysis.

Considerations When Purchasing Old or New

Settling/Foundation Issues

Older houses have issues related to settling that hopefully previous owners haven’t neglected. There are ways to combat issues related to settling, such as installing joists. Sometimes these fixes can be a relatively cheap way to maintain the structural integrity of the house. Other times they can be very costly.

New houses aren’t necessarily “safe” in this regard, either. They are in the process of settling. This is one reason you should always get an inspection, whether the property’s new or old.

Additionally, many older homes have poor gutter networks, if any at all. This allows water to penetrate the foundation and possibly create cracks. There are remedies to fixing foundation cracks, but again, they can set a buyer back unexpectedly if they aren’t aware of it.

Toxic Chemicals

Unfortunately, toxic chemicals are usually present in houses built before 1978.

Oftentimes, you’ll find waivers where owners choose not to inspect for lead-based paint and claim no knowledge of its presence. In fact, in all the deals I’ve done, I’ve yet to find an owner who has wanted an inspection for lead-based paint, as mitigation and removal methods can be costly.

If you purchase an older property with the intent to renovate it, be aware that it’s likely you’ll find asbestos. It can be in the walls, the flooring, you name it. Mitigating asbestos exposure can also be expensive, so the presence of this toxin is something you’ll want to know about prior to purchase, too.

Fortunately, asbestos and lead paint were banned and are not present in new construction.

Electrical

It’s not uncommon to find outdated and even dangerous wiring in older houses. Knob and tube wiring was frequently used in late-1800s/early-1900s homes. But if maintained properly, these materials are still safe.

What are the chances, however, that the home you purchase has always been maintained properly? Again, inspection is key.

Plus, changes in electricity demand may create a need for an updated electrical panel and/or wiring regardless. Outdated electrical should therefore be a safety concern, so upgrading is highly recommended (and in some cases required).

Unsurprisingly, the cost of these upgrades can add up quickly.

New construction outfitted with modern electrical panels offer peace of mind in terms of electrical fires and a steady flow of electricity to prevent power surges, blown fuses, tripped breakers, etc.

HVAC

HVAC concerns pertain particularly to multifamily housing. In some cities, owners have to replace an outdated HVAC system that’s servicing the whole building with separate vents, electrical, etc. for each unit. Be sure to look into and comply with requirements.

I purchased a duplex that had one HVAC, unaware of the fact that when it went out I would need to replace the single system with one for each unit. That would’ve been even more expensive had I not had a warranty (see below for more on warranties).

Newer homes sometimes come with cheap appliances, so it’s not always the best way to go, either.

I have two townhouses that have AC calls every summer because the contractor used cheap alternatives. Again, being aware of what’s in the home you purchase is crucial.

Opportunity’s in Your Corner

Cash Flow

I’ve purchased many older homes and given them a refresher before renting them out. There is so much opportunity in these old homes—the cash flow can make it all worth it.

But before getting started, perform an analysis to ensure that once you’ve completed the updates you intend to do, you’ll have equity in the home. Otherwise, all of your work will amount to little.

Warranties

This is possibly the most crucial aspect of buying an old home. Most home warranties cost $400 to $600 and cover appliances, HVAC, plumbing, and electrical.

Of course, there are things they won’t cover. However, in my experience, older homes have ended up paying for themselves within just a few months.

So, Which One? Old or New?

Honestly, it depends on your portfolio, location, and general market. Certain locations have plenty of older homes (most often seen in or near college towns). And some markets are way hotter than others.

I’ve invested in slow markets with extremely cheap, neglected older homes. Some of my markets have extremely expensive, mediocre older homes. I’ve purchased plenty of new homes, as well.

In my experience, it comes down to the numbers. Get an inspection so you know what you’re getting into labor-wise and cost-wise. Think about:

How much will you cash flow?
How much time and effort will need to go into maintaining the home?
How often do you anticipate tenants contacting you with issues?

I’ve remodeled older homes and rented them out, only to have a string of little things that tenants wanted fixed over the next few months. It’s not uncommon; take it into consideration.

Does it mean the house will forever be a nuisance? Absolutely not. It’s simply that buying older homes may come with additional work, depending on how well they’ve been cared for in the past and how well you care for them going forward.

And let’s face it, new construction can have its own set of issues. Regardless of whether old or new, real estate can be an extremely great opportunity with fantastic returns on investment.

Why do you want to wake up earlier? What’s standing in your way?

Leave a comment below.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.