Pros and Cons of Old vs. New Rentals

by | BiggerPockets.com

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.

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.

Related: The Simple 6-Step Process for Estimating Rehab Costs

home renovation with electrical wires

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It’s not uncommon to find outdated and even dangerous wiring in older houses.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.

subject-to-real-estate

Related: It Might Be Time to Switch Your Niche to New Construction – Here’s Why

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.

About Author

Sarah P.

A longtime writer and consumer of all things related to the FIRE (financial independence retire early) movement, Sarah went from working 50+ hours a week to less than 20 thanks to her real estate investment portfolio and side passion projects. Investing since 2015, she reached financial independence in 2016 and was able to retire in 2017. Articles about her journey and information about her current projects have been published in LinkedIn, BiggerPockets, Kiplinger, and many other financial news sources. Prior to the FIRE movement, Sarah worked as a Program and Acquisitions Manager on various projects and started a successful, world-renowned non-profit organization. Today, she uses these skills as a real estate consultant to help others reach their FIRE-related goals on a regular basis.

7 Comments

    • Sarah P.

      I use AHS and have had a decent experience so far. I can’t tell you if they’re better than others, though, as I’ve only used them. If you need sales you can get someone fairly quickly on the phone, but I don’t suggest you use the phone for service call requests. You can submit work requests online through your account or via their chat option on their website. Their technicians have been extremely responsive in my experience, but I suppose that can depend on your area. You can email their corporate resolutions line if you have a really complicated situation and you can also get help via their facebook page.

  1. Vaughn K.

    I’m sure I don’t have nearly the experience that many here do… But in my experience, I’ll take an older home over a newer one any day of the week. EVERY house I have seen that has been built in the last 25+ years, including 5 million dollar custom homes I’ve been around during construction, are basically built out of garbage materials. I’m sure SOMEBODY has purchased decent quality wood to build with, but I ain’t seen it!

    All the new construction is built out of cheap, not properly dried, garbage wood that warps and/or rots like crazy. I’ve seen 1-2 year old houses where every single seam on the building had popped and needed to be re-caulked, and all the “straight” lines were crooked already. Not to mention all the MDF/particle board/chip board, and it’s newer variants that don’t hold up the same as proper plywood. New homes have SOME nicer stuff, like granite counter tops and such which you can’t really go wrong with… But then you throw in a particle board cabinet and cheap plated hardware or whatever. Junk.

    No thanks.

    Older homes have their problems too, but IMO the basics are better built and a 75 year old home will probably be standing in another 75 years, when a brand new one won’t be. If you can get a comparable home fixed up to being in primo condition for the same or less than a newer house, I would take that every time.

    Not to mention the “charm” of them not being cookie cutter like most newer homes. AND all the little odds and ends being nicer than on the finest custom homes today. Solid, like ACTUAL solid hardwoods for all the trim, doors, cabinets, floors, etc. Often times out of wood (Honduran mahogany anybody!) that you literally cannot get anymore for any price. The intricate details on a lot of things. Etc etc etc. You know the kind of stuff I mean.

    To me, there is no contest. Newer homes are like everything else nowadays, built as cheaply and cookie cutter as possible. Including the custom built ones.

    A well built 70s house? Sure. But something from 2015? I’d rather not. If the math works, go for it… But I’d rather buy and maintain awesome old houses personally.

    • Sarah P.

      I can empathize with you there! What is your personal opinion on homes built in the 90s vs. 70s, and late 1800s/early 1900s? I think that’s where the extremes set in. I had a home with a 40 year old furnace still cranking away (not as efficiently, obviously)… still impressive. Forced/planned obsolescence is a huge issue in today’s age in my humble opinion.

      • Vaughn K.

        I think your “breaking points” are about right.

        From my personal experience, and many conversations I have had with people more directly involved in construction, it seems that construction quality STARTED to slide in the 70s… But only barely. And almost all construction was still considerably better than today, but a few corners were starting to be cut now and again. Up through the 80s there were still many well made houses, but more creeping in that were sub par. By the tail end of the 90s a good percentage of houses were kinda dodgy, but still with some decent stuff once in awhile.

        By the time we hit the 2000s, it seems like pretty much everything has gone down hill.

        Now, there are exceptions to every rule, no doubt. Bad houses from the 50s, and great custom jobs from 2007 or whatever… But as a rule, I think the above more or less holds true. Things as simple as the quality of the lumber, being properly dried and treated, have changed. People just DO NOT use decent wood anymore on commercial projects. Once in a blue moon somebody having a custom house made for them might demand decent materials, but other than that it will all be garbage. In the 70s nobody would even consider using wood that was as prone to warping as is standard now.

        As for the older older houses… I don’t have a ton of experience with pre 1900s houses, but plenty with early 1900s. Everything seems to have been overbuilt, IE bigger pieces of wood than were necessary. Fancier woods than are used now. Things like that. I WILL say that sometimes framing methods can be funky, like inconsistent studs etc, but since the wood that was used was so much beefier than needed this rarely causes problems. They also didn’t consider some things we’re more conscience of now, like heat retention, as much. But IMO retrofitting a solid old house with the FEW improvements we have now will leave you with a better house than a brand new one.

        I understand there are issues with framing techniques used in the earlier 1800s (fire issues and such), and let’s just be honest… Tagging on an extra 50 or 100 years is going to take its toll on even the best built structures. So if I was somewhere that had houses from the early 1800s, that might be too far on THAT extreme end too. Although if it’s a well built brick or stone house… Maybe not? Devil is in the details. Many structures in Europe are still standing many centuries after their initial construction.

        Houses from the early 1900s though are still perfectly serviceable, and I can’t imagine one from 1890 being appreciably worse with the way they seem to age and hold up.

  2. Luke Ski

    I have to agree with VAUGHN K. I have not been to all U.S states but growing up in Europe I am not used to see houses built out of materials like the ones we use to build doghouses back home. Besides house that I’ve seen in Miami and south FL that were concrete and strong, all houses on east coast are build like sheds. No matter if you paid $150K or $2.5million for it, you basically just own a large shed. I see it everyday across the board, even upper class living in their $1million + properties with rotting garage trim, door trim, window trim and entire doors and decks and you name it. The amount of maintenance needed to keep most of the houses in U.S out of rotting and looking like junk is bananas. I own a few houses and one of them has siding(luckly aluminum one) and don’t even get me started on that…..just another invention of american home builders that should be killed and forgotten(the invention , not necessarily the builders ) 🙂 Cheers

    • Vaughn K.

      Yup!

      I really do hate the “short term thinking” aspect of recent globalist, outsource everything, cut costs as much as possible capitalism… I am a capitalist pig through and through, but there is a difference between making the best LONG TERM investment/decision, and the best SHORT TERM investment/decision.

      Everybody nowadays seems to care only about maximizing SHORT TERM profits, or minimizing short term costs… Which ultimately costs us IMO. Building a house that will stand strong for 100-200+ years is worthwhile. If it costs 30% more to make a place that will last 4 times as long as a cheaply made house, that’s a GREAT investment in the long haul.

      You see the same thing with many items. Clothing that falls apart. Shoes that don’t last. TVs that die after a couple years instead of decades. I have a pair of $200 something dollar Red Wing boots that are over 10 years old now, haven’t even had to resole them yet! When I do I will probably gain another decade out of them, or more. That $200 pair of shoes will last me longer than $500 worth of cheap $40-50 dollar shoes. That is TRUE value. They’re also the most comfortable shoes of any brand I have ever owned, which is a nice perk considering I am spending LESS on them than cheap shoes overall.

      I really do hope more people return to being interested in QUALITY, and thinking about LONG TERM value versus just short term lowest cost.

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