{"id":103459,"date":"2020-11-04T05:00:57","date_gmt":"2020-11-04T12:00:57","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=103459"},"modified":"2023-04-03T06:49:45","modified_gmt":"2023-04-03T12:49:45","slug":"should-you-focus-on-older-or-newer-rentals-pros-and-cons","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/should-you-focus-on-older-or-newer-rentals-pros-and-cons","title":{"rendered":"Should You Focus on Older or Newer Rentals? A Look at the Pros &#038; Cons"},"content":{"rendered":"<p><iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm?e=BIGPOC8972452924&#038;light=true\" width=\"100%\"><\/iframe><br \/>\nIn the real estate investing world, there is a collection of classic debates that are likely to remain unresolved for the foreseeable future:<\/p>\n<ul>\n<li>Flip homes for a profit or buy and hold long-term rentals?<\/li>\n<li>If you go for long-term rentals, should you focus on cash flow or capital growth?<\/li>\n<li>Should you buy a portfolio of single-family homes or purchase multifamily apartment buildings?<\/li>\n<li>Pay off the debt on your investment portfolio or increase it by refinancing to add more properties?<\/li>\n<li>Buy properties in A and B rated locations or chase the higher returns of C and D ones?<\/li>\n<\/ul>\n<p>And I would add purchasing newer verse older rentals to that collection of debates. I am sure there are real estate investors supporting each side of this debate, but I wanted to try to offer an overview of the pros and cons of each property type. Then, I\u2019ll follow it up by sharing the advice I give most of my investor clients on the topic.<\/p>\n<h2>The Benefits of Purchasing Older Rental Properties<\/h2>\n<p>There are three main benefits to purchasing older rental properties:<\/p>\n<ol>\n<li>Established location and neighborhoods<\/li>\n<li>Predictable market rates for values and rents<\/li>\n<li>Older properties are usually better built<\/li>\n<\/ol>\n<p>The primary benefit to purchasing older rental properties is that they are usually located in established, charming neighborhoods closer to the main city hubs. As such, they tend to attract tenants most concerned with lifestyle and proximity.<\/p>\n<p>This tenant pool has its pros and cons. On one hand, they tend to be professionals that meet the income and credit criteria. On the other, they tend to be more transitory tenants and don\u2019t typically stay for longer lease terms.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-115893\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/06\/Depositphotos_50812187_original.jpg\" alt=\"Small house exterior. View of entrance porch with stairs and walkway\" width=\"702\" height=\"336\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/06\/Depositphotos_50812187_original.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/06\/Depositphotos_50812187_original-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<p>The second benefit to purchasing older rental properties is that market rates for values and rents are well established by virtue of the neighborhood being there for a long time. Sometimes when you purchase new construction, there\u2019s a certain amount of educated guessing you have to do to determine the appropriate rental rate.<\/p>\n<p>Last but not least, investors that purchase older properties believe they\u2019re better built than the newer properties. I\u2019m not sure if this is objectively true in every case. There\u2019s definitely a little bit of \u201cBack in my day\u2026\u201d syndrome going on.<\/p>\n<p>What I can tell you for sure is that there\u2019s a definite trend toward higher density in building. Older neighborhoods typically had bigger lots with homes having more space between one another. Now, builders are trying to fit more homes in the same amount of land due to increasing land costs.<\/p>\n<p><em><strong>Related:<\/strong> <a href=\"\/renewsblog\/invest-high-priced-markets\/\" target=\"_blank\" rel=\"noopener noreferrer\">I Live in a High-Priced U.S. City. Can I Still Invest in My Local Market?<\/a><\/em><\/p>\n<h2>The Benefits of Newer Rental Properties<\/h2>\n<p>Next, let\u2019s look at the benefits of newer rental properties (which double as the cons of older rentals).<\/p>\n<p>There are five main benefits of newer rentals:<\/p>\n<ol>\n<li>Newer rental properties tend to be zoned to better schools<\/li>\n<li>More predictable cash flow through lower major capital expenditures<\/li>\n<li>Higher energy efficiency and lower utility bills for your tenants<\/li>\n<li>Longer lease terms and less turnover<\/li>\n<li>Higher growth potential<\/li>\n<\/ol>\n<p>The primary benefit to purchasing newer rental properties is that on average, these properties tend to be zoned to better schools. This is certainly not true in every case\u2014but trying the overall trend has been that schools in suburban areas (where newer properties are located) are higher rated than schools in closer-in locations.<\/p>\n<p>School quality is the most important criterion that excellent tenants look for when selecting a rental house. Newer rental properties typically lead to better tenants because they\u2019re zoned to better schools.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-119777 size-main-slider\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/11\/big-suburb-homes-702x336.jpg\" alt=\"medium to large sized homes on neighborhood street with well manicured lawns\" width=\"702\" height=\"336\" title=\"\"><\/p>\n<p>Second, newer properties have lower capital expenditures over the next decade of ownership because all their major systems are newer. Even in the case of a remodeled older rental, unless the galvanized plumbing or the knob and tube electrical systems have been replaced and updated, you will likely see more expensive repairs on older rental homes than newer.<\/p>\n<p>If you purchase a rental that\u2019s less than 5 years old, the roof has 20-25 years left on it before it needs a full replacement. That\u2019s usually not the case with older rental properties. Put differently, if you want the performance of your real estate portfolio to be more predictable, purchase newer rental properties.<\/p>\n<p>Third, newer properties are typically more energy efficient\u2014they have better insulation and better windows. This leads to lower utility bills for the tenants, which will make them want to stay your tenant longer. You see, when a tenant first considers renting your property, they only look at the rent price. But when they consider renewing their lease, they look at the combination of rent price plus utilities.<\/p>\n<p>If your older rental property causes your tenant to see $300 electric bills every month in the summer (can you tell I\u2019m in Texas?), you can rest assured they\u2019ll look for a more energy-efficient rental come renewal time.<\/p>\n<p><em><strong>Related:<\/strong>\u00a0<a href=\"\/renewsblog\/what-to-look-for-in-a-rental\" target=\"_blank\">7 Factors to Examine When Shopping for a Rental<\/a><\/em><\/p>\n<p>And that&#8217;s the perfect segue into the fourth benefit of owning newer rental properties: longer lease terms and less turnover. This happens for several reasons.<\/p>\n<p>First, the tenant pool in newer neighborhoods is primarily attracted to the schools in the area and parents are usually reluctant to change their kid&#8217;s school. So they will end up staying until little Timmy finishes elementary or Jennifer gets through middle school. Instead of tenants who move every year, newer rentals get average lease terms of 3-4 years.<\/p>\n<p>Second, newer properties require fewer repairs, which means less hassle for your tenants and a better renting experience.<\/p>\n<p>Last but not least, when purchased properly, newer rental properties are located in the path of growth. There\u2019s definitely an element of risk and unpredictability involved with purchasing in an area that\u2019s not established yet, but that same risk offers the opportunity for growth returns that you just don\u2019t see in older established neighborhoods.<\/p>\n<h2>Final Thoughts<\/h2>\n<p>I know there are a lot more nuances to this discussion than I\u2019ve covered. For instance, there are markets where newer properties are just not an option so older rentals is all you get. In other markets, some of the trends I mentioned (i.e., newer rentals = better schools) don\u2019t apply. But the purpose of this article is to be an overview of the trends that apply in <em>most<\/em> cases.<\/p>\n<p>I\u2019ll leave you with this: In my professional opinion, if your market offers it and you want your real estate portfolio to run like clockwork with less headache and less management, buy newer rental properties. If instead, you only want investments in central locations to attract professional tenants, buy older rentals in established neighborhoods.<\/p>\n<p><a href=\"https:\/\/www.biggerpockets.com\/real-estate-investment-calculator?utm_source=renewsblog\" target=\"_blank\" rel=\"noopener noreferrer\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-91220\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-02.jpg\" alt=\"\" width=\"700\" height=\"85\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-02.jpg 700w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-02-300x36.jpg 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/a><\/p>\n<p><em>Where do YOU fall in the old vs. new debate?<\/em><\/p>\n<p><strong>Share your opinions in the comments below!<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>It&#8217;s a classic debate with plenty of pros and cons on either side. Read on to learn about the positives and negatives of older versus newer rental properties.<\/p>\n","protected":false},"author":800,"featured_media":122549,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7119,4252],"tags":[],"class_list":["post-103459","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-biggerpockets-daily","category-deal-analysis"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/103459","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/800"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=103459"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/103459\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/122549"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=103459"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=103459"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=103459"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}