How old is too old when the COC is over 12%

6 Replies

I'm looking at multi family homes in the Cleveland, Ohio area. Some of these homes were built in the early 1900s, but the cash flow is great. The cap rate is about 7.9 - if my numbers are correct. Looking for a little guidance here. What's your experience with older homes, will it end up being a money pit?

There are many homes that are older and have been kept in great shape and they are not money pits. There are many that need to be demolished and there is no profitable way to bring them back to life. Getting a home inspection will help you look into those items and you can ask the inspector to try to point out some of those items and give you an idea of cost or longevity. Also make sure to budget for some preventative maintenance (this isn't just for older homes), driveways, roofs, hot water heaters, furnaces, and AC's all go bad even in much newer homes. You can have the sewer reviewed with a camera that will give you insight on one of the more costly plumbing repairs. Also focus on masonry, it gets very expensive and there is no return on investment, driveways, steps, and tuck pointing are the big items for this. With proper due diligence buying older should not be a problem.

These ages of homes are not a problem per se so long as they have been properly maintained.  Bad roofs and bad foundations can allow water penetration to occur over time which can cause serious issues.  As long as the properties you're considering have been maintained and updated mechanically, you should be fine.  Do your due diligence.  Inspect, inspect, inspect!!!

I completely agree with the responders above. I would add that in Cleveland, there is quite a bit of older housing stock, especially if you are looking at the city proper. As you get out into the suburbs, the average age of the homes decreases.  

Definitely get an inspection, but be careful with that too. All inspectors are not created equal. Not long ago I had a client hire an inspector (not the one I recommended) who reported termite damage...in a concrete foundation.  Another key is to have a good contractor on your team who is familiar with how to work with older buildings. Finally, property management is going to be your first line of defense. One management company I often recommend is owned by a guy who is also an architect, an added bonus when it comes to structural knowledge.  If you have those things in place, the age of the home shouldn't prevent you from making a very solid return on your investment over the long term.

Best to you! Glad to connect if there's more I can offer to assist.

E

Old properties can be fine. Yes, you need to assume there's more maintenance and also some frustrating (more expensive) fixes; like plaster and lathe. It all depends on how well they've been kept up. In some ways, old houses are better built. They usually have stone foundations, which are less likely to move than concrete (although they always get some water in them unlike concrete) and waaaayyyyyy better than cinder block foundations.

Originally posted by @Michael Ehrmann :

I’m looking at multi family homes in the Cleveland, Ohio area. Some of these homes were built in the early 1900s, but the cash flow is great. The cap rate is about 7.9 - if my numbers are correct. Looking for a little guidance here. What’s your experience with older homes, will it end up being a money pit?

Hi Michael, I know a pretty good agent in that area, I'd be happy to refer you!