Is a 100 years old building a lemon or a good deal to negotiate?

Question

I'm about to invest in a 100 years old building with 5 rental units. The 5 are a mix of residential and commercial. Asking price is really high; as the topical in a Canadian market; $600,000! My plan is a harsh negotiation to May be $489,000. Rental gross income is $4,000 and NOI is $2,337.

I'm thinking also a 25 yr term might be too long for the property. Any comments? I'm kinda worried if I shouldn't take a 100 years old building vs its a good chance since the numbers are still running a good profit.

Kenneth LaVoie · Answer

Another caveat with these older buildings that have been owned by "frugal" landlords is that sometimes you'll find "upgrades" that were done by a tenant or in-law or the landlord himself whose last construction experience was assembling his child's easy bake oven. Makes for good stories but a little extra work and money!

Kenneth LaVoie · Answer

My newest building is over 100 years old (Central Maine). They do have some extra challenges. Here we pay around 25k-35k per unit if it's in "ok but needs updating" condition, so that 5 unit might run 125-175k here and have a NOI of 3,000-4,000. If there are alot of older buildings in that area, many contractors will be familiar with the inherent issues and can either inspect or be your "extra eyes" during your own inspection.

Steve L. · Answer

I think if you have to ask you shouldn't do it.  Old buildings have lots of extra expenses.

You could be fine, or it could be real expensive.

Likely, a contractor who knows a lot about old buildings should be able to do an inspection and give you a good idea of whats there and what will need upgrading when it breaks.

Michael Ramzy · Answer

Hi @Pat L. I like the property and seems high end. My only two concerns; one doesn't seem like separate units with separate living and entrance too.

Two, the property is the highest price house in the area. Usually, you want to find the other way. Also, I don't see other rental properties in the area! Good or not good...I don't know!

Definetly, the property is remarkable. Actually, you opened my eyes to Niagara Falls area from the USA side. I mean Tonawanda, Buffalo...etc. The properties asking prices are pretty low and the rental is pretty good average. I wonder if you know that area in terms of rent and what's your opinion? Do you know any investors there? Thanks

Pat L. · Answer

here is a magnificent 100 yr old original 5 unit for sale near here....

414 Locust St Lockport NY

Through Hunt Real Estate

Michael Ramzy · Answer

@Pat Lewis I guess that's the other extreme. Well, this property has already a four current rentals and the fifth was a police office who rented the unit for a while and renovated it quit (as per seller) and then had to move out.

@Roy N. and @Kenneth LaVoie I agree with you both. I guess inspection will rule out a lot, not all I assume, but at least the most of issue.

Pat Lewis · Answer

my agent sent me this pic of a foreclosure he just listed with the original roof rafters!!!!

Roofing planks were very thick slabs of trees.

Roy N. · Answer

@Michael Ramzy

Welcome to BP!

At 100 years old you would be dealing with something Edwardian, or maybe even still Victorian or Colonial, in architecture.  Down east, we have lots of building which is much older (I just looked at one from 1850 last week).

While these old converted houses have grace and style, unless they have been retrofitted in the past 20 - 30 years they may also have older plumbing and electrical, original single pane windows and no insulation.

These old converted houses can make fine apartment buildings (we have a few).   When considering one, you need to factor the present state of modernization into your purchase offer and, as @Kenneth LaVoie mentioned, budget a little extra for CAPEx as renovations will take a little more effort (as an example was no such thing as standard dimension lumber and you will find studs and joists will have some variance).

Kenneth LaVoie · Answer

@Michael Ramzy

In order to run the numbers differently for old, I'd have to have something new to compare! haha! But I suppose I do add a higher repairs and capex number (Repairs 10%, Capex reserve 5%), AND when I buy, I plug an additional "fudge" amount into up-front repairs because I know I've missed something that isn't visible on inspection. (plumbing, wiring, leaks, etc.)

Michael Ramzy · Answer

@Pat L. NY is my second best area of interest and specifically Staten Island. I'm looking for a 3+ units rental property (or multifamily) to acquire.

@Kenneth LaVoie do you run the numbers a bit differently with OLDEs to make up for expected expenses?

Is a 100 years old building a lemon or a good deal to negotiate?

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