I was wondering what is considered too old when it comes to evaluating commercial properties?
Thanks in advance for the help.
It really depends on your preferences and changes from one investor to another. I, for instance, look for properties that are 1970 vintage and newer, because older properties tend to have higher CapEx. Some will look at properties that are 1980 and newer, and some will buy properties that were built in the 50s.
Thank you for the response Ellie,
How much more would you budget for CapEx on properties built in 1970s and newer vs a property built in the 2000s?
@Anthony Franklin Building off @Ellie Yogev point, there is no one right answer. Each investor has their own set of preferences. For example, if you've got a great general contractor or construction experience, you can easily look into older properties (ideally, buying them at a discount). Most syndicators look at 70s vintage and higher because they either do not want to be bothered with the deferred maintenance issues that come up with older properties or do not have the expertise to handle such projects.
CapEx budgeting is completely dependent on the size, type and location of the property. A Class A type asset will require more capex vs. an Class C type asset.
The only properties that I generally shun are those built during the early to mid 80s - I call it the rapid depreciation era. A quirk are those built in Texas (maybe elsewhere) during the early 60s - many were equipped with boilers and chillers. Prior to that most lacked cooling and were "updated" with window units or PTACs or retrofitted with split DX cooling systems. By the late 60s split systems paired with electric resistance or furnaces for heat became the norm. In short, I look at the condition of the building and equipment. An older building with new mechanical systems may be more attractive to me than a late 80s - early 90s building with patched together stuff, although later construction generally has larger units. Location receives a lot of weight. Older in good area generally beats newer in bad area.
Anthony, to your question: it really depends. I send my property management company to walk the property (sometimes even before I do, or with me) to come up with an exact budget. Sometimes roofs needed to be replaced, sometimes they are new. Sometimes you want to update the gym/clubhouse or add a dog park. Sometimes they are already updated. So there is no "set" budget for CapEx before I/the PM see the property.
Thank you everyone for the valuable advice. I greatly appreciate it.