Age of apartment building

14 Replies

Hi - Many of the multi-family properties I have been looking at were built in 50s or 60s. Rarely did I see newer properties built after 80s/90s. Do you only buy properties that were built after certain years? I am worried about the high maintenance cost of older building.

Thanks a lot!

Chase

Many of my properties are 100-175 years old. I am more concerned with overall condition than age. If a building has been regularly updated they can be relatively easy to maintain. If they haven't been updated expect some considerable expense getting them there. 

It depends. In my market most of the MFR stock is older than that. For older properties you need to consider plumbing, electric, roof, etc. Stay with what you know. Lessons aren’t cheap.

Those properties built in thr 50s and 60s are probably 10 times more solid than the crap they threw up in the 80s

@Russell Brazil . Is your comment based on the overall structure of the homes or are you basing it on all the other infrastructure in the house: Plumbing, Electric, Sewing, Roofs, HVAC, .... etc? I 'm really not an expert on buildings. 

Originally posted by @Henri Meli :

@Russell Brazil . Is your comment based on the overall structure of the homes or are you basing it on all the other infrastructure in the house: Plumbing, Electric, Sewing, Roofs, HVAC, .... etc? I 'm really not an expert on buildings. 

 The 1980s were a low point of the quality of construction in this country.  Deregulation across many industries during the Regan years lead to crap houses in the 80s. That crap just falls apart, while older stuff is more solidly built in general.

Russell is on the money re the 1980's seeing some shoddy multifamily construction, but it was the rapid depreciation of rental property allowed under the 1981 tax reform that was the real culprit.  Was especially attractive in reducing tax liability from oil and gas earnings - and of course a lot of it was financed by the S&Ls.  We all know how that sad story ended . . .

While I would agree generally speaking on @Russell Brazil comments regarding quality in 80’s vs older, I would also like to add that the buildings in the 50’s to the 70’s are also more likely to be in predominantly C class areas and the buildings themselves are likely C class in quality and amenities. Again, this is a general statement and not a hard fast rule. I have found that many of the older buildings are filled with hidden problems in major items like sewer systems, HVAC, electrical, etc. Not to mention that there are often foundation issues and other major ticket items. 

That said, there can be some nice value add plays on those buildings if you know what you are doing and you are well capitalized. Whatever you do, do not enter a deal like that under capitalized as that is a recipe for disaster.

Originally posted by @Will Barnard :

While I would agree generally speaking on @Russell Brazil comments regarding quality in 80’s vs older, I would also like to add that the buildings in the 50’s to the 70’s are also more likely to be in predominantly C class areas and the buildings themselves are likely C class in quality and amenities. Again, this is a general statement and not a hard fast rule. I have found that many of the older buildings are filled with hidden problems in major items like sewer systems, HVAC, electrical, etc. Not to mention that there are often foundation issues and other major ticket items. 

That said, there can be some nice value add plays on those buildings if you know what you are doing and you are well capitalized. Whatever you do, do not enter a deal like that under capitalized as that is a recipe for disaster.

 Absolutely agree. I always tell a lot of people Im home shopping with that this new construction new developmwnt will start off as A class, will be a B class asset in 20 years, and will be a C class neighborhood in 35 years.

You always got to look out too for what problems existed in particular times in history. Polybutelene pipes from the late 70s to early 90s, aluminum wiring from the mid 60s to mid 70s, etc. Id rather a 1985 building with copper wiring than a 1975 building thats more solid but has aluminum wiring.

@Russell Brazil Thanks for the clarification. 

@Will Barnard I'm not  a builder, so I really don't know how much these things cost. In these older buildings, most of the time HVAC, Plumbing, Electric, Roof, Sewage systems are in need of serious upgrades. If one had access to capital, wouldn't it be much better alternative to replace these older constructions with newer buildings (if the location is a prime location) rather than try to "fix" these older houses?

1. You would go from C class to A class

2. You could double the rent, if the location is prime location

3. you just added 30+ more years to the life on the new asset.

4. Your tenant base changes. Of course you might have issues with zoning and gentrification ...

Have you ever been involved in such scenarios? Just curious !!!

Originally posted by @Henri Meli :

@Russell Brazil Thanks for the clarification. 

@Will Barnard I'm not  a builder, so I really don't know how much these things cost. In these older buildings, most of the time HVAC, Plumbing, Electric, Roof, Sewage systems are in need of serious upgrades. If one had access to capital, wouldn't it be much better alternative to replace these older constructions with newer buildings (if the location is a prime location) rather than try to "fix" these older houses?

1. You would go from C class to A class

2. You could double the rent, if the location is prime location

3. you just added 30+ more years to the life on the new asset.

4. Your tenant base changes. Of course you might have issues with zoning and gentrification ...

Have you ever been involved in such scenarios? Just curious !!!

 1. Only the structure itself would go from C to A class. To be a true A class Property, you need enough amenities in the building to qualify, you need the location to be A class and in most cases, a C class building is not going to be in an A class location.

2. That depends on the location, certainly anything is possible, but not likely.

3. That can be accomplished with a full gut rehab too.

4. Your tenant base would certainly need to change but you have an uphill battle if all the other items don’t align.

My 2 cents... comparing 50s-70s apartments to 80s... 

For property of similar condition (and maintenance history) the concerns I have are not age based, but depend on environmental issues and functionality. Lead based paint and asbestos can cause problems depending on your target rental population. Avoid aluminum wired property if possible since pig-tail projects can get expensive for the electrical (on-time) and on-going insurance hit.

Many older apartments (50s-70s) tend to have functional obsolescence baked in, so to a degree there will be a practical limit on how much you can push rents up without bigger cost alterations. Think W/D hookups, dishwasher, small kitchen/countertop area, etc. Even electrical grounding... or lack thereof.

Many 50s-70s vs. 80s apartments are apples to oranges. Depends on which fruit you (and your lender) like to some degree. 

@Chase Gu Interesting topic and something we're actively talking about in our group (esp. during underwriting).

@Henri Meli Building on @Will Barnard reply, the replacement cost for new construction is very high. Hence, the glut of "light value-add" syndicators over the past few years (us included). Just upgrading a building will not take it from Class C to A. The neighborhood and amenities play a big part. 

For instance, in our local market (DFW), even 50 year old apartment buildings in Highland Park (one of the most expensive places to live in the US) are far more expensive than newer construction in other parts of the city. Why? Local - the neighborhood is extremely wealthy.

Even in the above scenario, it's impossible to double rent (even with a new construction). There is an upper cap on how much rent a market will support. Improving tenant base, adding amenities and other features can only help up to a limit. 

@Chase Gu you can’t do much with 1960 or older properties due to too much exterior improvements and older systems.

@Chase Gu 1950's and 60's buildings are generally built well. The major issue I have with that era of building is the mechanical's. If there is galvanized piping and cast iron waste, then you will be at the end of the life cycle, which can be majorly expensive. Same with the heating and cooling systems, windows, doors, etc. You also have the lead and asbestos issues as well as the overall design and fee aspects that can some times be negative. If the mechanical items have not been replaced, then you should budget for them. 

I also agree with the comments made by @Russell Brazil in that 1980's properties, in general are built poorly. From the late 1970's all the way through the early 1990's, the houses/apartments are not well built

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.