Rental Property: How old is too old?

Question

Evaluating a triplex in Lousiville, Ky. Louisville is known to have a lot of older homes, but how old is too old?

The house is built in 1904. Three 2 bed, 1 bath units. Two out of the three are currently rented. Considering 10% of rent for Vacancy, Repairs, Capex, and Property Management. The numbers still fit the bill. BUT... is the age of the home an automatic deal breaker?

I am looking to house hack and buy my first multifamily home very soon. Would hate to start out on a bad property.

Would love to hear any thoughts or advice!

John Westbrook · Answer

Hi @Blake LaRussa! I live/invest in Chicago, and 99% of the properties were built from 1890-1930. Don't let the sure age of the property deter you, it is far more important to understand if it is a well built structure(health of foundation). Here in Chicago, I prefer a well built brick building from the early 1900's than the new split face construction built around 2006-2008. Always account for plumbing and electric, as if it's original, it's probably time for a copper/PVC upgrade that will last another 100 years. You know what they say...they don't build em' like that anymore.

-JW

Todd Dexheimer · Answer

The mechanical systems and foundation are the most important factors. If you have old galvanized and cast iron piping, old knob and tube wiring, old boiler system or a foundation that is failing, then run away. Look closely at those items and the overall structure and if all is sound, then you should be fine. One other thing to look at is the plumbing coming in. If you have lead water line coming in from the street, then budget to replace it. Also, get the sewer scoped.

Erik W. · Answer

@Blake LaRussa, hi and welcome to BP!

The better question to ask is what is the effective age of the property vs. the calendar age.

Buildings, like people, wear out over time.  Designs become outdated.  Material quality sometimes improves (i.e. drywall vs. lath and plaster) or sometimes gets worse (i.e. particle board vs. solid oak trim).  But unlike people, buildings can have everything ripped out and replaced new.  Even the "guts" like electrical, sewer, etc.

I manage several houses over 100 years old, and they are some of my best.  The thing about older homes is some of them are built very close to where the downtown areas are, and these days many of those areas have been revitalized.  Older homes are often in prime locations close to where the night life and attractions are vs. miles out in the 'burbs.

Older homes also have what some refer to as "charm" that appeals to certain categories of folks.  We're talking about 12 foot high windows, stained glass, naturally distressed hardwood floors, solid doors, antique door handles, etc.  Just don't mistake soft sub-floors and heaving foundations for charm and you should be okay.   Hipsters and Millennials seem to like them a lot.

In my opinion, the easiest houses to own, rent and keep in good repair are 3 bed, 2 bath, 2 car garage ranch style homes built after 1978 (to avoid lead paint issues) with a basement or at least a 4 foot crawl space that allows easy access to plumbing and HVAC duct work and a fenced yard.  This is why they usually sell for a premium, even the 40+ year old ones, if they've been kept in decent shape.

Marlen Weber · Answer

@Erik Whiting I am with you 100% on the charm that older homes bring. I enjoyed reading your response to this thread. Thanks for sharing.

Craig Jennings · Answer

I'm an investor and realtor in Louisville. To me the age of the property isn't as much of an issue as the condition.  All my rentals are 100 y/o SFR's.  Most of them were built in the 1920's.  If the property hasn't had any updates you're going to potentially run into issues such as old aluminum wiring, old fuse panels instead of breaker boxes, no duct work in the house, old inefficient windows, and no insulation just to name a few. If it's currently being used as a rental I'd imagine many of those issues have been addressed but not necessarily. If you want to give me the address of the property I'd be happy to give more specific feedback.  All the best!

Evan Polaski · Answer

@Blake LaRussa  Old is better many times. Yes things need updated, but things aren't built like they use to be built.  That house proves that it will still be standing in another 100 years.

Obviously, there is functional obsolescence, and exposed knob and tube can be a factor (although enclosed in walls and ceilings is generally fine, attics and basements are your issues, generally).

In first reading, I am less concerned about the property age (every property I own was built between 1914 and 1952), but more with the 10% assumption on vacancy, capex, repairs and management.  In Cincinnati, until you have generally over 20 units with a management company, you are paying 10% on receipts for management + 1 mo rent for leasing.

Crystal Smith · Answer

If the property you're evaluating has "good bones" i.e. the structure is sound, then being an old home is only a deal-breaker if the cost of updating the plumbing, electrical & mechanical is cost-prohibitive given your Return on Investment goals. You may find that the previous owner has already made those investments. Find out the costs to make those type of updates in your area & factor it into your analysis. Once an old property is updated the cost to maintain is no different than a new property.

Kenneth Garrett · Answer

@Blake LaRussa

It’s all relative.  Age is only a part of the investment.  Has it been updated over the years?  Does it have cloth wiring/knob and tube.  Has the plumbing been updated?  Furnace age and roof age; those are major components.  Generally these structures were built with actual true lumber not the nominal lumber we see today.  The old lumber is much stronger.  Inspect thoroughly.  Age would be irrelevant in my mind it had been updated.

Edward Liu · Answer

For older buildings, I only go for Brick.   In some cities, there is actually premium to brick buildings as they typically are well built and can last long time.

Connor O'Brien · Answer

I live in one of the 1885 construction chicago buildings mentioned by @John Westbrook. Mine is frame and I love it. The sill plate is solid 10"x10" fir beams. even with years of water/insect damage it still has more life in it than the treated 2x4s you see today.

Rental Property: How old is too old?

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