Old multifamily buildings

13 Replies

I am considering buying a multifamily property in the city of Chicago in the $750k-$1.5 million range.  Likely a 2-4 flat.  This would be to live in for a couple years then maybe move out, but hold forever.

Most of these properties are in the 100 year old (or older range), so this does concern me. 

I am wondering if a building that age would have so many issues over a long hold period that it would be a poor investment?

Anyone have experience in Chicago or elsewhere?


Thank you!

@Matt OToole , I am a bit biased with older buildings, as I have lived in and invested in properties that almost exclusively built pre-1940.  The "newest" property I have ever acquired was built in 1961.

Things to look out for, but are all fairly obvious during inspection: type of wiring, boiler vs forced air heat/air, foundation issues, tuck pointing on a brick property, sewer line scope (particularly if trees are near front of property).  This is not an all inclusive list of inspection items by any means, but big ticket items.

From a Capex perspective, items like a roof, HVAC, water heater, finishes, appliances, kitchen style, etc will all need replaced anyways, whether the property was built yesterday or 100 yrs ago. So should be accounted for as immediate and/or future Capex.

What I prefer about older properties: settling has occurred and any foundation issues are generally evident, which cannot be said for new construction.

Hi Matt,

It's probably best to pay for a full written inspection, paying particular attention to the wiring system (including junction boxes in the attic) as well as the electrical panel. 

If the inspector recommends having an electrician come in and do any further inspection, it's probably best to follow that advice too.

A sewer cam inspection might be a good idea too.

Good Luck!

@Matt OToole

Matt, the first property I purchased was a 4 flat that was built in 1904. The building was solid but I definitely underestimated the cost of replacing some of the core systems. I've got it up and running smoothly now and its is still quite profitable even considering the capex needed after I acquired it. PM or call me if you need help or advice. 8722407300

I wouldn't be too concerned that they're old. If they've been around for 100 years, they were built well and will continue to be strong and more importantly, they were built in the right location.

Just make sure that updates, upgrades and deferred maintenance are not something that you're paying for but not getting. 

Matt, how the previous owner maintained the building is usually more important than the age of of the building.  I own several from the 1800s and it's often the case that very little remains from the original construction other than some of the bricks.  Several others have pointed out the key issues to be concerned with but overall I would not be scared of an older building, especially if you know what the issues are when you make a bid.  The key is to reduce information asymmetries and you can really only do that with quality inspections and baking in a decent annual maintenance budget.  Don't expect to have much cash flow in the first couple of years.  

I grew up on a house built in 1920.  It was fine.  My dad stayed on top of the maintenance extremely well but then again he was a blue collar maintenance guy, so he knew how to do everything.  Should I do a podcast episode about this?

Originally posted by @Matt OToole :

I am considering buying a multifamily property in the city of Chicago in the $750k-$1.5 million range.  Likely a 2-4 flat.  This would be to live in for a couple years then maybe move out, but hold forever.

Most of these properties are in the 100 year old (or older range), so this does concern me. 

I am wondering if a building that age would have so many issues over a long hold period that it would be a poor investment?

Anyone have experience in Chicago or elsewhere?

Thank you!

 

In another post earlier this week there was a question about being concerned with buying an old building in Chicago. I thought I was having deja vu reading your questions. Almost every building we've purchased in Chicago proper has been an old building. The oldest was circa 1890s. The key to old buildings is to ensure that they are structurally sound (i.e. have good bones). Then change out all of the mechanicals, plumbing, electrical,.... & voila, an old building w/ brand new parts that will last another 100 years.  So no, it's not a poor investment, but if you are going to spend $750K to $1.5M for a 2 flat then it should already be updated. If it's not then in my opinion it's a bad investment. What I've described above is something where maybe we paid $250K -$300K then spend another $250K for updates.

Thanks @Crystal Smith

I am looking on West side and north side.... wicker park, west town, ukranian village, bucktown, lincoln park, lakeview, wrigley, roscoe village, etc.  Doesn't seem to be much in the 250K - 300K range in those areas.

Let me know if you come across any deals. Thanks!


Originally posted by @Matt OToole :

Thanks @Crystal Smith

I am looking on West side and north side.... wicker park, west town, ukranian village, bucktown, lincoln park, lakeview, wrigley, roscoe village, etc.  Doesn't seem to be much in the 250K - 300K range in those areas.



Let me know if you come across any deals. Thanks!

In the area you mentioned, if you pay $1.5m and it’s not updated already, then for our business plan it would be a bad investment unless there were updated properties near by with value of $2.5m or greater.  That’s for our business plan. 

@Matt OToole - That's awesome that you are getting into the real estate space.   I definitely think you will enjoy it.  

With $750-1M  you'll definitely have some options in some of the nicer areas on the NW side, is that where you are planning on looking?

As others have mentioned, the majority of homes in Chicago were built in the early 1900s or before.  Definitely proceed with caution but by no means be scared off.  I would be particularly cautious with stick-framed buildings because it's really hard to understand the condition behind the walls.  One of my buildings is stick framed and it definitely has some settlement but it's ultimately not going anywhere.

Get something locked in and under contract and then just make sure you have a great inspector or GC that can walk the property with you.  I've got an awesome inspector.  Shoot me a PM if needed and I can provide his contact info.

I agree with @Scott Mac . Doing due diligence on the property is the probably the most reliable way to determine the property's current condition and check your underwriting. You don't to find out after you've already closed, so investing in a thorough inspection is well worth it. 

Older properties certainly have their issues (galvanized pipes, knob and tube wiring, plaster and lathe, etc.) but it really comes down to how well they were taken care of. If they've been maintained well through the years, they're generally fine. Maintenance costs will be a bit higher but not too bad. If it's fallen into disrepair, however, an old property can be a complete nightmare.