Taking caution buying an old property

[Nicole Gullotti]

Starting to look at some older properties (pre-1960s) in Columbus, Ohio and am looking for any advice on things to be cautious of/ questions to ask from more seasoned investors. Previously I had my buy box post-1964, trying to avoid knob and tube wiring and some other challenges with older homes but that is becoming a barrier to buying- thinking about expanding my buy-box, but still want to mitigate risk/ ask the right questions. Any advice would be appreciated.

[Richard F.]

Quote from @Kevin Sobilo:

Quote from @Richard F.:

Old is old, no matter where located. Sure, regional practices differ, but the fact is the older any property is, the more likely it is that multiple unqualified "handy" types have made poor, if not completely unsafe, repairs. At around 40 years of age, unless you verify first, assume the worst, and plan for it. Complete new electrical system. Complete new plumbing to the street. Replacing insulation. Complete roofing R&R. It is critical to look for signs of foundation issues and signs of long term water intrusion/seepage in specific areas. If you don't know the "signs", how do you know if your "contractor" does?

I'm sorry, but it does not sound like you are familiar with older homes at all. 

Yes, the stated expected lifespan of something like an electrical/plumbing systems is ~40 years, but literally NOBODY is expecting to replace a 40 year old electrical or plumbing system. 

In fact nobody buying 80 year old homes is planning to replace plumbing lines to the street either!

Old is not old when it comes to how the properties are managed and perceived. Yes, certain types of issues are more prevalent based on age, BUT a 100 year old B/C class rental in the rust-belt will likely be managed differently than a 100 year old B/C property in a western state where houses are much newer on average. The decisions on how and what to upgrade are different. 

As I said, "regional practices differ", and the important point I made was that you need to investigate significantly to address poor prior repairs which are often the source of repeat isues. Indeed, I am talking primarily about average homes for low and working class tenants, not exec level, or "historical" properties. FYI, I've visually inspected several thousand units over my 30 years in the business, from SFH built in the late 1800's in the midwest, to single wall post and beam built in the late 1800's through the 1970's here in Hawaii, as well as multi-family wood construction, and concrete mid-rise, and high-rise properties. Having actually started performing "service calls" and light remodels across over 800 "old" properties, I have seen the results of previous incompetent repairs. Also, having managed hundreds of units for decades, I have seen the results of short cuts and cheap Owner decisions play out. This includes a lot of "experimentation" with different materials and processes to observe the true long term results. Over my last 10 years I oversaw just less than 150 complete renos for our Clients, and every one of them saw dramatic increases in market value and in rent rates, while at the same time gaining much better quality of Tenants. Evictions were essentially nil for those that we placed; SD refunds were over 90% fully returned; turnover averaged well over 4.5 years with very minimal repairs necessary during occupancy or at vacancy. 

There are plenty of gurus and AI posers with cavalier attitudes about "how easy" PM, flipping, etc. are...all you need are the right "tools". BS! You need actual knowledge of actual facts to make a good financial decision. Anything less is little more than a lucky, or unlucky, guess. Of course, guesses are not a problem if you have deep pockets so you can shrug your shoulders, pay the "unexpected" bills, and move on to the next "deal". 

I've had plenty of age related problems with cast iron and galvanized plumbing, old lead drum traps, and "hidden" knob and tube wiring spliced onto romex with nothing more than wirenuts hanging in the wall cavity. And I've seen an entire room ceiling, "old" horsehair plaster and lathe, peel itself free of the joists and fall entirely in seconds, fortunately NOT crushing anyone that could have been sleeping in the bed. Water damage, as I have noted on many posts here, is the #1 enemy. It causes more damage, costly damage, hidden damage, than any other issue, and any "investor" or LL that does not know how and where to look, and what they are looking for, should not be relying on someone unknown that they are paying to "inspect" something that only the investor will be paying to remedy when it is revealed.

Water supply and waste lines to the street usually fail at the worst time, and are pricey enough to repair on your own schedule, but generally much more costly and inconvenient when you sit on your hands and wait for them to fail. It is common to repipe entire high rise buildings due to age, simply due to the fact that the older the system, the more frequent the leaks. More frequent leaks result in more insurance claims, which results in higher insurance costs or cancellation. You cannot afford to continue to simply patch, patch, patch.

Finally, my second sentence in the prior post stated "verify first, assume the worst, and plan". You can still choose to ignore, but only if you adequately investigate and verify conditions. If you insist on just guessing, or picking an arbitrary "percentage" of some other random number to "cover" the expenses, that is not "due diligence".

Kevin, I appreciate your long time responses, and respect you and much of what you usually post. Obviously, my actual experience is different from yours. I'll grant you markets can differ, certainly Hawaii is far different from where I came from in the Midwest, but the fundamentals proved to be the same. Better quality product, plus solid screening, solid systems for each process executed consistently result in better Tenants, lower expenses...long term. In the Midwest, some of the properties I worked were absolutely slums, with horrible and dangerous Tenants, but those Owners refused to follow our recommendations. Other Owners that did, and started with similar issues, saw real improvements. I've done the same here, property after property. 

Long ago, in my first career in an industrial setting, I was taught the principles of "Quality Management", as in, quality processes; continuous improvement; even to the point of being subject of "time and motion" studies to seek process improvements. I've applied that knowledge and the principals it encompasses across subsequent businesses and jobs as well as personal life ever since. I have seen first hand, time and again, "prevention is much less costly than reaction" over the long term, and often, also over the short term.