Hey everyone,
When you are looking for potential buy and hold properties, whats your cutoff point as to how old they can be? I have an uncle who has been investing in real estate for 20 years and he always tells me “do not buy a house that you plan to hold and rent if it is older than 7 or 8 years.” His point for that is that if you plan to hold the property for 15+ years it will only be 20-25 years old instead of buying a house that is 40 years old and holding it for 15+ years it will be 55-60 years old when and if you decide to sell/refi it the age and economic life of the house may be at its end.
Whats your rule of thumb in this regard? IMO a deals a deal and if you can get a property at the right price (70% of ARV or less) in a appreciating area it doesnt matter how old it is…
Whats your take?
Thanks everyone
My oldest apartment building was built in 1835, my newest house is 1998. The building built in 1835 has already outlasted a lot of buildings built in the 1900s and will probably outlast almost everything built today.
Mike
Every month you should be setting aside a ‘reserve for replacement’ to keep the property’s effective age up to a rentable standard. I’m sure Mike’s property from 1835 has been renovated many times (unless he’s forcing the tenants to heat up the uninsulated place with a wood stove or coal furnace). If properly maintained and periodically renovated, a property should theoretically last forever.
You’re right about the economic life of a property. I’ve been told and found out that plumbing and elctrical systems last about 50 years. Sometimes, systems been updated, which is something you’ll ned to find out.
One investor said he does not buy building over 30 years old, as he plans to hold them 15 to 20 years, and does not want to do an overhaul somewhere down the road.
Generally, houses built over 50 years ago are better built, and if the plumbing and electrical’s been overhauled already, then it’s in it’s second life.
For instance, when the main electrical panel gave out at one property, it was replaced, new electrical meters added, and upgraded to 200 amps. I still have to run lines to each unit, which is not hard, because the building has a built in chase in the middle for wiring an plumbing, and running the wiring to the circuit breaker boxes of each unit is quite simple.
This above property was built in 1957, and I bought in in 1983. The plumbing is so far, so good.
Generally speaking though, the younger the better.
I'm sure Mike's property from 1835 has been renovated many times (unless he's forcing the tenants to heat up the uninsulated place with a wood stove or coal furnace).
Don’t be saying that crap loud enough for the tenants to hear it!!! They aren’t paying enough for heat, but I did paint the outhouse last year.
Mike
LOL- What a generous landlord.
The economic life or useful life assumes you will be making no repairs or renovations and the building’s operating expenses will exceed the rent generated from the totally depreciated improvements. Not an accurate assessment. I’m not sure how you get a tenant to live in a house with a 50 year old antiquated electrical system with maybe 2 outlets per room but more power to you (no pun intended). I also wouldn’t want to be liable for the tenants drinking water from lead pipes.
If the reason why you turn your nose up at good deals is because your afraid of construction, real estate might not be the best business for you. Good luck finding big discounts in new construction.
Thanks for the replys
Im not scared of construction at all, I have been rehabing and fliping for a year now and just completed a house that needed everything except the roof. Im excited about my future in real estate im young (21) and still have alot of years to fulfill my goals.
2000 or newer. Last two were 2002 and 2003.