Why it’s Dangerous to Invest in Old Houses for Fix & Flips and Rentals

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16 flips currently in progress. 142 flips completed. 18 rentals properties.
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repair old housesThe older a house is, the better chance the home is going to have serious problems and need major repairs.  I invest in many fix and flips and rental properties every year, and I would love it if they were all ten years old or newer.  The newer a house is, the less repairs are needed and the quicker the repairs can be done.  In reality we can’t always choose the perfect house to buy as a rental or a fix and flip.  I like to buy properties below market value and I do not always have the option of buying a newer home in great shape.  If I do buy an older home, I am very careful about what repairs the home needs, and I make sure I am getting a great deal.

There is a lot of competition in real estate and sometimes I buy questionable houses.   I have 9 fix and flips being marketed or repaired, including one that was built in 1875.  You can make money on older houses, but you have to be very careful about the repairs needed and budget extra money for unknowns.

What problems can you run into when repairing old houses?

With newer house you can run into problems when doing a rehab, but a newer house usually has a decent furnace, plumbing, electrical and foundation.  With older houses you never know what you are going to find and how much a rehab will cost until the rehab is done.

I have a fix and flip I am working on now that had to have the interior walls stripped because the plaster was crumbling.  Drywall replacement is not a huge deal, because you can figure exactly how many sheets you need and what labor will be.  The problem is you don’t know what you will find behind the walls.  In this particular house, the electrical was spliced together without junction boxes.  This was a huge code violation and fire hazard.  Since we pulled a permit when doing the work, almost the entire house had to be re-wired after this discovery.

This was not the only problem we found with this house after the rehab had started.  The roof appeared to be questionable and we were planning to replace it.  However when my contractor started tearing off the shingles he found four layers of shingles!   The previous roofer had covered up the layers by raising the fascia to only show one layer of shingles.  This discovery was not a disaster, but it did add to the labor and disposal costs.  Here is a great article on how to determine what to repair on a flip or rental.

For more information on flipping houses, including how I average over $30,000 profit on each flip, check out my bestselling book Fix and Flip Your Way to Financial Freedom on Amazon. It is available as a paperback or eBook.

Why do old houses always have uneven floors?

Nothing scares away a buyer faster than a house that they think might have structural problems.  Uneven floors may or may not be a serious problem, but most buyers will be scared off by them.  Uneven floors can be caused by many issues; settling ground, rotten floor joists, crumbling foundation or poor construction.  Many times am uneven floor can be leveled easily with more support and bracing.  Houses settle all the time and over 100 years, a lot of settling can occur.

The problem with uneven floors is you don’t always know the cause of the problem, because you can’t get access.  Some old houses have basements, some have crawl spaces and some have nothing.  I have bought multiple houses this year that have no crawl space or access to the space below the floors without tearing up the flooring.  You can’t exactly tear up the flooring during an inspection before you buy a home.  I had to hope the uneven floors was due to a minor problem that could not be seen and take a chance.  Luckily in those cases it was an easy fix that required adjustments of the floor supports, because the ground had settled.

How can you tell if an old house has foundation problems?

One of the scariest repairs for any house is a foundation problem.  A foundation problem can destroy a house if it is not taken care of soon enough.  Usually there are signs of a bad foundation; uneven floors can be an indication as well as cracks in the walls and cracks in the foundation.  Hairline cracks are usually not a big deal and common.  Cracks that are more than a 1/4 inch wide or more than 1/4 inch offset can indicate major problems.  Water seeping through the foundation can indicate major problems.  One of my fix and flips has water seeping through the foundation and my contractor is working to figure out the best way to repair it.  He is going to dig out the ground around the outside of the foundation, re-seal and repair it or pour new foundation walls inside.  Whatever route he takes, it will be expensive!

If you think a house you are interested in has a foundation problem, get a professional to check it out!  Pouring a new foundation is not easy and sometimes not possible.  A foundation problem could cost $2,000 to fix or $25,000 to fix.  In some rare cases, the house has to be lifted off the old foundation and a new foundation poured.

Plumbing problems in old houses

Many old houses have galvanized pipes that have to be replaced.  Galvanized pipes corrode over time and hurt the quality of the drinking water in a home, everyone should be preventing poor quality water with the best water filter jug they can find, no reason to blindly trust old pipes.  New plumbing technology has made replacing pipes cheaper, since you no longer have to use expensive copper.  However, replacing the plumbing in a house will costs thousands of dollars and the biggest problem is in houses with finished basements.  If a basement is finished there is no access to the plumbing without tearing up drywall, which will add more to the cost.  It is always a good idea to have the plumbing system checked out thoroughly on any house you buy, especially an older house.

old houseOther issues to look out for in older houses when investing in real estate

Old houses were not originally built with sheets of drywall like new houses are.  Old houses were built with plaster and plaster is much harder to work with than drywall.  In fact many contractors do not even know how to work with or patch plaster.  If you have cracks in the plaster or crumbling plaster, it is usually best to replace it all with drywall than to try to repair it.  When you start replacing plaster is when you start finding electrical problems or you may discover the house has no insulation.  You may even find out some of the studs are rotting or have been cut at some point and are not supporting the house as well as they should.  I have discovered these issues in older houses I have bought this year.  I think I should still make a profit on these fix and flips, but you have to account for the extra repair costs that will come with an older home.

Is an older house better for a fix and flip or rental property?

When I buy rental properties, I have very strict criteria and part of that criteria is the age of the home.  I try not to buy any rental properties that were built before the 1960’s.  The reason I like newer rental properties is I am going to be holding these properties for a very long time.  My rentals provide great cash flow and I do not plan to sell them any time soon.  The older house, the better chance that a major problem will come up during ownership.  I would rather fix and flip an older house than hold it as a rental, because the fix and flip will become someone else’s responsibility. I still try to repair the flip as much as I can and I do not hide any problems, but with old houses you are going to have to make more repairs.  That is why my cash flow calculator for rental properties has a higher maintenance allocation the older a home is.

How much extra should you budget for repairs on an older house?

When I plan a rehab, I usually add an extra $5,000 to the cost of repairs.  I almost always end up spending that money on something that I did not expect.  On older houses I am going to start assuming there is an extra $10,000 in repairs needed above what I know will need to be done.  Not every house will need an extra $10,000 in work and some will need more.  I won’t stop buying houses that are old, but I will fix and flip them and I will make sure I have plenty of room for profit.

For more information on my long-term rentals, check out my complete guide to purchasing long-term rental properties.
Also for more information on how to buy the best rentals which will make the most money, check out my book: Build a Rental Property Empire: The no-nonsense book on finding deals, financing the right way, and managing wisely. The book is 374 pages long, comes in paperback or as an eBook and is an Amazon best seller.

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