How does building age affect underwriting?

Question

I'm looking to begin my investing journey with an owner occupied duplex. I'm looking in the Minneapolis area. My plan is eventually  to move out and keep the duplex as a REI. One thing I have noticed is that most of the buildings in the city are 100-120 years old. Does the age of a building matter much when creating a real estate plan or can I ignore the building age if the HVAC, roof, and foundation are all much newer.  If I hold for 30+ years I could end up with a property that is 150 years old. My fear is that at this age buildings will lose value even if renovations and repairs are up to date.

James Hamling · Answer

@Trevor J Dammon I wasn't going to jump in but @Daniel Anshus couldn't be more wrong, so I have to do a little reality check.

As @Jordan Moorheaddan Moorhead touched on, the focus is on components, because in 80+yr age homes it is 2 separate items, the components and the structure. 99.9% of the time these homes have had major renovations, I would say 100% but there may be an odd ball multi-decades abandoned place without such, so 99.9. And you going to find layers of major renovations, being able to go back in decades see what was done when. Again, component based.

The important item is electric, to know the type of electrical system improvements done, and to what standard. It's pretty rare to find any knob & tube wiring anymore but as rare as it is it's a thing that can happen of finding a system 90%+ upgraded with a few knob & tube lines still in use/active.

Now on structure, a structure of such age is actually BETTER then anything modern built, in many ways. Firstly, the quality of build is far beyond anything conventional built in such level today. For example, the foundations are 2'+ thick, modern is 8"-12". To build today too that level of the old would cost a fortune. And now to the obvious, if a 100yr old foundation is in great shape, I know it's not going to go bad anytime soon or in my lifetime, 100yrs is a great proof of time. Also the lumber is far better then anything today, being built of virgin slow growth timber and milled too nominal vs dimensional meaning bigger, stronger, healthier framing.

The great thing about a 100yr old structure is you know exactly what your getting, if structure is good it's good, if foundation is good, again, it's good. They are built to a level and with materials only found in the highest tiers of custom luxury builds today.

So again, it's all about the components.

yes, there could be asbestos items, odd's are rather slim of running into any of the trouble items as the change over from such has been going on for 3 decades now, it was commonly found in the 90's, nowadays it's pretty rare. All the actions can be easily covered by a good property inspector.

As for staying away from such aged buildings, that's a very novice thought. While of level where you can utilize inspectors and do walk throughs, you'd be a fool to avoid such, I'd seek them out.

As for underwriting, I'd suggest getting to know a bit about appraisals. I can take a 1911 original built home and for appraisal purposes get an effective age of 2020, so yes viewed much like a 2yr old built property. Again, read up on how appraisal works and pay special attention to the factors as it relates to major renovations and impacts of such. All BRRR investors should be familiar with this.

Jordan Moorhead · Answer

@Trevor J Dammon don't get too caught up in the details with something like this. Focus on the bigger systems like you've mentioned. Buildings in Europe are hundreds of years old.

Daniel Anshus · Answer

@Trevor J Dammon it is something to keep in mind as you decide on your investing criteria. It will 100% change what you look for in a property as well as how much rehab/ maintenance and capex you will need to save for. With these 100+ year old properties they will be more expensive and it can be more challenging fixing a lot of stuff yourself. This among other reasons is why I won’t invest in pre war buildings.

How does building age affect underwriting?

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