For those of you who invest in the Midwest, how have the older houses treated you?

Question

I've read a lot about people buying and holding in the rust belt and have been doing some basic research into the areas. I've been leaning towards buy & holds in OH or IN, and looking at certain areas that cash flow pretty well, the houses all seem to be built from 1900's-1930's. I was just looking around for housing in decent blue collar areas that would cash flow pretty well under $25,000 purchase price. How have you guys that invest in these areas done? Do you usually need to redo electric & plumbing, and how do the foundations usually hold up after all the wear & tear?

I've been looking at:

IN - Kokomo, Muncie

OH - Dayton, Columbus, Cincinnati

It seems these areas are all great for cash flow, but the houses tend to be in a lot worse shape than newer ones in other popular buy & hold markets such as Phoenix or Vegas.

Rob K. · Answer

This is a good question. I buy houses in Michigan in the price range that you're looking in. In my 20's, I would buy anything. Now, I've gotten more selective. Here are some of my criteria: 1. Built after 1940 I absolutely HATE plaster and lathe. I prefer poured basement walls, but concrete blocks are common too. You can always tell the older homes by the diamond pattern in the concrete blocks from 1910-1930. 2.Gas forced air heat Gas is common here, but some houses have baseboard heat or a few have radiant. I stay away from these. 3. No additions I like the house to be original. Most additions (in my opinion) are not done right. I've seen so many where the foundations are not tied in right. Even more common is when the two roofs are not tied in right. 4. Laundry I prefer a basement, but if there's no basement, there must be a laundry room. Not having laundry hookups is a deal breaker for a lot of tenants. Also, I am looking at the end game. When I sell all of these houses, I plan to sell them for top dollar to owner occupants. I expect them to expect a laundry room. 5. Style of house I prefer a ranch. No one complains about having one floor. Some people don't like stairs. Also, I stay away from tri levels and bi levels. Those were just mistakes from the 1960's that are now functionaly obsolete. 6. Location You can buy a hosue on a main road for a lot less, but you will also have fewer people interested in them. 7. Power lines This is another negative. When you are near the high tension power lines, that is a drawback. Not everyone agrees that they're harmful, but when I drive under them, my radio gets static. 8. Roofs Flat roofs are not common in my area, but I avoid those too. You see a lot of flat roofs with additions. See above. Good luck to you. Check out the suburbs outside of Detroit. You can buy houses in relatively safe areas for under $30,000 and rent them out for $900 per month.

Uwe K. · Answer

I bought similar houses in Milwaukee, WI, same age range. I also find that the quality of craftsmanship seems to be quite a bit better then and things do hold up quite well, considering the age. Of course, all depends on ongoing maintenance over time. I invest mostly in the low-income neighborhoods, and often, once the houses are cheap enough, they are run-down. And if they are duplexes, certain slum landlords over the years did not quite help with their "repairs" and "upgrades". Add a long list of code violations (read: petty stuff, but annoying), and you have your work cut out. Expect more work at the $10k level (like almost everything), and less work at the $25k level. I've looked at $35k duplexes in nice blue-collar areas with almost no work to be done (plus surprises, of course). Having said that, most of those properties should cash-slow pretty nicely, despite the required investments to fix up. I have seen some bad foundations, such as basement walls caving in a foot or more on three walls. Run, if you still get out before it collapses. But I think, after 100 or so years, if there is no major damage now, you will not have much hassle. After all, if they haven't shifted in a 100 years, what are the chances? Plumbing is usually rusty galvanized with some copper additions and a few repair pieces. You may notice reduced water pressure. If the house has been vacant, there may have been frozen pipes. Never trust the ubiquitous "Winterized" signs, they mean nothing. Bought a winterized SFR where the boiler controls completely broke apart and pipes were leaking on all corners. Electrical can be a piece meal out of knob and tube, bare wires due to decaying cloth insulation, some Romex, and usually no permits pulled in the last decades. Most will have circuit breakers. But duplexes, for example, may have only 2 or 3 circuits for the whole unit.

Jeff S. · Answer

Many of the higher valued homes in Portland were built between 1910 and the 20's. These homes are solid buildings mostly with full cement basements. While most have updated circuit breakers, many have original plumbing and wiring. Old growth lumber is amazing.

Brandon Turner · Answer

I'm not investing in the Midwest (though I am originally from there) -but I do buy a lot of that age home. I find that those properties are, yes, in much greater need of work but I find that a lot of homes were built much better back then. The trim and other features are something of a lost art in today's homes so I love them. Don't expect walls to be straight or level - but mud and caulk can fix a lot!