Max Age for Buy and Hold Properties?

[Troy P.]

After reading (and thoroughly enjoying) HOLD: How to Find, Buy, and Rent Houses for Wealth, one of my takeaways from the material was a quote from a long-time investor that says he only purchases 4 bedroom single family homes that are less than 10 years old.  My question is if anyone else has similar age restrictions on a property you're going to hold long-term?  Have you seen value in starting in the 10-15 year old range because of fewer maintenance costs?  Does that eventually pay off?  In my area, the market is saturated with homes from the 80s and 90s making it very difficult to find a good deal on anything newer.  What is your experience?

[Jim K.]

@Troy P.

Well, here's the deal as I see it, Troy. The median housing stock age of the USA as a whole is currently 39 years old. In Pittsburgh, the oldest city by housing age in America, the median age is 65. Cleveland, it's 62. On the other hand, in Austin, it's 16. Las Vegas, 18. Obviously, the strength of your premise will differ from city to city.

I live in Pittsburgh, and I would have to say that I specialize in buying and holding 90-100 year-old builds. Is there still a lot of value in those in Pittsburgh? Yes, there is. The reason for this is that a lot of that Pittsburgh housing stock was built extremely well back in the day. Brick veneer, slate roofs, heavy steel beams, beefed up balloon framing, good grading and drainage, minimal renovations over the years, classic, proven home designs. Stuff that was really built to last.

Sadly, right next to it often sits really, really, really poorly made stuff that was ready for the bulldozer forty years ago. And as the years passed from Pittsburgh's first and second building boom in the 1920s and late 1940s, the quality of the building really suffered. A lot of corruption, a lot of corners were cut. It's not at all unusual to find garbage places built the 1970s that have much worse and chronic problems than a place built with care in 1920.

In buy-and-hold, your job is always to pick places that have investment longevity, that can be renovated, in areas that will most likely appreciate. You're going to have to learn about houses in your area: what's a good build, what's a cheap one, how to renovate good builds, how to stay away from properties that have been monkeyed with, and, very rarely, how to find value in places that others have turned their backs on as money pits.

My constant case in point for this is the brick-veneer over-under duplex that I live in. It was built for an heiress in 1924-5, fully renovated in 1945. I bought it in 2017, with a new roof and newly repointed windward sides, for $45K cash. Today, I live downstairs and my tenants live upstairs for a rent of $900, shared laundry in the basement. The owners who sold it to me were, of course, not particularly well-versed in real estate. They thought they were selling me a money pit. They thought the neighborhood would never recover from its worst days. They just wanted to get this place off the books. The plumbing had problems, the box gutters had rotted out and water was constantly seeping into the basement. The water heaters were at the end of their lifespan. The trees in the back were gigantic and moving aside the powerlines. Their family had owned the place since 1948 and the third generation JUST WANTED OUT, after a series of expensive desperation moves like the aforementioned roof and exterior repointing. They imagined they would just have to sink more and more and more money into the place, with no end in sight.

It took effort, it took investment, it took making a lot of good contacts and beating a hard learning curve, but my wife and I made this place into a moneymaker. That's how you have to lean into the buy-and-hold business, Troy, not as a series of calculations that holds true everywhere you apply it. It's seductive to believe that some simple calculations will save you from a bad investment or always lead you to a good investment and the same will hold true everywhere in America (or even the world), but that's just not going to work anywhere you have buildings and people and neighborhoods in flux, which is practically everywhere. Real estate is local, occasionally hyperlocal. Had things been different here, yes, this place certainly WOULD have been a money pit, as the former owners believed. I've sold money pits here to get out. Hell, I sold one for $150K and the new owners took 32 months to fully renovate it. They ended up selling it for $450K. That one still hurts, but at the time I sold it, I didn't have the contacts and the know-how to fully renovate that place.