Cleveland's old housing stock, problem?

Question

Hello, newer OOS state investor here. We're attracted to the Cleveland market because my wife is from the area so is familiar with it and the home prices fit our budget (<120,000). We purchased a condo in Bedford Heights at the end of 2019 and it's worked out well so far. Although I like condos due to the limited maintenance, it's tough to find ones that cashflow, the HOA's can be risky, and I know I ultimately need to get into SFH's.

I occasionally find SFH's in the Cleveland metro where the numbers work out, and some of them are very nicely remodeled. But these homes are all close to 100 year old. I know less than nothing about construction so perhaps this isn't a concern but should I be thinking twice about investing in a buy and hold property that's already 100 years old? Or are the bones of these homes solid enough that age isn't a problem?

Marcus Auerbach · Answer

We have a similar housing stock in Milwaukee: most of the city was built in the early 1900's - about 100 years ago by German and Polish immigrants. then the great depression hit followed by WW2 - we have almost no houses dating back to those years. But then the roaring 1960s came and the city more than doubled in size in a decade.

Houses from the 1920 were built by excellent trades people and with slow grown wood. They are a little more expensive to work on, because everything is custom and hand made, plaster instead of drywall etc. But because they were so well built, they can be restored very well. However, stay away from properties that have settled and are now uneven and crooked.

1960 properties make great rentals as well, solid construction and no frills. Easy to work on. This is what I buy for my own portfolio, perfect for a full gut BRRRR. Drywall, cinderblock, 2x4s, standard size doors and windows, electrical and plumbing - all easy and readily available.

Here is what I would NEVER buy: late 1970's and all of the 1980s! This is when stuff got cheap and cost was more important than anything! Particle board and aluminim windows - all you need to know. Fast grown wood, glued and stapled together. Quality did not come back until the late 1990s!

Spence Kal · Answer

Also be careful of the flipped houses up there, I’ve looked at a few for rentals and a lot are just lipstick on a pig. They just cover over the issues to resell them, and they might even be good enough to pass some inspections. I looked at a SFR, renovated new paint cabinets everything, decent price, but smelled horrible and had a side room in the basement that was covered in mold with water everywhere. So fully renovated could still mean there are issues

Andrew Weiner · Answer

There are many homes that are older and have been kept in great shape and they are not problematic.  There are many that need to be demolished and there is no profitable way to bring them back to life.  Getting a home inspection will help you look into those items and you can ask the inspector to try to point out some of those items and give you an idea of cost or longevity.  Also make sure to budget for some preventative maintenance (this isn't just for older homes), driveways, roofs, hot water heaters, furnaces, and AC's all go bad even in much newer homes.  You can have the sewer reviewed with a camera that will give you insight on one of the more costly plumbing repairs.  Also focus on masonry, it gets very expensive and there is no return on investment, driveways, steps, and tuck pointing are the big items for this.  With proper due diligence buying older should not be a problem.

James Maradits · Answer

I typically try to stay with the late 1940's and newer properties when possible.  There are always exceptions and I have done plenty of deals with older properties, but from a rehab and maintenance perspective I've found that this range inventory is generally a lot more predictable.  The early 1900's houses often have bizarre floor plans, settling, and other intricacies that make updates and maintenance more complicated opposed to the newer inventory where there are typically more "off the shelf" type materials that can be used in the event of repairs or maintenance.

James Wise · Answer

If you want to avoid turn of the century homes in Cleveland you can hit the suburbs. You'll be looking at 1940's and 1950's stock. Lots of bungalows built in Parma, Garfield and Maple Heights during that time period.

Jim Truman · Answer

Thanks everyone. You've pretty much confirmed my hesitation to jump on some of these properties I'm finding. Sounds like a thorough inspection by an extremely qualified and honest inspector is crucial to prevent picking up a lemon.

Jeff Allen · Answer

As Andrew Weiner stated above, your due diligence during the inspection period can save you. Spending a couple of hundred dollars on an inspection of the sewer line may save you a couple of thousand on the repair or give you some leverage for negotiation on the price. Since there are neighborhoods with almost all of the houses being in that 90 or 100 year age, if the purchase plus repairs still gets you where you want to be in terms of cash flow on the rent, it still works out for you. If you are buying in a city with POS inspection requirements, have the seller provide a recent inspection from the city. Those POS violations can either eat up profit after purchase or provide leverage before hand.

Michael Dodd · Answer

@Jim Truman some are updated nicely and others a priced very low to where updates can be made.

Try to find someone you trust to do walk throughs, preferably someone with contractor level knowledge.

Even when having inspections done, I found things that inspectors missed. Overall there’s plenty of very structurally sound homes that are that old. I wouldn’t let age of the home deter you from looking.

Jim Truman · Answer

That's one of my concerns - someone covering everything up with a quick flip reno. I'm trying to move away from condos but the age of the SFH's are a bit of a deterrence.

Spence Kal · Answer

@Jim Truman

It depends on how well it’s built and taken care of. Some of that old wood they used is hard as a rock, so can be pretty solid. Structural engineers can check foundations for pretty cheap. I think people avoid them because the electrical and plumbing can be bad, and it’s always one problem after another that eats your cash flow. I had a 1910 house and sold it because I didn’t want to deal with all the old systems and everything. Also lived in a 150 year old house fully renovated and it was fine, but that was 90% new electric and plumbing.  I’m not sure how well old houses in Cleveland are built, they’re just kind of a pain in the rear in terms of maintenance. It gets really annoying when people do half ass renovations over the 100 years and you have things patched together here and there, 3 floors on top of each other and chopped together wiring. I had a 60s house and even that had bad wiring, just twisted together and taped. You never know what’s behind a wall, so if you can gut and reno the whole thing I don’t see a problem with them as long as the foundation is good.

Cleveland's old housing stock, problem?

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