What is the value of buying older houses to House Hack?

Question

I heard that it is better "dollar-for-dollar" value to buy older houses when looking to House Hack. I don't get this. The phrase "dollar for dollar" is a little confusing, and I don't know why one would prefer an older house. Wouldn't that mean more maintenance costs in the future? Especially if you are looking to rent out the house for a long period of time after you leave.

Bruce Woodruff · Answer

The value in older houses is that a) they are generally in worse condition, which gives the investor more room to add equity, and b) they can often be in areas that are getting ready to 'gentrify' which adds a huge amount of instant equity, and c) they can scare away a lot of competitors.

I always looked for old fixer homes in areas that were looking like gentrifying.....

I always looked for old fixer homes in areas that were looking like gentrifying.....

Jim K. · Answer

My wife and I used to live in a two-bedroom townhouse currently worth about $200K. It was across the road from Ross Park Mall, the most upscale mall in the Pittsburgh area. The townhouse complex had snow removal, outdoor landscaping care, a pool, tennis courts, and a clubhouse. Square footage of our unit was about 1500ft2. The HOA fee is currently about $400/month, with special assessments once in a while (when the idiot board and management company are faced with a disaster and are forced to admit how incompetent they are).

Unhappy with this state of affairs, we bought a duplex at the edge of a heroin ghetto for $45K cash. The duplex was approximately 100 years old, the windows leaked like crazy, and the aging owner couldn't get tenants for it in the condition it was in. Oh he tried! He put a new roof on the place, tried to fix the box gutters, but when the main plumbing stack started leaking, he, with his limited understanding of home repair, threw up his hands and sold for a song.

Still this was a very large, very well-built over-under duplex. Each apartment was 1760ft2, with an even larger full basement. Originally, I learned, it was built for one of the heiress of a prominent local family. It was very near our other rentals and my wife's work (I worked from home). I started fixing the thing myself. It only took one busted window and stuff stolen off the back porch before I realized I needed a camera system. A dude got shot to death in the alley behind the house a year after we bought it. Next summer, another dude's pregnant girlfriend got shot in the belly in the convenience store parking lot down the street.

I steadily worked on the upstairs in whatever spare time I had. I had it ready in the summer of 2020...right when COVID really hit Pittsburgh, of course. That actually turned out to be a blessing with this place, because we rented to two rather well-to-do grad students (the parents cosigned the first year). They were looking for an apartment that didn't ventilate into another apartment (the apartment uses hot-water heat, not a forced-air furnace), was far away from the cramped, overpriced apartments near their universities, and had good security. My duplex was a good commuting solution and our presence downstairs with my gun locker and multiple recording cameras sealed the deal.

The apartment has never been vacant since. We moved in downstairs (the townhouse is now rented). The shootings turned out to be the last gasp of undesirable residents who were soon displaced as gentrification took place and property prices started to shoot through the roof. I thankfully bought a nearly-identical duplex one street over for $100K because I realized what was going on. Today, it's hard to put on a price on both duplexes, so I typically just peg them at $170K each.

I do this because a newly renovated three-bed SFR goes for $170K on the first day it's put on the market in this particular neighborhood (I know because I just sold such an SFR a street over). One of the main reasons for this is that a local educational foundation connected to the Steelers just built a $12.6M facility on the main street. Didn't see that coming when I bought my duplex all those years ago.

It's still a pretty blue-collar hood. Nobody cares where I shop. Nobody cares what car I park out front. If I haul a water heater out on my front porch and leave it there for two weeks, no one's going to worry about it. Yeah, I live modestly, but I live in a house very obviously once built for well-to-do folks, and with the work I've put into the house, it's even more comfortable. With all the energy-efficient windows I put in, as well as the improved insulation in the attic and basement, energy costs are well below what they were for my townhouse. I know all my neighbors well, the ones that survived the big changes and the new ones who moved in. My wife now works less than a 5-minute drive away from the house. It is frankly an ideal place for a childless couple in the property business like us.If you're going to house hack as your first investment, you're probably not going to have the money to pay for a lot of what you want done in the place, so you'll probably be working on it yourself. The advantage a househack gives you is that you can routinely inspect how a repair or a remodel is doing very easily and a callback won't kill you. Every fix doesn't have to be a belt-and-suspenders solution every time. This is incredibly valuable to someone just learning how to work on houses. You can screw up a bit and it won't kill you.If you live in a modest neighborhood, all the expenses that go along with expensive neighborhoods are not your problems. The leaning retaining wall doesn't have to get replaced yesterday. You don't need a new coat of paint as soon as the old one starts to look a bit tired, or to seal the driveway every second summer to keep up with the neighbors, or to buy and garage a little green tractor to sit on to mow your lawn, or to pay a housing association fee to keep out the riffraff.

If you live in an aging, inexpensive house, cleaning and decorating fits and manias and spending sprees are much more easily controlled.Lastly, the cheaper your expenses are in the house, the more the rent for the other unit in the duplex goes. You may not live free as I do, but I started at the extreme end of the spectrum.Anyway, all this is easy to understand. The hard part of househacking is always the psychology of it.

I am extremely lucky to have been raised in a back-and-forth immigrant family that built (and lost) a small rental portfolio two generations back. My mother's entire extended family knows exactly what we do and how we live, since half of them do the same thing. I don't have to deal with an aunt coming into town, frowning at my duplex, and wondering why I moved here from the townhouse. Pittsburghers, on the other hand, really do ask when they learn about my old neighborhood. ALL THE TIME.

I don't have kids who wonder why their friends have swimming pools and game rooms in the basement. I do have my brother, who lives in a far Pittsburgh suburb in a McMansion that he paid $750K for, but hey, we can't have it all.

Above all, I have my immigrant sensibilities. There is simply no place I could live in Pittsburgh that would make me feel that I've really made it. I get to chuckle at the contemptuous pretensions of shopping at "upscale stores" and Southwestern PA "farmer's markets," eating in the swill palaces that constitute fine dining in this town, driving some expensive car to impress people I don't know, paying good money for a view of rusting 20th century bridges and dying heavy industry and calling it "the rich history of the area."

I mean, seriously, the local yokels use that idiotic phrase about Pittsburgh with a straight face when talking to a Greek, they really do. I moved here from Athens, Greece, and I could see the Parthenon from the roof of my apartment building. I could walk down my street and eat like a king. The street grid of my old Athens neighborhood aligns with the summer sun -- this was laid out in classical times and is actually mentioned in one of Plato's dialogues. When I need luxury in my life I GTFO of Pittsburgh, pure and simple.

Josh Young · Answer

@Pranav Chunduru

I’d be cautious buying too old of a house, as you mentioned maintenance costs can be higher. However, the location of some older houses can be better since a lot of newer developments tend to be on the outskirts/fringe areas. I like to draw the line at 1980 and newer, that tends to cut out major issues like cast iron plumbing, some electrical issues, and lead paint.

Ryan Thomson · Answer

@Pranav Chunduru I will second what both @Josh Young and @Bruce Woodruff said. Good stuff there.

Matthew Kwan · Answer

The good thing about buying a older house is that buyers/investors can add more value towards the property and higher leverage due to the age of the property.  Furthermore, it all depends on the location with supply and demand that kicks into every market. Sometimes buying a $400k-500k house, it allows you to keep your monthly mortgage payment low while maximizing the rents by doing cosmetic rehabs. Happy to connect and chat more together about the Seattle Market @Carlos Valencia @Albert Bui

Carlos Ptriawan · Answer

Older house :

- generally has large size

- has value add

- strategically located

- there are more rooms for creativity

newer home is good for those buyer that has high income but doesn’t have taste or knowledge to renovate or decorate the house. I meant they are for very basic user.

Bruce Woodruff · Answer

That's well written @Jim K.. Would have made a good entry in your recent thread about the stark realities of REI... :-)

I always chuckle as well when locals in any town wax on about their rich history. Particularly when they live in a California beach town incorporated in 1962. At least Pittsburgh goes back a couple centuries... :-)

Sherief Elbassuoni · Answer

@Pranav Chunduru, a lot of nice neighborhoods have old homes. And many of new constructions are on the outskirts of cities. We can typically maximize older homes by finishing basement and converting it to an ADU, and build DADU in backyard if City, home layout and style allow that

Account Closed · Answer

I bought a 1929 in Fauntleroy (view of the ferry and sound), a 1909 in Magnolia (gorgeous view, sound, city, Mt Rainier), a 1900 in Columbia
City (it was Columbia City, what can I say?), a 1942 in Madison Park near the lake.

I didn't know there were new houses in Seattle. ;-)
All were bought using Subject To on pre-foreclosures.

The fact is, these were all very solidly built houses. 
The problems were: they were fixers so they needed a new roof or a new heating system, or sanding the floors, that kind of thing, the rooms were small by today's standards, the windows were original so some needed to be updated. Main task were kitchens and bathrooms, plumbing and electrical. Some were retrofitted for earthquakes. They already had mature landscaping, There were no HOAs so no HOA problems. They paid off very handsomely.

Alex Hileman · Answer

Those are all solid points. I would add that building or buying a new home is much more expensive than renovating an older one.

What is the value of buying older houses to House Hack?

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