Older homes can certainly be appealing to the investor who’s interested in fixing and flipping. These properties are found all over the country and, in some markets, even make up the majority of the housing available. Plus, there’s the opportunity to grab an older home at a lower price point than a newer construction, which means you have the chance to spruce it up and make a solid profit once it sells.
Despite the perks that come with flipping an older home, there are a few drawbacks to consider. Before applying for a fix-and-flip loan to buy an older house, it’s wise to think about some of the problems that could accompany what might, at first, appear like a wise investment.
Pad the Budget for Unexpected, Expensive Repairs
When you walk into an older property, it isn’t always easy to look around and gauge what will need to be repaired. And that makes it harder to determine an exact renovation budget.
Unfortunately, many older homes will come with hidden damage that requires extensive, and expensive, repairs. The older the house, the worse the problems might be. That’s why it’s always best to have extra padding in the budget when you’re thinking about fixing and flipping an old house.
What kind of problems are we referring to? Anything from foundation and structural issues, to plumbing and electrical problems, but it doesn’t end there. Code violations, uneven floors, roof problems, termite damage, mold and mildew, and water damage are also possibilities. Plus, previous owners might have merely covered up or done a poor job of fixing the problems, which means you’re left with costly repairs before you can resell.
Wear and tear over time is one thing, but when you buy an older house, you’re also contending with outdated building techniques and materials. And some of the home’s features might even be unsafe.
Homes built in the early 1900s might have knob-and-tube electrical wiring, while homes constructed in the 1920s may feature balloon framing. Clay sewer lines in homes built in the 1930s are particularly vulnerable to damage from tree roots, while the cast-iron sewer lines used between the ‘50s and ‘80s are prone to cracks and corrosion.
Houses constructed in the 1950s might have ungrounded outlets, while those built in the 1970s may have single-strand aluminum wiring that would need to be replaced. And 1960s homes might lack proper insulation, so you’d have to add new insulation for energy efficiency.
Older properties were constructed using many materials that are no longer deemed safe. A couple of better-known examples are asbestos and lead.
Asbestos, which was used for fireproofing and insulation in homes that were constructed through the middle of the 1970s, is a carcinogen. And even though asbestos use was, for the most part, banned by the late ’80s, owners weren’t required to get rid of any asbestos that was already in their homes. Purchasing an older house, therefore, means that asbestos might still be found in areas like the walls and crawlspace, and even in some pipes.
Lead, on the other hand, is often found in interior and exterior paint that dates back to before 1978. There’s also the potential to find dangerous lead in water pipes that were installed prior to the middle of the 1980s, and this neurotoxic metal can even be in the plumbing systems of houses constructed prior to World War II.
Lacking What Buyers Want
Another thing to consider is that older houses look different than modern properties, not just on the outside but on the inside as well.
A house that was built prior to 1978 is likely going to feature a layout that today’s homebuyers aren’t too fond of. Think: small bedrooms and bathrooms, along with tight closets or a lack of closets.
Also, even though open floor plans are popular today, they weren’t a big trend when older homes were built. If you think that you can just tear down walls, keep in mind that you might be restricted in terms of how many walls you can safely knock down to open up a space.
Know What You’re Getting When You Invest in an Older Home
Older houses aren’t all doom and gloom. Many are found in lovely neighborhoods, and they offer their own little bit of history. These charming homes also often give you the chance to customize them nicely while you’re working on fixing them up, so they can be a solid investment for a flip. Or, if the value is predominately in the land, it may be more profitable to “scrape” the old home and rebuild new.
To help ensure that you won’t be blindsided by repairs that blow your budget, it’s wise to add anywhere from 10 to 20% on top of the total rehab budget as a contingency. Also, if you are uncertain if the house will need new plumbing or electrical, etc. it is best to budget for it just in case. Lastly, get opinions from experienced flippers or realtors, get 3 bids from experienced contractors, and speak with a loan officer who specializes in fix-and-flips and construction financing to get help with figuring out what your budget should be so you can make a nice profit from your next old house fix-and-flip.