In the real estate investing world, there is a collection of classic debates that are likely to remain unresolved for the foreseeable future:
Flip homes for a profit or buy and hold long-term rentals?
If you go for long-term rentals, should you focus on cash flow or capital growth?
Should you buy a portfolio of single-family homes or purchase multifamily apartment buildings?
Pay off the debt on your investment portfolio or increase it by refinancing to add more properties?
Buy properties in A and B rated locations or chase the higher returns of C and D ones?
And I would add purchasing newer verse older rentals to that collection of debates. I am sure there are real estate investors supporting each side of this debate, but I wanted to try to offer an overview of the pros and cons of each property type. Then, I’ll follow it up by sharing the advice I give most of my investor clients on the topic.
There are three main benefits to purchasing older rental properties:
Established location and neighborhoods
Predictable market rates for values and rents
Older properties are usually better built
The primary benefit to purchasing older rental properties is that they are usually located in established, charming neighborhoods closer to the main city hubs. As such, they tend to attract tenants most concerned with lifestyle and proximity.
This tenant pool has its pros and cons. On one hand, they tend to be professionals that meet the income and credit criteria. On the other, they tend to be more transitory tenants and don’t typically stay for longer lease terms.
The second benefit to purchasing older rental properties is that market rates for values and rents are well established by virtue of the neighborhood being there for a long time. Sometimes when you purchase new construction, there’s a certain amount of educated guessing you have to do to determine the appropriate rental rate.
Last but not least, investors that purchase older properties believe they’re better built than the newer properties. I’m not sure if this is objectively true in every case. There’s definitely a little bit of “Back in my day…” syndrome going on.
What I can tell you for sure is that there’s a definite trend toward higher density in building. Older neighborhoods typically had bigger lots with homes having more space between one another. Now, builders are trying to fit more homes in the same amount of land due to increasing land costs.
Keep reading the article “Should You Focus on Older or Newer Rentals? A Look at the Pros & Cons” here:
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