The Risks of Investing in an Older Chico or Redding Rental Property
December 29, 2017 / by Brent Silberbauer
There are risks and rewards to every decision in life. Real estate investing is no different. The key to making a good investment decision is weighing out the risks versus the rewards.
In the world of real estate investment there are many opportunities with older homes. Many of these older homes are one of a kind with all kinds of unique craftsman finishes. After all, they don’t make ‘em like the used to! So, what are some of the risks involved in picking up an older rental property?
When we manage older single-family homes, this is the most common issue. Some things are minor, like faucet leaks, toilet leaks, and leaky angle stops. These typically are just best being replaced rather than repaired. The odds of more leaks happening and the additional costs of calling someone out to fix them are not worth taking the time to repair them.
Other items are more serious, such as a main water lines bursting. It can cause major damage not just to the home, but also to items within the home like furniture and electronics. If you have galvanized pipe, you can sometimes have these issues. Newer homes typically use PVC piping which tends to have less major leaks. This is an important item to have checked before you purchase an old Chico or Redding rental property.
Older homes were made with single pane windows. Most people know these are almost like having holes in your walls that allow cold air through in the winter as well as warm air in during the summer. Windows can be a pricey item to replace but are well worth it. You may be able to rent out the home initially, but once your resident gets the AC bill in the summer they’ll be looking to rent something more energy efficient.
We recently toured an investor’s home that had large single pane windows throughout the home. The old craftsman style looked great. One set of windows stretched close to ten feet across, and it was all comprised of single pane glass. These owners had helped to remedy the situation by adding solar panels for the AC bill in the summer and it had an old wood stove for the heating in the winter.
Even with the additional remedies, nothing is going to keep the home insulated like replacing the windows with energy efficient dual pane glass.
Eventually everything on your property will wear out. It’s just a matter of time, and the roof is no exception. Just like plumbing issues, roof leaks can be devastating because they damage the house and the personal belongings within the home.
An ounce of prevention is worth more than a pound of medicine. It’s wise to replace the roof before you start to have roof leaks. Why? We had an owner who wanted us to manage his older Chico rental property. He had redone the flooring, appliances, landscaping, and a few other items. Everything was ready to go – except the roof. Upon doing a property walk through and taking marketing photos of the home we found a small roof leak that had damaged the ceiling. So, we had to make sure the owner patched the leak before we rented the home out.
Well, that winter happened to be a very wet winter. We could never market the property because by the time he got one roof leak fixed another one would pop up. That winter he not only lost four months of rent, but he also had to pay to fix a number of roof leaks. After this ordeal we had to draw the line and say we would not rent the home out until the roof was replaced. It would not be fair for a potential resident to move into a property in which the roof leaks constantly.
You must check the history on the septic tank. When was the last time it was serviced? How regularly has it been checked? Septic tanks are tricky because you can’t see them, and if they need to be repaired it will cost you an arm and a leg to fix. Do your due diligence and find out the complete background on the septic tank before you buy.
How old is the HVAC system? This is another example of a capital expense that could completely ruin your cash flow and income projections. HVAC’s can be $3,000 to $10,000 to replace, and when they go out with a resident occupying your unit, you have to get it replaced ASAP. Make sure you have someone inspect the HVAC system before purchasing to avoid a potential maintenance emergency.
Many of our investors are transitioning their carpeted units to luxury vinyl planking (LVP). This creates a hardwood look that is easy to clean, waterproof, pet friendly, and easy to repair. For the long term, it’s a great investment because it lasts so long and looks great. However, it’s not cheap to put in.
Think through your flooring options before purchasing. Taking the energy to clean, maintain, or replace carpet in your rental property can be a headache. As with all these items, do your math, get bids, and think through your plan when purchasing a fixer upper.
Do you need advice about your Chico or Redding rental property? Would you like to get a before and after rental market analysis of a Northern California investment property? Hignell Property Management has experience managing over 100-unit multi-family complexes down to single-family homes. We have the manpower and expertise to handle just about any job. Contact us today for our expert opinion!
Topics: Residential Property Management