The Pros and Cons Of Buying Older CashFlow Properties
Buying older cashflow property can be a great way to get into the property market and start generating a positive cash flow.
However, there are both pros and cons to investing in this particular type of property.
Pros of Buying Older CashFlow Property
There are many benefits to buying older cash flow property that should be considered. Many investor have found older houses and older properties to be great investments.
Older properties are likely going to be cheaper than the newer properties in the area. This means a new investor could get into the market sooner at a lower price point.
Could Generate A Positive Cash Flow
Through research of my own I have discovered that in a lot of areas the cheaper older properties tend to have a higher rental yield than the more expensive properties.
This gives them greater potential to generate a positive cash flow and throw off passive income.
Learn more about finding positive cash flow properties all over Australia by joining the Positive CashFlow Academy.
Below Median House Range
Purchasing a property below the median house range can be good for a number of reasons.
Firstly, in times of real estate market decline properties around and below the median price range often don’t lose as much value as those above the median price range.
Secondly, if it is below the median price range that means there is potentially an opportunity to increase the value of this property and bring it into a higher price bracket.
An older property could represent an opportunity for renovation. When done correctly renovations can be a great way to create equity, which can then be used to grow your portfolio even further.
Potential To Secure Below Marketing Value
The general market tends to purchase property emotionally and thus they shy away from older properties because they don’t have the emotional appeal that brand new properties carry.
This means the value of the property is not being driven by emotional buyers, allowing you to potentially pick up the property at a bargain price.
Cons of Buying Older CashFlow Properties
Older cash flow properties are all rainbows and unicorns, there are some risks that you need to be aware for before you invest in these aged and potentially run down properties. (20 more property risks)
Could have structural issues
This is this biggest thing to look out for. Structural issues are expensive to fix and are usually hidden to the average home buyer, meaning you won’t notice them and fixing them won’t add value.
A building inspection prior to purchasing the property should reveal any major structural issues that need fixing.
Could have pest issues
Termites, cockroaches and other pests can cause issues with older properties. A pest inspection prior to purchase should bring up any potential pest issues the property may have.
Requires more ongoing maintenance
Older properties often require more ongoing maintenance. They have older appliances (eg. hot water heaters) that are in need of repair or replacement and a lot of little things tend to break.
This means a larger annual maintenance bill than properties that are newer in age.
Older properties have generally claimed all of their building depreciation which means you cannot claim depreciation on the construction cost of the building like you can in newer properties. (claiming depreciation explained in detail)
The fittings and fixtures have also had many years of depreciation and thus cannot be depreciated as much as newer fittings and fixtures in new build properties.
This means the tax benefits of depreciation aren’t as high in older cashflow properties are they are in newer cashflow properties.
Could sit vacant in hard times
When demand is high and supply is low almost anything will rent for the right price. But where there is a surplus of properties available for rent and not many renters looking they tend to be much pickers.
If your property is not well kept it might prove difficult to rent out in these tough times.
May require large sums of money for capital improvements
As the property is older there is a greater chance that you will need to fork out large sums of money for capital improvements.
It might be just a few thousand dollars to replace the carpet in the house or it might be in the tens of thousands of dollars to replace the roof or to fix the degraded foundations of the property.
Is Buying Older Property Worth It?
As I said before buying older properties can prove to be great investments, especially if they generate a positive cash flow.
But not all older properties are good properties so your due diligence needs to be done and you need to weigh the risks with the financial reward.