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Seven Pitfalls to Avoid When Rehabbing Older Homes | Socotra Capital - Hard Money Loans and Real Estate Lending

Written by Adham Sbeih | Jun 14, 2016 4:09:20 AM

As a rehabber, you’re likely to come across many fix-and-flip opportunities involving older homes. That’s the result of America’s aging housing inventory. A 2013 housing HUD survey showed that the average owner-occupied home in the U.S. is 37+ years old. In several Eastern states (New York, Massachusetts, and Pennsylvania) the average home is 50+ years old. In general, homes more than 30 years old are considered old and homes more than a century old are considered historic. Rehabbers should bear in mind that the condition of the home isn’t always dependent on its age. Structures age more quickly in areas of the country that experience high humidity and temperature extremes and more gracefully in dry regions such as California.

When rehabbing a historic home, extra care must be taken to keep updates non-intrusive and consistent with the rest of the house. For example, counter tops should feature materials authentic to the period. Butcher block tables blend in nicely with historic homes, but laminate counter tops look out of place. Rehabbers should also resist the urge to knock down walls to open up the floor plan. Part of the charm of historic homes is their unusual rooms and many nooks and crannies.
A home inspection is absolutely essential for an older house. It’s common for older properties to have a few problems, but if significant structural repairs are needed such as a foundation work, your best strategy may be to walk away. Major structural upgrades are generally invisible to home buyers and their costs are not always recoverable through the sale of the property.

Experienced rehabbers often add an extra $5,000 to their renovation budget to cover unforeseen repairs for the average home and up that amount to $10,000 for an older home. It’s a good bet that a never remodeled older home will have an electrical system not up to existing code with outdated features like two-pronged outlets and knob and tube circuit wiring. Also anticipate a plumbing system made from galvanized steel or copper pipes.

Here are other common issues frequently encountered in older homes:

Issue 1: Slanting floors

Uneven floors are not unusual in older homes and can be the result of problems ranging from settling ground to a decaying foundation. A big issue with uneven floors is that the cause of the problem isn’t always apparent, which may require pulling up the floor in older homes that lack a basement or crawlspace. A shifting foundation may be indicated by cracks in the walls or foundation. Hairline cracks are not uncommon, but cracks more than ¼ inch wide may indicate major problems.

Issue 2: Plaster, not drywall

Many older homes were built with plaster, not drywall. Compared to modern drywall, plaster is much more difficult to work with and finding a contractor who has the skills to repair plaster could be a challenge. If the plaster is crumbling, the cheapest fix may be knocking it down and replacing it with drywall.

Issue 3: Lead and asbestos

Lead and asbestos are hazardous materials typically found in older homes. Lead was used in interior paints made before 1978 and in pre-1950s plumbing systems. Asbestos was a popular insulation and fireproofing material until the mid-1970s and is still often found in the crawlspaces and walls of older homes. Remediation efforts usually involve having lead paint professionally removed (estimated cost $8-$15 per square foot), and installing a water filtration system to ensure lead-free water. The typical costs for having asbestos professionally removed range from $200 to $400 per hour.

Issue 4: Insect damage

Particularly in areas of the South, termite damage is sometimes an issue in older homes. Depending on the severity of the infestation, repairs can range from simple cosmetic fixes such as replacing a few damaged boards to major structural repairs. According to homeadvisor.com, the average cost to homeowners to repair termite damage is approximately $3,000.

In the northeastern U.S., carpenter ants are sometimes a source of home damage, particularly in homes near wooded areas. A tell-tale sign of carpenter ant infestation is sawdust on wooden floorboards, wood that sounds hollow when tapped, and faint rustling noises from inside woodwork or walls. The costs for ridding a house of carpenter ants can range from $50 for do-it-yourself treatments to more than $500 for a professional drill-and-dust application, according to experts at Iowa State University.

Issue 5: Mold and mildew

Mold and mildew problems are common in the bathrooms and basements of older homes. Moisture can enter through cracked foundations and leaky pipes. A bigger problem is when mold gets inside walls, which is difficult to detect and even harder to remediate. Since mold eats away at surfaces such as wood and drywall, structural issues can result if the mold is allowed to fester.

Small amounts of mold can be effectively removed with solutions of bleach or vinegar, but whole home remediation is best done by a professional. The costs of mold removal by a professional can range from under $500 to more than $6,000, depending on the size of the house and whether the mold has penetrated walls and other hard-to-reach areas.

Issue 6: Radon gas

Radon is a toxic gas that enters homes through cracks in walls and the foundation. According to the Environmental Protection Agency, the highest concentrations of radon are found in the Northeast, Midwest and West. The cost of a radon mitigation system varies, depending on home design, size, foundation, construction materials and the local climate. According to Kansas State University, the average cost of a mitigation system is $1,200 and ranges from $800 to $1500, depending on the house and market conditions.

Issue 7: Outdated appliances

Older homes are very likely to have older, outdated appliances. Even if the appliances are still in good working orders, potential buyers will be reluctant to take a chance on outdated equipment, so you should plan on installing new appliances. A new furnace/AC unit for a large home can cost around $10,000, water heaters sell for less than $1,000 and refrigerators and washer/dryers typically sell for a few hundred dollars.

While the work involved in rehabbing older homes is challenging, these properties may also have unique appeals for buyers such as solid wood cabinets, pocket shutters and transom windows. Another advantage is that older homes are often located near city centers, resulting in shorter commute times. Older homes are usually found in attractive, well-established neighborhoods. In addition, compared to today’s mass-built subdivisions, older homes often feature better materials and craftsmanship.