I often joke that unless the home is older than 1970, my wife probably won't like it. Haha!
She'd tell you that older homes have a certain character and build quality that is hard to replicate in newer homes (especially with the increasing cost of lumber). This is obviously an opinion & very subjective! ;)
That's led to us living in many different older homes over the years.
And these older homes have really accelerated our financial goals.
I want to share some reasons why older homes can be advantageous if you're looking to supplement your income.
- Older homes give you the ability to "force" appreciation
I'm using a term here that's more common in commercial real estate but applies here as well. Normal appreciation is the 3-5% (on average) that your home may increase in value each year. Forced appreciation is when you accelerate the appreciation by making changes to the house that increase its value quickly (like updating a kitchen or bathroom). With newer homes, it's harder to force this appreciation because they aren't as many value-add projects. In other words, it's not old and in need of much updating. Forcing appreciation by adding value to an older home can allow you to take a pretty big profit tax free every 2 years if you'd like.
- Older homes often allow you to buy a larger home
The first older home we bought was much larger than we could've afforded in the newer part of town. Because these older homes often need some work, the price per square foot can be lower, which allows you to buy a larger home for the same money.
- Older homes can have tax incentives that lower your cost of ownership
Older homes, and more specifically, historic homes often have city tax incentives if you keep the property in good condition. The house we live in now was built in the 1920s & is in a historical district in our city. As a result, if you're willing to keep the house in good condition, they reduce your taxable value by 50% for city taxes. This saves us about $1,000/yr in property taxes. There's another city nearby that eliminates all city taxes on historic homes that are kept in good condition.
- Older homes are popular with retail buyers right now
Older, updated homes are flying off the market across the nation, often selling for above asking. Evidently a lot of people are like my wife. They like the character of older homes & want to buy in a neighborhood with these types of homes. Buying & remodeling a house that is appealing to retail buyers in your area could result in you taking a hefty profit when you eventually go to sell it. There are even Facebook groups with millions of followers dedicated to highlighting cute older homes across the nation.
- Older homes often have good bones
You've probably heard people say, "They don't build homes like they used to." Often they're referring to the fact that, back in the day, they built homes with a lot more wood. Ever heard of shiplap? I'm sure you have. Building a house full of real wood shiplap these days would be cost prohibitive for most builders. But it was quite common 100 years ago. Look in the attic of an old house & compare it to a new house. I think you'll see what people mean by good bones.
- Older homes may be more likely to have a detached garage/guest house in your city
In the cities we've lived in, most detached structures like garages & guest houses are mainly found behind older homes. Guest houses can be turned into Airbnbs (in some cities) and used for extra income & garages can be converted into guest houses or added onto for the same purpose. Because we want an extra unit on our property to pay all of our housing costs, we usually find that older homes are the only ones that offer us those options. In our last home, we created a guesthouse out of a storage area that was attached to the garage. In our current home, we created a guesthouse out of a single-car garage behind our house.
If you're looking to use House Hacking to supplement your income, consider looking at older houses next time you're in the market to buy.
They're certainly not for everyone, but some of you might find that they'll accelerate your path to financial freedom.