Have you ever found yourself in a 30, 40 or 50 plus year old property you were perhaps considering purchasing and thinking to yourself “I have no idea about what could be lurking behind these walls and how much money it could end up costing me to fix or replace?”
We’ve all heard the stories of a person who bought a house and uncovered something unexpected which ended up costing them a bundle…OK that was me… but the point is, the prospect of making this costly mistake has no doubt paralyzed many a real estate investor from pulling the trigger on a potentially great deal.
One of the key factors in this equation is knowing exactly how old the house is, which will help in determining the materials used to construct it and vise versa. When you know the materials used you can then determine if you will have to change the item or system, whether you can get insurance based on those particular materials and if any replacements or repairs will increase the value of the property. This in turn will give you a better idea of how you should negotiate or whether you even consider proceeding with the deal.
Many goods produced these days are designed with planned obsolescence. Planned obsolescence results when a product has been built with the intention of it wearing out or rendered less useful within a specific timeframe. This unfortunately has to happen to keep the economy moving and to keep prices low and it has been going on for decades. This planned obsolescence also affects many of the products/systems in houses.
Shingles, windows, foundation, electrical system, plumbing, furnace, AC and water heater are the main systems to investigate which have all in their own ways have been products of planned obsolescence, a built in “fail time” if you will. The following dissertation will discuss the fail time on some of these items and how they will affect your bottom line.
It should be noted that as with anything, you get what you pay for. The reality is, most houses are built to minimum code using the most inexpensive materials available. Keep this in mind when looking at a any property. As a disclaimer, this is not meant to be a complete commentary but merely an overview.
Shingles – Because they are cheaper than wood shakes, tile, metal or slate, most roofs these days are covered with regular asphalt shingles. These petroleum based shingles have been on the market for decades and come on two varieties; fiberglass and organic. For the purposes of this article, let’s just discuss the more common fiberglass shingle. They are made of a woven fiberglass mat covered with a waterproof asphalt coating which then has ceramic granules added on top to protect the shingle from UV rays.
This product has been in fashion since the mid-1970s and although “guaranteed” for a 25 – 30 year lifespan, in many cases you are looking at around 15 – 18 years depending on the weather. It is not uncommon to see 25 year shingles beginning to curl at around 7-10 years.
When you are looking at a potential property, take a look at the roofs on the other houses in the area. Many times the area houses get their roofs replaced around the same time. If you see new roofs on the houses around you and a not so new roof on the subject property, chances are you will need to get the job done reasonably soon.
What does this mean to you and you bottom line?
If you are buying to renovate and flip, you will probably have to replace it as any new buyer will be looking at the neighbouring roofs, so it will be necessary to factor the expense into your renovation budget. The downside is, when you are doing a buy, fix, sell project, changing the roof rarely adds that forced appreciation you are looking for as it does little to increase the “perceived” value. In this case, do your best to negotiate the purchase price to make up for the expense.
If you are buying the property as a buy and hold, you will have to include this necessary expense into your overall long-term ROI and begin immediately building a reserve fund for this purpose.
Hot Water Heater (tank)
A typical hot water storage tank should last 10 – 15 years. There are a number of factors which may shorten the lifespan such as hard water deposits building up on the inside of the tank or any sand getting into the tank.
Check if there is a sticker or tag on the tank confirming if the tank has had any maintenance. Regular maintenance can increase the life span for up to 5 full years. Also, take note of the size of the tank in relation to the size of the family using it. If the tank is too large or too small, the hot water heater is forced to work harder by heating the water over and over which ultimately shortens its lifespan.
What does this mean to you and you bottom line?
If the tank is getting on in age, you will have to factor in replacing it at some point. If you are doing a buy, fix, sell, it’s another one of those pesky items that add no value to your profit margin. Again, negotiate the purchase price accordingly.
Of course if you are an Ontario resident and the water heater is a rental…never mind! Just call the service provider and have it replaced when you take over the rental contract.
Furnace
The typical furnace we will discuss is your basic gas furnace. The improvements made in furnace efficiency over the last 20 years have extended the lifespan of your basic furnace to approximately 20 years. A well maintained furnace could last up to 25 or even 30 years, so check the tags or stickers on the unit to ascertain how often the servicing has been (or has not been) done.
A simple explanation of how a furnace works may be valuable to understanding the relevance of its lifespan, efficiency and safety. Quite simply, an element like in your stove heats up, called a heat exchanger, and a fan blows the heat through the duct work. This continuous expansion and contraction of the heat exchanger can lead to cracks in the steel chamber which can lead to the potential release of carbon monoxide gas, which is potentially very dangerous.
This is why it is important to purchase a property with a newer or serviced furnace or if the property has a furnace bordering on the 20 year mark (nearing its life expectancy), negotiate a change in the purchase price in order to purchase a new one.
What does this mean to you and you bottom line?
Again, a new furnace, even a high efficiency furnace rarely adds much to the purchase price for a flip, but will add value to your bottom line on a buy and hold property with lower heating bills (if you are paying for them), or by the mere fact that you have at least 20 plus years before you have to replace the unit.
The air conditioning unit or HVAC system can be considered much the same as the furnace in terms of the fail time, wear and tear as well as the extended life expectancy due to regular maintenance.
Electrical Wiring
Residential construction in North America has undergone some significant changes over the decades due to pricing and availability of material. Copper wiring for houses has been the industry standard for years, however during the late 1950s through to the late 1970s, aluminum wire was used because the price of copper was high.
The aluminum wire was installed in the same fashion as the copper wire, however because of the properties of aluminum, over time many typical connections (the basic wrapping wire around a screw terminal and tightening the screw) began to fail. Because of dissimilar materials which have different resistances and high thermal expansion coefficients, these connections created heat which lead to:
To rewire an entire house with copper is costly in both money and time as the drywall has to be pulled out and redone. Running new copper from the panel is a solution, and there are special connectors you can use, but you’ll need a permit and an inspection done.
Knob and tube wiring, which is still legal in Canada was used in homes of 60 plus years old and used up until the early 1050s. This type of wiring has only two wires (no ground wire) and are held together with ceramic knobs used to clamp the wire to a wooden beam/joist and the ceramic tubes are placed in holes in the beams to prevent the chaffing of the wire.
Knob and tube wiring is synonymous with 60 amp service and fuse panels. Because of the age of the wire, the insulation often deteriorates over time and because it is not grounded, many modern appliances cannot be used.
What does this mean to you and you bottom line?
Even though aluminum wiring and knob and tube wiring is legal in Canada and still works, many insurance companies either won’t cover you or charge higher premiums for their “special risk” policies (which also typically have less coverage).
If you decide to replace the wiring to copper, it can cost upwards of $10,000 or more as drywall (or plaster) removal and replacement is often necessary. So, you will be forced to make some major decisions and either negotiate accordingly upfront or pass on the deal.
Plumbing
Today copper, PVC, ABS and CPVC piping is used extensively, however this has not always been the case. From the 1800s through to the 1960s, cast iron waste water pipes were most commonly used. Although they can last up to 100 years, the issue with these pipes is layers of rust builds up over time on the inside walls which ultimately flakes off, blocking the flow. With enough neglect, these pipes ultimately rot out, possibly collapse and will ultimately need replacing. The cost of replacing an iron waste pipe with a 20 foot PVC pipe can be significant as it may be necessary to dig up to the main sewer line using a back hoe…fun stuff!
Lead piping was used in 80% of homes in North America until the early 1900s but still continued in many areas until the 1950s and even until the mid-80s, lead solder was used to join copper pipes. The issue with lead pipes (apart from the human consumption in drinking water) is similar to cast iron; over time they corrode and rust from the inside out, making it hard to detect except by poor water pressure. As the rotting continues, the pipe weakens, sometimes to the point where you can poke a hole in it with your finger. Replacement is inevitable and of course can be costly.
Depending on the type of pipes in the house, you may or may not need to replace them. To give you an overall idea, brass pipes can last up to 100 years, copper around 80 years, galvanized steel and lead pipes around 80 years, however if you have lead pipes, you will probably need to remove them.
If the property is a good one but over 60 years, it may have old pipe issues, therefore you will have to make up the difference in the replacement cost through your initial negotiation.
Oil tanks
During the building boom of the late 40s through the 1960s, oil tank furnaces became commonplace, replacing other forms of heating such as coal units. These oil furnaces have storage tanks which were either installed in the basements or installed somewhere underground near the home.
The problem with these storage tanks, like metal pipes, they corrode from the inside out as condensation builds up on the inside of the tank. Water, being heavier than oil, winds up at the bottom of the tank and begins to rust the tank which can lead to leaking or leeching.
If oil tank leaks in the basement of a house, it becomes merely a messy clean up. If a buried oil tank leaks underground in the yard (more susceptible to corrosion and rust), it can contaminate the soil in the property’s yard, the soil in the neighbour’s yard and even make its way to the local ground water system. This can cost hundreds of thousands of dollars and it’s doubtful any amount of negotiation would serve to get you into that deal!
What does this mean to you and you bottom line?
The good news is the tanks themselves (if they haven’t leaked) can be removed for a reasonable cost of around $1400-$2000.
Many lenders will require the removal of the tanks prior to approving your mortgage. Also, many insurance companies won’t insure a property unless the tank is removed.
Hopefully this will give you some insight as to a properties age and the potential materials lurking within. Remember, when you know the types of materials you will be inheriting and the potential replacement costs involved, you have more power to negotiate.
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