5 Things to Consider Before Buying an Older Home

Buying an older home has its benefits, particularly for a first-time homeowner in a hot seller’s market. Older homes typically cost less money up front, and you’ll pay lower property taxes. They also have good structural bones and a charm and character you don’t always find with newer builds.

But when you purchase an older home, you also buy its history and its quirks. Those quirks can turn into significant repairs that add up over time.

Before placing an offer on an older home, do your research to make sure your new investment won’t turn into a money pit. Here are some things to consider before buying an older home.

Look for common, and costly, problems

While older homes are appealing for their unique architecture and charm, they face some common challenges. That’s why it is important to look for tell-tale signs of costly issues before you buy a home.

Look for signs of water damage or mold in your home. Signs of these issues can include spots on ceilings that are a slightly different color than the rest. Water spots can be a sign of a leak in the roof or issues with the plumbing. In some cases, you may also see that only one wall or portion of a ceiling has been painted. This can be a clue that the seller is masking a water or mold problem.

As you check the paint, find out if the home contains any lead paint. Some older homes may have lead paint, which can be toxic and is now illegal to have in a home. As the buyer, you would be legally required to remove the lead paint before repainting.

During your tour or home inspection, you should also look for structural issues. You can usually detect structural issues by looking for cracks in walls and brick, as well as settling along walkways next to the foundation.

Some older homes may also have electrical systems that are not up to code. A home inspector can check for this, but you can also look for signs of ungrounded outlets. These outlets typically have only two prongs instead of three. And don’t be shy about flipping the light switches in every room you enter.

Write contingencies into your offer

If you decide to make an offer on an older home, it may be wise to add a few contingencies. These include requiring an inspection, requesting an allowance for significant repairs, and securing a one-year warranty. If any of these fall through, with a contingency in place, you can walk away from your offer without a penalty.

A home inspection goes beyond the appraisal required by lenders to secure a mortgage. A licensed inspector will look for the red flags previously mentioned, and they can give you an idea of how long it might be before you need to replace the roof, repair the foundation, and other high-dollar repairs.

If during the inspection you run into any issues, you can ask the seller to make the necessary repairs or provide you an allowance that will cover the cost once you assume ownership. In some instances, you may also be able to ask that they provide a one-year warranty on your roof, the HVAC system, appliances, and so on.

Know the stakes of reselling

Buyers that run into expensive fixes once they move in may be tempted to sell their home instead of making the repairs. But selling a home soon after purchasing could also be costly.

Remember that older homes tend to sell for less money than newer builds. That same price that seemed like a bargain for you as a buyer may be all that you can expect to receive if you turn around and sell it. Selling a home within one year of purchasing comes with financial risks.

Have a budget to make the repairs

Whether you’re buying your forever home or looking to flip it to turn a profit, make sure you have enough money to cover the cost of any immediate and necessary repairs. While some fixes — like those involving paint and appliances — are comparatively a drop in the bucket, others — such as those involving your foundation, roof, electrical, and plumbing — can quickly deplete your coffers.

As a general rule of thumb, budget 150% of the anticipated cost for each project. This will give you some wiggle room should additional issues come up while making a repair, which isn’t uncommon with an older home.

Keep in mind, not all repairs must be done immediately. Keep a running list of the updates and repairs you’d like to make and prioritize them by necessity and expense. You can save up money for repairs that do not need to be made for several years. Save this money in a separate bank account designated for repairs and make a note of that in your financial and estate planning.

For buyers who don’t have the savings in place to make these repairs, you may qualify for a loan. A mortgage will cover the cost of purchasing your home, but some banks and lenders offer personal or business loans for flipping or updating an old home. As with any loan, make sure you understand the terms of the agreement, including the interest rate and repayment schedule.

Develop your DIY skills

If you have a love for older homes, it could pay off in the long run for you to learn how to make certain home repairs for yourself. While you can learn tips for completing some DIY projects from videos and blog posts, others may require more skill.

Check with your local community college or technical schools to see what home improvement classes they offer. You might be able to learn how to refinish wood and plaster, as well as the basics of plumbing and electrical work.

For investment property buyers, it might be prudent to learn more about listing your home for sale by owner, or FSBO. This can include learning photography to accompany your listings, social media marketing, and knowing the best websites for listing your home to sell.