5 Winning Buy-and-Hold Property Traits

Lots of people all over the web talk about what parts of the Cleveland area are the best spots to target for buy-and-hold single family residence investing. It totally makes sense of course, because location is critical, and even an amazing property in a horrible location is likely to cause some strife. (And that’s why I created the Area Guide as a reference on this site!)

What gets shockingly little attention in the online world, however, is what physical traits other than location are important when assessing a potential rental property. In this post I am going to share five desirable physical characteristics of a residential property — these are some of the things that I seek out when evaluating my own investment opportunities.

Though I am writing this post through the lens of a Cleveland investor, most of these winning traits are probably applicable to almost any market in the United States to some extent.

1 – Maintenance-Free Exterior Siding

Many people look at a property and don’t seem to think twice about the type of cladding on a property’s exterior, as long as it is in good condition and does not require immediate attention.

Freshly painted or stained wood siding or cedar shakes can look absolutely amazing, and can really lend a lot of charm to an older house especially! But when it comes to buy-and-hold rental properties, unless it’s an absolute steal of a deal, I’ll pass on all that charm.

That charming 1920s Lakewood colonial with freshly painted shingle siding looks great today, but five years down the road, it’s probably going to be time for a paint job. Further, as time passes, there is also a good chance the wood siding or shingles will require repairs due to splitting, rot, etc., and the long-run cost of maintaining such things will really take a big chunk of your return.

Oh, and all that charm on an old wood house comes with decades of lead paint too… when it’s freshly painted and fully intact, no need to worry… but once it’s peeling and flaking and chipping, there’s a pretty good chance you’ve got some readily available lead paint chips for your tenants’ kids to play around. (Side note on lead-based paint — This is not just a Cleveland thing… pretty much any house in the USA built before 1978 is likely to have lead paint — if it is fully contained by having been painted over or covered with another material, there is no need to worry — it is only when it is exposed that there can be cause for concern.)

Brick is a considerably better situation from a maintenance standpoint, but still does require periodic tuck-pointing. In many parts of Cleveland, brick construction is a lot less common than wood frame construction, so brick properties are harder to come by.

Given the general prevalence of wood frame construction in the Cleveland area, I seek out properties with vinyl or aluminum siding, generally. Vinyl and aluminum siding (typically installed directly over the original wood siding) are virtually maintenance free, leading to a considerably lower cost of ownership in the long haul. Aluminum siding that is decades old might occasionally need a paint job, but the frequency of painting the siding is far less than what would be needed with wood siding. Vinyl siding (which became more common than aluminum siding in the 1980s and 1990s) is more prone to damage (hail, rogue baseballs, etc.) but generally requires no actual regular maintenance other than periodic cleaning.

It might not seem like a big deal when you’re analyzing a property, but if you are going to be in a buy-and-hold rental for a long time, then it will definitely pay off to seek out properties clad with materials requiring the least need for maintenance.

2 – Maintenance-Free Windows

Many residential properties in the Cleveland area have very old windows. While they might add character to a house, old wooden windows, especially the double hung type, are probably the most likely spots to encounter lead-based paint exposure.

As time passes, the friction from the opening and closing of windows wears away at the windows and their frames. Painted surfaces get worn down, and flaking and chipping is almost unavoidable unless the windows are sanded and repainted with extreme regularity.

On top of all this, older windows, even if they have external storm windows in place, are typically less efficient in terms of heat loss/gain. In a place like Cleveland, with cold winters and expensive heating bills, tenants are commonly keeping this in mind when they look at potential properties to rent; having old windows that could be perceived as leaky and drafty will often mean you won’t get the most/best applicants for your property.

To keep all this at bay, I have found it to be better to just seek out properties that have replacement windows already in place. The most typical type of replacement window is the vinyl window, which is typically white, has double- or triple-paned glass and will come with its own independent frame, so it will be pretty air-tight and there will be no surface that will ever require painting.

3 – Avoid the Basement!

The majority of the houses in the Cleveland area, especially those built before WWII, have basement foundations. This subterranean level is usually the location where mechanical equipment, electrical panels, gas meters, and other systems are all placed. It’s not uncommon for basements to also contain laundry hookups, and to be used for storage (i.e. hoarding) of everything imaginable.

Unfortunately, basements are prone to lots of problems as time progresses. As the years pass, a house settles, the soil puts pressure on basement walls, and water desperately wants to get into any spot it can find (argh, physics!) — all this can and will take its toll on many properties. Even the most well-built and well-maintained houses have basement issues. That big open space that 30 or 40 or 50 or 60 years back seemed like a boon can turn into a nightmare, as walls bow, joints crack, water seeps in, and mildew takes hold.

Though many homeowners have taken measures over the years to “finish” at least a portion of their basements, this isn’t something I would generally want to see in a property, especially if used as a rental investment. The wood paneling and drywall that is used to cover the block basement walls will often mask problems until they are very severe. And unless a house is situated on a sloping lot with a “walk out basement”, a finished basement will almost always feel like a basement – more like a low-ceiling dungeon than legitimate living space.

Many property owners have gone to great lengths to address basement issues, ranging from waterproofing and sump pumps to structural repairs and reinforcements. While almost any basement issue can be dealt with effectively, it will often require a significant amount of money and effort. Spending thousands of dollars on basement issues really does not get you a lot of bang for your buck.

My simple solution for this is to seek out properties that simply don’t even have a basement! While I do own some houses that have basements (with waterproofing and sump pumps already installed by previous owners in most cases), I try to seek out investment properties that lack basements whenever possible.

There are plenty of properties in the Cleveland area with slab or crawlspace foundations instead of basements, and seeking out a property built this way can be a good way to limit costly future repairs on a long-term investment endeavor. The only minor downsides are that some usable floor area will be taken up by things such as the furnace and water heater, and that there is less “storage” space for tenants to use for hoarding purposes. Because slab or crawlspace foundation construction type is more common in post-WWII houses, you’re more likely to find basement-less houses in suburbs than in the old urban core.

4 – Pay Attention to the Roof

A roof is a critical element of any property, obviously. The overwhelming majority of houses in the Cleveland area have pitched roofs (i.e. not flat roofs), and most roofs are asphalt shingles.

In some higher end properties, it is not uncommon to find slate roofs, tile roofs, or even occasionally wood shake roofs, but these are generally a lot more expensive to maintain and eventually replace; unless you’re planning to invest in high-end rentals (e.g. executive type housing in a place like Shaker Heights or Beachwood) you should anticipate buying properties with asphalt shingle roofs.

A properly installed asphalt shingle roof will typically last at least 25-30 years before it starts to have problems, and often can last considerably longer than that. When searching for a rental property it’s always important to assess the roof’s age and condition. An aging roof might not be a complete deal-breaker, but if it’s already 20-30 years old, the capital expense associated with its replacement needs to be factored into your financials relatively soon. I typically seek out properties with dimensional shingle roofs, which really only became popular in the past 15 years or so when replacing 3-tab shingle roofs.

Often the properties investors are looking at had gone through a rough patch during the downturn a decade ago, which will typically mean there is incomplete information available about the exact age of a roof. An approximation can always be made by a visual inspection, and it is considerably easier when the property has dimensional shingles in place. Even without the history of a property, you can usually rest easy if your acquisition target has a dimensional shingle roof in place.

Additionally, with any roof it is important to look at the flashing at any edge, valley or corner, and look for signs of moisture intrusion inside the building envelope. While an older roof might not be a deal-breaker, you certainly will want to know about it in advance so you can plan accordingly.

5 – Updated Systems

By “systems”, I mean the electrical systems/wiring, plumbing (pipes in the wall, for both supply lines and waste lines), and heating/air conditioning. A major assessment category for any property involves a hard look at the systems that are already in place in a potential buy-and-hold property.

Ideally, a property will have an updated properly installed electric panel/service, with no fuse boxes or knob and tube wiring. Also, generally it is a good idea to steer clear of some of the older electric panels, like Federal Pacific, which has a history of being problematic. The ideal case is that a property will have been fully rewired with Romex, and will have updated service in place.

Plumbing should be in good working order and installed properly, and I would generally advise steering clear of galvanized pipes (common in pre-1960s houses) or lead pipes (generally very uncommon to find this still in properties in the Cleveland market). Copper, PVC, or PEX are all acceptable solutions for supply lines (PVC and PEX being more common in properties that went through a foreclosure and got stripped of their copper). For waste lines (i.e. the pipes that carry water that goes through the drain), PVC lines are always preferable to cast iron, as cast iron tends to erode over time and will lead to some less than pretty outcomes in lots of instances.

Heating and air conditioning is probably the most straightforward system, at least in most Cleveland houses. The majority of houses in the Cleveland area have forced air heat (i.e. a furnace with ductwork in the walls, attic, or floor that blows heated air throughout the house), and many have central air conditioning tacked on as well (using the same duct system). Boilers and baseboard heat are a bit less common, but still show up with enough frequency that you’ll probably see them in at least some of the properties you check out if you’re making a habit of investing in this market. Furnaces tend to last a long time, usually a minimum of 15-20 years, and often far longer than that. When the time comes to replace a forced air furnace, it’s usually a pretty straightforward swap that will cost a few thousand dollars. Boilers, which are used in conjunction with radiators or radiant heating (i.e. pipes in the floor slab) are a bit more complex and costly, and I have a strong preference for forced air furnaces over boilers. Baseboard heat, which is powered by electricity, is usually the cheapest and easiest to install; unfortunately it is also the most expensive to operate, and will give a property a cheap feel — it can be much harder to find and retain tenants in a house that has electric baseboard heat.

The Winning Sum

While it would be awesome if you could consistently find vinyl sided houses on slab foundations, with vinyl replacement windows, a new roof, and totally updated systems, the reality is that there will sometimes (actually almost always) be at least one concession you will have to make.

So let’s say, for example, that I am able to identify a deal on a 1950s slab foundation ranch in Parma with brand new vinyl siding, and recently fully upgraded/replaced systems, BUT that it has its original windows, and has a 3-tab asphalt shingle roof that appears to be from the early 1990s but is still in good shape, with no signs of water intrusion. If the deal was good enough, I would probably pursue it even if it had those 1950s windows, and even with the knowledge that I’d be on the hook to replace the roof within the next few years (and also that it could spring a leak at any point in time going forward).

Once you know what locations you’re targeting, it really then comes down to knowing what to look for in the properties themselves. Seek out the properties that meet your criteria, then adjust your analysis to reflect concessions of physical characteristics that are not in line with the ideal case. But always identify in your analysis that you are making those concessions, so that your long-term investment outlook can be most accurately understood.

Are the five physical traits in this post the only things that matter when evaluating whether a property is a winner then? No way! But they are some of the most important ones. Stay tuned to the Cleveland Investor Primer blog for a future post that will dive into some more of these.