Many real estate investors have an age cutoff. They prefer a certain “vintage” of property, and will avoid buying anything older than a certain year. Sometimes these rules are built into their strategies. Developers focus on new developments unless they can add significant value through repositioning. Public and private real estate investment trusts (REITs) will have investment mandates that restricts them from purchasing properties older than, say, the 2000s.

While you can chalk this up to personal preference, similar directives across enough big players can often swing the market—creating a price divergence and a liquidity premium (or discount) between newer and older properties based purely on perception of age.

This artificial price gap can shift over time, creating a pricing inefficiency that savvy investors can capitalize on. Those who can spot these shifts and identify where the market is in the cycle can time their investments more effectively and uncover value that others overlook.

The "Unexplained” Delta

Let’s say you are looking a 1975 property that rents for $1,200 a month, but sell for $110K or $120K a door. A similar asset in the same area, but that was built in 2005, rents for $1,400, but sells for $190K a door. That amounts to a 17% increase in rent revenue, but a whopping 70% increase in price. Why is there such a significant price premium on the 2005 asset compared to the 1975asset? This suggests an inefficiency that isn’t based in value.

There is a perception in the market that new properties are more valuable. The investors who buy into the “hard and fast” rules about vintage will often say that newer is better: lower maintenance costs and operating expenses, easier to get funding for, and overall, a “safer” investment profile. Yet when you peel back the layers, the difference is often negligible.

Stacked together, you might have a $1,000per unit delta in expenses between the newer and older property, against a few hundred dollars in increased rent revenue. In the Atlanta-Sandy Springs-Roswell area, expenses as a percentage of revenue for properties built in the 70’s and90’s were 49% and 44% respectively in 2024—a difference of 5%.

In my experience, there is often a price delta that cannot be explained away by costs, revenue, location or any factors other than perception of age. If you compare the ATL and DAL markets in the current market, roughly ~60% of the price gap is driven by NOI (with 50% from total revenue and 10% from total expenses, excluding taxes & insurance), which leaves ~40% to the effects of market and buyer perception.

The most obvious proof that this inefficiency is based on perception, and not underlying value, is price gap compression, especially in markets like Atlanta and Dallas. In a hot market where demand for all kinds of buildings is rising, the price gap between older and newer buildings shrinks. For example, the price difference between properties built in the 1970s and 1990s in Atlanta and Georgia narrowed by almost 20% as the market heated up.

Key Takeaways for Investors

1. Understand Market Sentiment: The age of a property doesn’t always reflect its true value. Often, perception of age drives the price, and that can shift over time based on broader market sentiment.
2. Recognize Perception Shifts: During market booms, the price difference between new and old properties shrinks as demand rises across the board. As the market cools, older properties may be undervalued, presenting an opportunity for investors.
3. Time Your Investments: Use these perception shifts as a tool for timing your investments. When demand for real estate cools, the price premium on newer properties may evaporate, and older assets could present excellent value opportunities.
4. Focus on Long-Term Fundamentals: Look beyond the perceived “safety” of newer properties and focus on fundamentals, like location, cash flow, and potential for operational improvements. Over time, the market will catch up to the real value of well-positioned older properties, whereas a new property may be closer to fully valued.

Conclusion

While many institutional investors follow the herd and restrict themselves to newer properties, more flexible investors have an opportunity to act ahead of the crowd and position themselves to capture rewards in the long-run. The relationship between investor sentiment and market cycle goes both ways. Understanding it can help you figure out where the market's in the cycle, and make more informed decisions about when to buy, hold, or sell.