Cash Flow Investing In Pittsburgh
Hello,
I work for a real estate company in Pittsburgh. I've been discussing a few different investment options for the city and wanted to see what actual investor are thinking along the lines of investing in cash flow in the city vs flipping. I complied a few different points from different sources, including our Director of Investment Services thoughts and opinions. I'm wondering what are your opinions on investing in Pittsburgh and do they align with what were seeing as a company doing business in the city.
Investing In Pittsburgh
Is Pittsburgh a good place to invest?
Yes, Pittsburgh house prices are 43% lower than the national average with a median price of $213K. The city has many homes that need a little TLC that make it great for flip. Pittsburgh is also arguably one of the best cities for healthcare in the country. It is a hub network for the University of Pittsburgh Medical Center (UPMC) and Allegheny Health Network. Public transportation for residents is also easy and affordable. In Pittsburgh, the price for public transportation is 3% below the state average with bus tickets to get almost anywhere in the city being only around $3 and the monthly pass being just under $100.
Pittsburgh Has a Strong Renters Market
Over 50% of Pittsburgh residents rent rather than own property. Pittsburgh is home to more than 60 higher education institutions with thousands of students and faculty. Additionally, hundreds of businesses, including global leaders like Google, Amazon, Apple, Facebook, IBM, Microsoft, and Uber, are in Pittsburgh and draw thousands of professionals to the city annually. If someone decided to invest in cash flow properties, there will always be a large pool of potential tenants to draw from. This also means that property owners will be able to benefit from fewer vacancies from the high demand of rental homes in the city.
How to get started on investing in Pittsburgh
Flipping houses may seem appealing when first getting started in investing. However, the first step is always to create yourself a cash flow. Pittsburgh has many duplexes and multi-units that are on the market and turnkey. Meaning that they are ready to rent. Due to the large number of renters in the city, most of these properties already have tenants living in the units making getting cash flow in the city increasing easy. Flipping in the city can be a little more difficult, but still successful. Speaking with Austin Daniel, the Director of Investment Services at Bridge Home Realty. His opinion on flipping in the city is, “Flipping works best in fast appreciating metros areas, where house prices shoot up quickly. In places where the population has plateaued, such in a city like Pittsburgh, which has a very stable buy and hold market. To flip, you pretty much need to be in the most desirable areas. Neighborhoods that hit $350,000 or more in median home sales prices. Most investors generally agree that for flipping, there must be at least a 20% profit, and it’s in those areas you’ll find that profit. In places where we are seeing success is typically an investor who has secured a couple great cash flowing properties in the city and then gone after those houses in the more desirable areas to flip those properties. They have a great established cash flow, thanks to the city’s rental needs and can go after flipping the houses with the best profit margin. There is of course a higher amount of money that is being invested, but as they say, high risk, high reward.”
Please let me know on your opinions!
Thank you,
Carol Ann
Pittsburgh is a good place to start, but the strategies vary depending on the area you are investing in.
Using the traditional A-D Market scale is not going to really touch on the importance of choosing the right market to invest in. Especially when Pittsburgh is home to homes that are typically built in the first half of the 19th century. Essentially almost every market in Pittsburgh is a C-market on that scale.
Cashflow is a good way to go, but it depends on the financing options the investor has coming in and if you know how to calculate the true numbers prior to jumping into a deal. With interest rates at a steady increase, typically investors in Multi units are looking at 8-11% interest on conventional, commercial, and PML options. Not having the capital to jump on deals leaves limited options on "building capital and cashflow". If someone is looking to build capital fast, they would need to find easier methods to have a 60-120 day exit and a 25-35% ROI.
This way investors have a great way to begin building the capital needed to invest in larger, longer hold opportunities that will bring long term cashflow and equity. This also allows for a newer investor to network, partner, and build relationships with lenders early on, so they are not stuck trying to find lending options that will consistently throw them high interest rates and higher origination fees.
Less risk in flipping and making the flip numbers work, than investing in multi's out of the gate. House hacking is a nice option for someone starting out and that can qualify for FHA, but it does not leave much wiggle room in actual cashflow or equity at the 2 year exit. Essentially, you live for free for 2 years to build more capital needed without the biggest expense of rent/mortgage payments, as the tenant(s) are basically paying the mortgage for you.
Everything revolves around the investor's niche, buy box, and budget. Investing with none of your own money is also always an option, but understand, when you have no skin in the game, it typically means that you will be giving up more equity at the exit and/or splitting majority of the cashflow during the hold. Meaning volume matters more early on, along with a timely exit strategy.
Pittsburgh is an awesome market to be in. Lots of potential. Though, there are also a lot of poor properties to avoid, overpriced multi units, shady wholesalers, and just out right bad deals at certain times. Finding the right team to assist you in your journey is what is most important, that way you have guidance, experience, and a partner that is looking out for your success in your investment.
