Pittsburgh becoming 'flip' city as real estate market heats up
As a real estate investor looking to buy houses, fix them up and sell them for a profit, Aaron Chaney has flipped houses in just about every part of Allegheny County, but he says his most lucrative opportunities have been in Lawrenceville.
“I find the neighborhoods that are most profitable to flip in are the neighborhoods in transition to a higher value,” said Mr. Chaney, co-owner of Penn-Pioneer Enterprises in Trafford. He and his partner, Mark Fichtner, flipped about 40 houses last year.
They are currently renovating a three-bedroom house in Lawrenceville they bought in 2013 for $38,000. After extensive renovations, they plan to list it for $450,000.
Flippers — real estate investors who purchase a home with the goal of reselling it as quickly as possible for a profit, often within 12 months — have been playing an important role in repopulating and revitalizing Pittsburgh neighborhoods where crumbling mansions, vacant row houses and run-down single family homes have blighted the landscape and pushed down property values.
Pittsburgh missed the national housing boom of the early to mid-2000s, being a region where property values in many communities have either remained flat or grew at a snail’s pace. Historically, residents here also were less inclined to relocate from one house to another.
But in recent years, many neighborhoods throughout the city such as Lawrenceville have seen housing values appreciate by double digits as demand has been driven up by workers in medical, technology and the oil and gas industries, and as investors have swooped in to take advantage of the low prices and the high demand.
Pittsburgh is now considered the No. 1 most profitable place to flip houses in America, according to RealtyTrac, an Irvine, Calif.-based company that collects data on national real estate trends.
Flippers in this market have been able to buy houses so cheaply, they stand to earn a whopping average 106 percent return on their investment, according to 2014 data compiled by RealtyTrac. New Orleans comes in at a distant second place with flippers earning an average 76 percent return; Baltimore ranked third place with flippers earning an average 73 percent return.
“The Pittsburgh area offers a good combination of distressed inventory, affordability and demand that offers a great return for investors,” said Daren Blomquist, vice president of RealtyTrac. “The lack of many new homes being built is likely driving up the price of the return.
“Nicely rehabbed properties, especially in the desired areas of Pittsburgh, are the next best thing to new homes, and typically will sell at a premium compared to other existing homes,” he said.
RealtyTrac analyzed sales deed data and automated valuation data for its report. A single-family home flip was any transaction that occurred where a previous sale on the same property had occurred within the last 12 months.
RealtyTrac data shows home flipping peaked in the Pittsburgh metropolitan area in the first quarter of 2014. However, flipping in the first quarter of 2015 is up considerably from the first quarter of 2011 when the company began tracking this metric.
There were 105 home flips in the Pittsburgh region in the first quarter of 2015 for an average purchase price of $101,164 and an average flip price of $156,972.
“With favorable conditions in the area, we expect home flipping to continue to be hot in the Pittsburgh area for the rest of the year,” Mr. Blomquist said.
Josh Adamek, president of ACRE, a local real estate investor’s group, and president of his own real estate company, Synergy Capital Inc., based in Ross, said he does not like the term “flipping” because it has negative connotations of something that is cheap, quick and easy.
Flippers have often been viewed in a negative light for simply adding another layer of costs to the retail price of a home for owner-occupants, especially if they do little to improve the condition of the home before placing it back on the market.
However, flippers do assume risks — from paying too much for a property to putting so much into the repairs that they cannot recoup their costs in a sale. Property values in a neighborhood also could fall, and flippers could lose money on interest payments to the bank if they financed the purchase but aren’t able to sell the house in the time frame they planned.
Mr. Adamek said his company specializes in taking older homes — 100 years old to 120 years old — and doing major renovations before selling to retail buyers.
“We are not just buying homes and slapping a coat of paint on them,” he said. “Our typical renovation involves a complete demolition, a total gutting where we remove drywall, install new plumbing, electrical and air conditioning.
“There are areas of town where houses are newer where they don’t need a complete renovation, like Brookline and Brighton Heights, where you can redo the kitchen and bathroom and update the floors.”
Mr. Adamek employs only a few people who work in the office. He mainly uses contractors and subcontractors to do the work on his homes. He typically works on more than a dozen homes at a time.
“What I look for when I identify a new project is a good solid school district or a trendy part of the city,” he said.
“It’s no secret Lawrenceville is a great area. The South Side has been decent for a while. Shadyside and East Liberty is good, as well as Stanton Heights and Morningside and lots of neighborhoods in the east corridor.”
Mr. Fichtner also mentioned East Liberty, North Point Breeze, Friendship and Bloomfield as transitioning neighborhoods.
Mr. Adamek said his organization keeps no data on how many properties are bought and sold by real estate companies and small mom-and-pop operators each year. But he said he would easily estimate the number to be in the hundreds.
Joe Calloway is the owner of Allentown-based RE360, the No. 1 buyer of homes in the city of Pittsburgh in 2013, according to RealSTATs, a South Side-based real estate information service. Last year, he bought 82 properties in the city, including multi-family, commercial real estate and single-family homes.
He has a completely different approach to flipping than most players in the local real estate scene.
His business model is to buy houses on the Southside Slopes, Allentown, lower Mount Washington and Arlington; rent them for five years; then sell the home to owner-occupants.
“We knew that flipping four or five years ago was not the right time,” Mr. Calloway said. “But we knew the time would come when that would take place.
“However, to get a community from being in despair to being lively with people, you need bodies and houses. So, we started renting the houses. But our strategy all along has been within three to five years to start turning over the properties.
“In any community, you need owner-occupants. You need people to call that place home, and not someone who happens to be renting an apartment or renting a house.”
Mr. Calloway sold 18 houses last year. This year, he plans to sell between 20 and 30 of the homes his company has owned for a few years.
Initially, he said he installed new windows and new heating and air conditioning. Before he puts them on the market for sale, he said he goes back in and replaces the appliances and adds landscaping.
“Anytime it costs $200,000 or $300,000 to build a house and you can still buy houses for $30,000 to $70,000 in liveable condition, there’s a disparity,” Mr. Calloway said.
“We’ve always had the disparity. You couldn’t build in Pittsburgh unless you were one of the top two or three neighborhoods in Pittsburgh.
“You can still get properties extremely affordable that are already existing, that are in prime time locations,“ Mr. Calloway said. “We are in Allentown and this is one of our target neighborhoods. Someone can come here for $40,000 to $70,000 and buy a move-in condition house and be 1.5 miles away from center city, bus lines, and a transit station down the road.
“Pittsburgh is being mentioned as the No. 1 market for flippers because we can still buy houses so affordably, yet there is still such a pent-up demand for property.”