What do you think of Pittsburgh, PA?

Question

I'm trying to analyze this deal:

Address: 61 Pointview Rd  Pittsburgh, PA 15227

Price heatmap:

Crime map:

What do you think? Do you recommend Pittsburgh, PA?

Jamie Dietz · Answer

Two things to consider are the steps and weather.  A lot of Pittsburgh is built on hillsides but property a lot of steps can be treacherous in winter.   It can be turn off tenants and future buyers.  When I moved from Los Angeles to Pittsburgh everything appeared to be a great deal so make sure you have boots on the ground here before buying.

Jeremy Taggart · Answer

@Justin Brin I think Pittsburgh is a great area to invest in which is why I own all of my properties here haha

For this particular deal:

You can likely get a lower interest rate with a local bank here. Probably closer to 7.75-8% right now. That will help lower monthly payment.

Closing costs are going to be more like 5-6% of purchase price if you are financing. Have your transfer tax, title fees, up front escrow of insurance/taxes, lender fees, tax prorations.

Brentwood is one of the highest tax areas in Pittsburgh and they will usually immediately re assess if they see a property sold for more than the current assessed value. This property is assessed low now, so taxes would likely double at some point in the next few years. Worse case scenario probably end up being $400/month. If you aren't aware of this, there goes all your cash flow you were expecting.

Market rents for 2BR in Brentwood are about $900-$1000, so your gross rent should be higher than what you are calculating here. 8% vacancy is fine. I like to use flat fees for maintenance and capex since those will vary depending on rent amounts. An early 1900s duplex in a C class area outside the city could be renting at $800/unit. Or you could go into an A class area in the city renting at $1400/unit. If both are early 1900's duplexes, maintenance and capex are likely going to be similar. Using percentages will give you way different amounts for these solely because of the market rents so it's faulty. I would say on a duplex like this generally looking at $80-$120/unit for both maintenance and capex respectively. Where you end up in that range will depend on age of the major items like roof, hvac, plumbing/electrical, etc. Also if there is any deferred maintenance.

You should also budget 10% for property management as well regardless if you are self managing or not. At some point you will want to outsource it if you are planning on scaling a portfolio.

I would also use $100/month for insurance. Insurance costs have increased quite a bit the last couple years. Don't want to get caught by surprise by that same as with the property taxes.

As for the property itself, I am not a huge fan of how it's built into the hill like that and all the steps on both sides of the property. Will be a pain for lawn upkeep and harder to attract/retain tenants with all those steps. Not to mention additonal liability for you as the owner of the property.

Hope that's helpful. Pittsburgh can be a great market, but you have to know your numbers and the ins/outs of each area. Can be very street by street and every neighborhood/borough/township is different.

Jeremy Taggart · Answer

@Justin Brin buyer and seller typically split the transfer tax 50/50 unless otherwise agreed upon. I have had seller pay whole transfer tax on a few of my purchases.

Property tax rates vary depending on what borough or township you are in so no set percentage for all of the areas since they're all different. Some are low like in the city limits and some are high like in Brentwood.

I know the market very well just operating as an agent and investor here over the last 7 years. Driving all of the neighborhoods and knowing which sections are better than others. Keeping tabs on the market and prices of the different sections as well. Just comes over time.

How important growing population is to you really depends what your goals are. Typically the markets that have high population growth are more competitive and tougher to cash flow. Areas with flat population tend to be cheaper prices and have better rent/price ratios. Not just a metro area but comes down to a neighborhood level too. A metro can have flat population growth but certain areas within that metro can be exploding.

Jamie Dietz · Answer

Talk about market knowledge.  Way to break it down specifically Jeremy.  Great job!

Miranda Micire · Answer

I'm not sure that a property that's cashflowing -$77 is worth it. Is this a multi-family or single family? What are your goals? Cash flow/ Appreciation? I know you can find something else that at least has some cash flow. It's too risky in my opinion to take on a negative cashflow from out of state and with the older housing stock in Pittsburgh. When a new tenant moves in, it seems something always goes awry - the HVAC needs serviced, the roofs leak, something goes wrong in those first few months/ year and if you've just spent a huge chunk of cash on a down payment and aren't getting any cash flow, you're in the hole from day 1 and that will sour people away from investing real quick.

Justin Brin · Answer

For this particular deal:

You can likely get a lower interest rate with a local bank here. Probably closer to 7.75-8% right now. That will help lower monthly payment.

I put 8.5% just to be safe since interest rate is going up almost every week.

Closing costs are going to be more like 5-6% of purchase price if you are financing. Have your transfer tax, title fees, up front escrow of insurance/taxes, lender fees, tax prorations.

Doesn't the seller pay the transfer tax?

For insurance and tax I include it in the monthly expenses since they are really for after the purchase is complete.

I put 1.5% for closing costs that only includes title fees, lender fees and escrow fees for the purchase. (Insurance, interest payment, property tax I include it in the monthly costs). Transfer tax in Los Angeles I know the seller pays. How is it in Pittsburgh?

From my experience in LA the closing costs is usually less than 1.5%. Maybe in Pittsburgh is different?

Brentwood is one of the highest tax areas in Pittsburgh and they will usually immediately re assess if they see a property sold for more than the current assessed value. This property is assessed low now, so taxes would likely double at some point in the next few years. Worse case scenario probably end up being $400/month. If you aren't aware of this, there goes all your cash flow you were expecting.

How much is the property tax rate there 1.67% or higher?

Market rents for 2BR in Brentwood are about $900-$1000, so your gross rent should be higher than what you are calculating here. 8% vacancy is fine. I like to use flat fees for maintenance and capex since those will vary depending on rent amounts. An early 1900s duplex in a C class area outside the city could be renting at $800/unit. Or you could go into an A class area in the city renting at $1400/unit. If both are early 1900's duplexes, maintenance and capex are likely going to be similar. Using percentages will give you way different amounts for these solely because of the market rents so it's faulty. I would say on a duplex like this generally looking at $80-$120/unit for both maintenance and capex respectively. Where you end up in that range will depend on age of the major items like roof, hvac, plumbing/electrical, etc. Also if there is any deferred maintenance.

You are right. Basing maintenance and CapEx on rent is not accurate.

You should also budget 10% for property management as well regardless if you are self managing or not. At some point you will want to outsource it if you are planning on scaling a portfolio.

I would also use $100/month for insurance. Insurance costs have increased quite a bit the last couple years. Don't want to get caught by surprise by that same as with the property taxes.

I agree.

As for the property itself, I am not a huge fan of how it's built into the hill like that and all the steps on both sides of the property. Will be a pain for lawn upkeep and harder to attract/retain tenants with all those steps. Not to mention additonal liability for you as the owner of the property.

Good point. I will avoid houses hanging in the air.

Hope that's helpful. Pittsburgh can be a great market, but you have to know your numbers and the ins/outs of each area. Can be very street by street and every neighborhood/borough/township is different.

Jeremy Taggart · Answer

@Justin Brin There can be some vacant houses that need rehabbed depending on the neighborhood, but those aren't really a part of the rental housing stock. As far as vacant rentals if you price something properly typically rents pretty quickly. Just can't get too far outside the city that's when rental demand starts to fade. I honestly think one of the main reasons this market hasn't gotten saturated yet is the population statistics.

What do you think of Pittsburgh, PA?

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