If you had to choose just 3 neighborhoods around the Greater Pittsburgh area to buy and hold multi units, which neighborhoods would you choose? (obviously neighborhoods where multi's are prevalent)
@Mike Pastor I like the areas that are stable and with a decent to good school district. The issue I find is the great areas with great school districts are not going to cash flow and sell for what I feel is more than they should. If I had to pick it would be areas close to me so I Like Carnegie and Dormont and anything in between those areas that are close to transportation.
I like in my backyard. Dormont, Beechview, Brookline.
Good access to public transportation and walkability are two of the biggest factors for me.
When it comes to public education facts, Pittsburghers tend to be fuzzy about embarrassing realities.
REALITY 1: Pennsylvania public schools at the secondary level are terrible, as a general rule. In state-by-state rankings, Pennsylvania never makes it into the top 25. As far as I know, this is how things have stood without exception since desegregation.
REALITY 2: Some of the worst public high schools in Pennsylvania are concentrated in Allegheny County. There are only a few standouts. Those standouts are concentrated in the far north suburbs and the far south suburbs. Moon Senior High School is the only exception to this general rule. However, it is still on the eastern perimeter of Allegheny County. Fox Chapel Area High School, and Mount Lebanon Senior High School are more centrally located than the others, but still part of the north and south blocks, respectively.
REALITY 3: The very worst public high schools in Allegheny County are concentrated in the center of the city, in urban residential settings. The big exceptions for this are Pittsburgh Perry High School, Sto-Rox High School, and Penn Hills Senior High School, all located in traditional African-American neighborhoods.
It's a shameful series of realities and by simple geography invites us to contemplate the shameful heritage of systematic racism in this city. So proud white locals tend not to talk about it and try not to think about it too deeply.
Multi-family units are concentrated in those urban-residential areas that have the worst school systems. There's been a shared understanding among middle-class college-educated individuals in Pittsburgh for quite some time that if there's any way to afford it, you should get out of whatever neighborhood you're in and buy a SFH in the far north or far south suburbs with the better public schools before your kids start high school. The commute you make for your job is your sacrifice for your children's education, for their shot, ultimately, to get the best mediocre Pennsylvania secondary schooling they can get. And especially in places like McCandless to get into North Allegheny, the cheaper SFHs aren't all that expensive. It's not like the minimum bar to entry is being able to put a down payment on and get a mortgage for a $350,000 SFH. The median home value of McCandless is $239,000.
So when you talk about investing in Pittsburgh multifamilies, you're almost always talking about investing in areas that have lousy school districts. This narrows your tenant pool significantly. Your potential tenants are not going to be white Generation X'ers with good credit ratings, mid-to-high-level incomes, and children at or near secondary-school age. Take that to its logical conclusion, that means your potential multifamily tenants will not be motivated to live where they are living in order to help their children succeed in life. This understanding can be really difficult to wrap your head around if you come to real estate investing from a traditional sort of middle-class American family background, where that was the unshakable core reality of your own upbringing.
So take a discussion of "good schools" out of the way, and why else do Greater Pittsburghers reliably decide to live in a certain neighborhood? An easy commute to their steady jobs, easy access to a perceived way of (fun) life, access to family members. Among those, of course, the commute is the strongest argument. That's what I look for in multifamily investing in Pittsburgh. And that's not a generic neighborhood issue. That's determined street-by-street, and pocket neighborhood-by-pocket neighborhood.
If I were completely focused on buying multifamily rental properties in Allegheny County, I'd put a premium on cheap, rundown two-bedroom MFs in the top-rated secondary school service areas. Get in, fix them up to rent them cheap in comparison to local rental prices, and you'll have a steady stream of 4-8 year lower-income tenants with passable credit ratings who are desperate to send their 2.1 kids to the best school they can. These people will do anything to stay in your apartments during the time their kids are in the highly-rated local high school. Demand will be high, vacancy will be low, management will be easy, and eviction will be a very powerful threat.
The second thing I'd look for an easy commute to a major employment center. In the past, when many Pittsburgh suburbs were steeltowns, there were businesses on businesses that catered to the dominant industry and their workers. Half the multifamilies in this town were built to handle high population densities for steelworkers. All the grocery and department stores took credit until payday at the mill. Landlords put in basement potties to given the returning workers a place to shower. What is the major industry of Pittsburgh today? Who is the largest employer? Is this likely to change in the next twenty years?
Anyone who lives here immediately knows the unpleasant answers to these three questions. Yet as far as I know, I am one of a very, very small number of landlords consciously trying to attract geriatric health care workers near geriatric facilities as tenants by targeting them in my advertising and giving them what they want. Allegheny County and the five counties that surround it form the oldest major metropolitan area in the USA. Taking care of old people until they die is what's going to dominate Allegheny County's economy until the Baby Boomers all go. And when they Baby Boomers are all dead, the main employment reason to stay is going to disappear. The city needs to reinvent itself some more in those twenty years and find other reasons to exist. Pittsburgh does not have an exceptional past record of nimble, forward-thinking change. It has instead only been dragged into change by its chains as it screamed and kicked all the way, moaning out its pathetic nostalgic dreams of bygone glories. I know guys who voted for Trump because they really thought he was going to bring big steel back here, with zero understanding of the current scale of steel production and going steelworking wages in South Korea and China. Soft in the head? Sure. But oh, so Pittsburgh.
So my money's on geriatric health care dominating the industry until the pitiless demographics of this area change.
So in the end, my answer to the OP's original question, which is what are the three best defined neighborhoods to look for MFs in Allegheny County, is to think up a better question. How can I isolate the best areas to invest in multifamilies in Allegheny County? It's not by neighborhood. Look for secondary school service areas. Look for traffic patterns and major traffic corridors. Look for nearby employment centers. Look at setting up apartments so that they appeal to the legions of workers who go to work wearing scrubs in this county. Look for pocket neighborhoods kept from sinking into a war-zone abyss by various factors that are an easy commute to nursing homes and care centers. TRY TO FIND VALUE WHERE OTHER PEOPLE AREN'T LOOKING, especially the legions of turnkey investors who goggle at the general cash-flow potential of MFs in this county and think that they can get some of that with minimal actual knowledge of this complex area and its difficult history
Thanks James. That is useful information. However, I'm not really looking to buy MF's in Allegheny County. I stick to good school districts in Westmoreland County. I'm just looking for input from people that are actively investing in MF's so that I can focus my marketing to those areas.
Since we self manage our units, we prefer to stay close to home thus we prefer Sharpsburg, Ross/West View and Etna/Millvale areas for buy and hold units. Fox Chapel and North Hills school districts are solid while Shaler School district is still thought of as good but ratings were slipping for a while.
Account Closed wow what a great response! I agree with most of what you said, however I am a little less pessimistic about the demographic change occurring in Pittsburgh already. I like your idea a lot about finding class C properties in the better school districts with 2 BRs. What particular markets do you see these types of opportunities especially like you said "WHERE OTHER PEOPLE ARE NOT LOOKING". Thanks a lot!
@Mike Pastor Hi Mike, what is your opinion on student housing around University of Pittsburgh and Carnegie Mellon as well as area nearby such as Shadyside, Bloomfield, East Liberty, and Larimer?
@Rob Beardsley Hi Rob, I am not a big fan of holding rentals for student housing in general. Never have been. There are a lot of landlords that are and do very well with it. The areas you mentioned are good in that aspect, but I think the young professional is the way to go in those nearby neighborhoods.
I sold everything I had in Athens, Greece and moved out of that city in September 2007. All my Greek friends told me to stay. They thought I was stupid for getting out. Now they think I'm a prophet.
I would really, really like to be completely wrong about a city for once. It would be a nice change.
I think certain areas of McCandless on the MFs will give an investor the kind of tenants I was talking about in the North Allegheny School District. You have to look for them, but they're certainly there in that township.
As far as pocket commuting neighborhoods go, of course I'm not going to tell you where I think my best buying prospects are in the near future. But finding possibilities is simple: you go through D-class neighborhoods and look for the nicer pocket neighborhoods/street segments within those. Then you try to understand WHY those streets are nicer than others. Finally, you make sure that there are external factors that are going to keep those pocket neighborhoods nicer than the rest of the area.
Account Closed For all of our sakes, I hope you are wrong! The things I am optimistic about in Pittsburgh is the continued impact of the universities to attract young talent and be a source of innovation. The key for the city is to figure out a way to keep the talent from leaving after graduation. Pittsburgh could become a great tech hub attractive for young professionals because of the cheaper cost of living than NYC, SF, and Silicon Valley.
@Account Closed I'm intrigued by your target nicer neighborhoods in D class areas strategy. Could you elaborate more on that?
Again, it would be so nice to be wrong.
It's often been said here on BiggerPockets.com that the best cash-flowing rentals are C-class properties. B-class properties have appreciation potential, and D-class properties often have high costs, iffy tenants, and additional headaches that negate the potential profits you might find there.
The City of Pittsburgh proper has 91 separate neighborhoods that mostly correspond to 32 wards. Some of the separate geographical neighborhoods are incredibly tiny, like Four Mile Run. Some are much larger, like Carrick. The perimeter of the city proper is bordered by a very large number of politically separate boroughs and townships. In general, these tend to be a bit geographically larger than many of the City neighborhoods, although some are quite small (Millvale) while others are larger than any city neighborhood (Penn Hills).
These boroughs are in turn surrounded by other boroughs and townships that are generally geographically larger still. Findlay, Plum, West Deer are three of the largest, although there are still tiny ones like West Elizabeth, Pitcairn, and Bradford Woods out there. Overall, there are 130 separate municipalities in Allegheny County.
There are 43 school districts whose boundaries are drawn generally along the lines of but independently from the neighborhoods, the wards, or the municipalities.
I firmly believe a non-local can only realize the full gibbering insanity of the naming situation after a decade here.
West Elizabeth is on the western bank of the river that borders Elizabeth. All's well and good.
Sewickley is down by the Ohio River, Sewickley Heights is located further up the bank -- that makes sense, sure. But why is Sewickley Hills located even further away than that? Hmm.
McKees Rocks is to the west of the City proper and McKeesport is to the east of the City. That makes no sense unless you know they're named after different McKees. OK...this is a bit weird.
At least 95% of North Braddock is geographically not north of Braddock's northernmost point. Braddock Hills is north of either of these municipalities. Wha???
One must not confuse Mount Oliver the independent municipality with Mount Oliver the City of Pittsburgh neighborhood that borders it. The crest of the actual Mount Oliver runs smack down the middle of these areas.
West Mifflin is in the eastern part of the county and there is no Mifflin, which again, only makes sense if you know that originally it was named Mifflin Township and only became West Mifflin due to a Commonwealth naming dispute with a town named Mifflin far to the east of Pennsylvania.
The aforementioned West Deer is another one of these, located in the eastern half of Allegheny County -- named so because Little Deer Creek runs through the eastern part of the municipality.
I will close this with the singular case of Versailles, South Versailles, and North Versailles, none of which share a common border.
Go through this forum and just count how often each borough, each township, each third-class city, and each neighborhood is treated casually as a single, unified, homogeneous unit. "Yeah, uh-huh, yeah, that Penn Hills is pretty interesting, but I don't like most of Ross, that Greenfield is good, but not like Squirrel Hill. Yeah, uh-huh, yeah."
Talk to the locals in situ and as long as you can keep your sense of humor, you'll be mightily entertained. "Yup, yup, go pas' uh redlight 'n uh neighborhood gets worse, but yer fine 'nuff up 'fore 18th. Now unnerstan', nuh burah lahn run bertween 17th 'n 18th as yer comin' uppa Hill. Gotter ruhmemmer 'at."
And I'm sorry, Jeremy, but we both know 99% of the real estate agents in this town are totally fully of crap when it comes to running comps. We both know the general problems with inaccurate appraisers are worse here than anywhere else in Pennsylvania. When it comes to accurately pinning down real estate values for duplexes and triplexes, oh, you're on your own, baby.
The minimal, almost laughable requirements necessary to become a licensed real estate agent here do not help matters at all. And just in case you think I'm picking in you unfairly, I'll mention the truly ridiculous requirements necessary to become a home improvement contractor like me -- no competency test or exam, have a general liability policy, good to go!
There is always going to be room in this town for the investor who stubbornly walks the streets taking notes and pictures and keeps a big map on his wall. There is always going to be room for the local agent who has spent decades getting to know everybody and everything that happens in her or his his target area. There is always going to be room for the contractor who buys his own properties and does his own management. Finally, on every economic upswing there is always going to a pack of real estate poseurs who ride into this town all big-shotting it up with their universally applicable get-rich-quick systems and leave in the very early hours grimly resolved never, ever to talk about that shaved orangutan they woke up next to.
Pocket neighborhoods are everywhere in Allegheny County. You just have to go looking and learning.
What I mean by that is pretty straightforward. Again, in Allegheny County there's a remarkable tendency to talk about the larger neighborhoods of Pittsburgh into homogeneous units and even turn large municipalities into easily-digestible chunks of sameness, it's not the truth. There are always nicer areas and dodgier areas in a municipality than most people who do not live in that area know about. Is every street in Shadyside like Shady Avenue? Of course not, since Shady Avenue also runs through Squirrel Hill and the mansions on it don't start popping up until Squirrel Hill. Well, is every street in Braddock like Braddock Avenue? Well no, especially since North Braddock Avenue starts in the Pittsburgh neighborhood of Homewood and goes through the municipalities of Wilkinsburg, Edgewood, Swissvale, and Rankin before it actually touches Braddock.
In a city as confusing as this one, you have to get out there and walk these streets and look at these neighborhoods. Block by block, you'll find differences, sometimes enormous ones. There are huge sections of this city that have been written off by many investors as a solid block of D-class neighborhoods. "I don't buy anything in Swissvale!" "You gotta stay away from Hazelwood!"
And again, the local rental property investor gets the cash flowing in C-class neighborhoods, not B's and A's.
If you are a local investor, and if you are the sort of small-time mom and pop outfit that handles most management and maintenance by itself, there are enormous opportunities lurking for you in Pittsburgh in what most agents and investors take for full-on war zones. You have to investigate the boundaries between what are considered solid C-class neighborhoods and D-class neighborhoods. You have to learn a target area block-by-block. Once you find the right places, you also need to convince potential tenants to go look at them. It's not particularly difficult if they already know you by a word-of-mouth network you've built up and come to you, while it's enormously difficult if you put an anonymous ad online, another advantage of being a local investor.
What makes certain areas of a D-class neighborhood better than others? There are often very good, clear reasons. A school district line is always one of them, and this becomes more obvious when it's the specific service border area of one higher-rated high school than another. Another reason is a nearby medical facility. This is where we've really tended to make our money here. Health care professionals very often have far less leeway in calling off sick or showing up late than the rest of the population that makes as much money as they do. They work longer hours. They will pay a premium to be within an easy commute of their job in an apartment run by a landlord they feel they can trust and who's prompt and professional on maintenance, even in a poor neighborhood.
A top reason a pocket neighborhood forms is a police station. Residents always feel safer around a police station. They are far less likely to leave and go elsewhere as a neighborhood slides downhill than their neighbors a few blocks off. And even in the worst places, you can trust that casual criminals will make far less obvious trouble right next to the cops and make them look bad.
There are multiple other reasons. Various public buildings, community centers, schools -- they all help.
But the strangest pocket neighborhoods in this town sometimes seem to form and endure for no visible reason at all in areas that were previously C-class and slid slowly into D-class ten or twenty years ago. The greatest cultural weakness of this city, in my view, is that the residents refuse to change and let go and embrace new things. Perversely in real estate, it's sometimes just this thing that forms pocket neighborhoods here. A group of people in a place just refuse to change. They get out there and they mow their lawns, they have the brick repointed when the mortar wears out, they get guys up on their roofs to replace their shingle, they get on the municipality to redo the sidewalks, and they resolutely hang out their decorations for Halloween and Christmas every year (look for dedicated efforts block-by-block during the holidays). Doesn't matter if the mill closed down, doesn't matter if the shops moved away, doesn't matter if the neighborhood turns into crap three streets off. They ENDURE.
In these cases, it's sometimes an ethnic thing, and has to do with a local ethnic church. These people may be two generations off from speaking the language but they still go to the same church their grandparents built. You'll find pockets of Lithuanians, Poles, Hungarians, Bohemians, and Ukrainians throughout the Mon Valley.
In one case I know, the neighborhood's in a short, straight cul-de-sac. There are four families at the head of the dead-end street that are huge on civic participation in the neighborhood watch program. It apparently started off with one family, and just grew once they figured out the benefits. No one gets in or out of the street without being recorded by multiple cameras on private property. You just can't rob a house successfully on this street and get away with it. So no one's been robbed in forever, there's been no violent crime, nobody causing trouble and getting away with it, no drug traffic -- and so, pocket neighborhood. Kids running around and having fun, they learn your car and call you "sir" as you drive through and wave at them.
Hope this helps.