New rental development in Pittsburgh make sense
I've bought four properties in Pittsburgh already. Noting in he core area of the city, and all older properties. I'd like to get properties in better areas more in play with the economic development (near the colleges and / or hospitals. Thinking Lawrenceville, Greenfield, Squirrel Hill, maybe Oakland. Finding properties in these areas hasn't been easy. Little inventory and high prices compared to rents.
However, thanks to Pittsburgh's post industrial wasteland days, some of these areas have a number of empty infill lots that look somewhat prime for development. But I've never done this before, and am not local. Has Pittsburgh come back enough that developing new multifamily rental properties makes sense. Is the city friendly to this? In general do the numbers work to the point where it makes sense? Has anyone here built multifamily in Pittsburgh?
Any help appreciated.
@Michael Wolffs I understand exactly what you are seeing and thinking regarding the development play in Pittsburgh. I'm born and raised and invested in Pittsburgh, and I think that there is potential for that type of development in the more expensive areas. There are condos popping up throughout Pittsburgh (Northside, Southside, Strip District, East Liberty, etc..) so you'll definitely have high-end competition.
In regards to some of those 'rougher' areas that have a lot of land available, the housing inventory and rents in most of those neighborhoods make that a bad investment in my opinion.
@Kesete Thompkins I wasn't thinking of the rougher areas. I realize that the rents there won't support new development.
Particularly I was thinking about Lawrenceville. It seems to be the "It" area in Pittsburgh. I also think Bloomfield and Qakland would work also, trying to take advantage of UPMC expansion.
Maybe this is out of date, but I see "missing teeth" lots on Google Maps that would seem very developable. I'd need to track down the owners. I'd be looking to build multifamily, so I'd have to find if the zoning is compatible. But the biggest issue is would these type of deals pencil out, especially as rentals. I'm trying to find anyone who has done this before in PGH, to get some boots on the ground experience.
There is a ton of development like that in the area (lawrenceville, where i live, garfield, east liberty, etc). I think the city gives significant tax breaks to rehabbing old properties, so many people are tearing down to the foundation and building a "fresh" rehab. regardless, zillow has a bunch of lots available in some up and coming areas.
@Michael Wolffs, your thoughts on Lawrenceville, Bloomfield and Oakland are correct. There are definitely spaces available, they are just going to go at a premium. You should also look at the Uptown neighborhood. It's going to put you between downtown and Oakland at decent price points. This may be a good area for what you are looking to do. You could attract college students from every college in the area.
@Kesete Thompkins, I had looked at Uptown a while back, when I was thinking about opportunity zones. I think it's on the map.
For development, I was thinking further north, but his could work. Thanks.
@Michael Wolffs When I drive over the 40th street bridge it appears to have 2 major apartments buildings being built so someone thinks Lawrenceville is worth investing into. I will try to grab the name of the property next trip pass.
I have opportunities within the city if you’re interested.
@Michael Wolffs great post! i am curious about this myself as well as I want to stay in the city long term. I am local to Pittsburgh and am closing in Sep on my first rental property in lawrenceville. Most of these areas are rather hard as its almost seems like we are "too late" but from personal experience it is possible to find deals that work. Most of what ive seen locally mimicks what Jesse had stated, people are buy existing places and rehabing them or converting to multi-units. The new multi-family construction that is happening seems to primarily be going up as larger syndications (like the two recent apartment buildings near the 40th street bridge and the countless going up in the Strip). Ive seen some other new construction for 3-4 unit condos but those are all super pricey and targeting a different crowd... Personally im seeing alot of action and updating happening in Garfield and Staton heights. East liberty is super popular right now with my generation (young professionals / 25-30s) and garfield is smack in between East Lib, lawrenceville, and bloomfield. Once the Penn Plaza development project near Penn/Negley finishes i wouldnt be shocked if things start progressing down Penn towards Garfield/Lville. There have been alot of cheaper run down places in garfield popup on the MLS that get snatched up within a few days/weeks in the last few months. Im not as tuned into the off market action but i suspect its happening their as well.... ive also got my eyes on Sharpsburg as a long term bullish area as well. Houses are still on the cheaper end and the breweries/coffee shops/etc.. are starting to get popular there. Its one of the last "flat" areas as well that isnt on the expensive side of things yet which i think will be more attractive compared to living up on top of a hill without easy walking/biking. (like garfield/troy hill). the city is planning on extending the bike trail from Millvale down to Sharpsburg and over the Highland park bridge to East Liberty! Its also in one of the better school districts in the area so it could attract the 20-30s crowd looking to start a family but also be close to the city/action.
@Josh Lang Can you buy in Lawrenceville at a cap rate where you can make money income-wise? Everything there and in the East Side seems to expensive at this point. I have a couple of properties along the river on the other side (Brighten Heights, Avalon, Reserve), but I haven't seen anything on the East Side that isn't a full gut that I can get at anything like a reasonable price.
@Michael Wolffs i think i am a bit of an outlier here. I am house-hacking and will be owner-occupied the first year so i was able to take advange of really low rates and low down payment options. I also was able to negotiate a decent amount below asking as the property was on/off the market for a few months with a motivated seller. Using conservative calculations i will be at about a 15% ROI per year after i move out in a year and rent it.
@Josh Lang, yeah, I'm not hacking. I'm full commercial, looking for multi-unit. The dearth of opportunities is what had me thinking about building.
We work with a lot of investors, and I have found that when you are in the "hot areas" you are seeing investors willing to overpay for properties putting their investments in the 4-6 CAP rate range (which imo isn't good at all). I often encourage my investors to purchase right outside of the hot areas as usually you start to see some good developments right outside of those areas for renters who can't quite seem to pay the higher rents. There are some really good areas that we are seeing large growths in (for example, parts of Carrick area really good where a 3 bedroom use to go for $800 and are now going for $1300+).
Regardless of area, solid multi-family will do well in just about any area of Pittsburgh. The level of upgrades you choose may be the biggest difference. In the hot or soon to be hot areas, I would go granite where as other areas you may want to go with the higher end laminate.
@Elise Bickel, are you talking purchasing existing buildings, developing new, or both?
Originally posted by @Michael Wolffs:@Elise Bickel, are you talking purchasing existing buildings, developing new, or both?
Both
I believe that if you are really looking for a long term equity gain, you should be looking into the east end in neighborhoods like Homestead, Forest Hills, Shadyside, Greenfield. The rent prices are steadily increasing in these neighborhoods. Obvious areas to consider are central to the colleges and hospitals and from downtown to the east!
@Account Closed, You're correct, but those are some of the most expensive areas in PGH. You'll get good rents in the raw number sense, but will you get a good return on the purchase price? You may get better returns, especially in terms of cash flow, it less prime areas with lower purchase prices.