Why is Pittsburgh such a big market for house flippers?

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Pittsburgh rose from the ash heap of the Great Recession and then became one of the hottest cities in the country for real estate flippers. In part, that was due to the large stock of old abandoned and rundown houses that have for years kept sticker prices on residential properties lower than the national average.

And, it turns out, rebirthing old houses is often more practical — and usually more profitable — than building new construction in most neighborhoods after factoring in the expense of excavating land, building new main water and sewer lines, and obtaining permits.

"There is value in buying properties at a sheriff's sale when you can get $50,000 worth of two by fours and bricks for $12,000," said Doug Van Haitsma, chief operating officer for Garfield-based Shape Development Group, a company that works for developers doing renovations and new construction.

Attom Data Solutions, a real estate information company based in Irvine Calif., found in a December 2019 report that Pittsburgh is the No. 1 most profitable place in America to fix up homes and sell them for a profit. Pittsburgh home flippers made higher profit margins than real estate flippers in any other metro area in the country — 132.6%.

Flippers are real estate investors who purchase homes with the goal of reselling them as quickly as possible for a profit, often within 12 months.

Other top cities for flippers included Scranton, Pa., Flint, Mich., and Cleveland. Attom did not provide data on specific Pittsburgh neighborhoods.

While it can be seen as a good sign for a neighborhood when new construction shows up — since it's an indication that home values are on the rise — the reality is that for most Pittsburgh neighborhoods revitalization comes in the form of renovated homes.

There was a time when real estate values in now-popular communities like Lawrenceville, Garfield and East Liberty were so low there was hardly a developer who would consider building new homes in any of them. It would have likely cost more to build houses than they would have been worth.

New-home construction always made sense in preeminent neighborhoods like Squirrel Hill and Shadyside, although finding buildable land there might have been a challenge.

Bricks and lumber cost the same when it comes to building a new house in either the city or the suburbs.

"You can command a higher price for new construction, but flipping is easier and flippers are in a better position to profit," Van Haitsma said.

"The risk in new home construction in emerging neighborhoods is there are few comparables to base the value on," he said. "You can build the exact same house in Lawrenceville and Homewood and you know you'll get $600,000 value in Lawrenceville. But you may not get that in Homewood."

As the city has seen new employers move in and demand rise in various parts of town, the math has made it more plausible to do new construction in some of those neighborhoods that developers once shunned.

"Lawrenceville and the South Side were the first two emerging neighborhoods that made sense to build new houses in and that only came around 15 to 20 years ago," Van Haitsma said.

"In the last eight years, it's been true for neighborhoods like Garfield and East Liberty and the Mexican War Streets [on the North Side]."

Real estate investor Aaron Chaney, co-owner of Steel Town Rentals in Trafford, has successfully flipped houses all over Allegheny County, but his sweet spot has been Lawrenceville.

Lately, Chaney has been building new houses in that neighborhood.

He will be the first to tell you it's cheaper to buy a home and renovate it than building from the ground up. For example, he recently renovated a 2,100-square-feet home in Lawrenceville that sold for $420,000, or $200 per square foot.

He also recently built a new 2,100-square-foot home in that neighborhood; it sold for $609,000 or $290 per square foot.

Why does the new home cost so much?

"Red tape is a part of it," Chaney said. "In the suburbs, there's less red tape. You can build a new home in the suburbs and it would be affordable. The average working family can't afford a $600,000 house.

"New construction builders can't make money selling for less than a $250- to $350-a-square-foot price point."

Of course, flipping can be risky, too, for both the flippers and those who buy their properties.

"Some flippers put lipstick on a pig and hide defects in houses they sell," Chaney said. "Some inexperienced flippers can get in over their heads and buy a liability instead of an asset."

Flippers, as a whole, have gotten a bad rap for adding another layer of costs to the price of homes, especially in cases where they have done little to improve the condition of a house before placing it back on the market at a higher price.

But more often than not, Josh Caldwell, president of Pittsburgh's Real Estate Investors Association, said flippers are turning unlivable houses into the best real estate on the block.

"In a lot of cases, we are bringing our capital and resources to the project and risking our financial future to turn ugly old things to a beautiful house another family can love and live in for decades," Caldwell said.

"If I focus on a house, the math has to work. But give me something with good bones and I'm excited."

Caldwell said he is primarily focused on the specifics of a house or the deal itself. Other real estate flippers focus on neighborhoods, typically neighborhoods they live in.

Real estate investor Brian Snyder said he used to concentrate on renovating and reselling houses in Lawrenceville — until about three years ago when the pricing got completely out of control. Now his company does more business in the smaller townships and boroughs in Allegheny County, as opposed to the city of Pittsburgh.

"We're probably working on around five flips at any given time," said Snyder, a 39-year-old McCandless resident. Right now, he has projects in Monroeville, Forest Hills, Shaler, Coraopolis and McCandless.

He recently stretched beyond his regular geographic boundaries and did a project in Harmony Township, Beaver County, where he currently has a house listed for sale.

"The first things I look at is I envision myself as the buyer and I ask myself would I live here," Snyder said. "How is the school district? Am I afraid my kid or my dog will get hit on a busy street? I want to be sure I'm buying something that will sell reasonably fast and not get stuck with a long time on the market.

"The most important thing is the location."I'm looking for a nice setting where I think a lot of people would want to be, not just one perfect buyer who is interested."

He usually aims for finding buyers for his completed houses in less than two or three weeks on the market. That doesn't always happen, but his houses generally go under contract in 30 days or less, he said.

"There is still a very good housing market in Pittsburgh," Snyder said. "But you still have to have a quality product. We have to be mindful there is competition and put our best foot forward."

Tribune Content Agency