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Investing in up and coming neighborhoods

Investing in up and coming neighborhoods.

 

Every real estate investors wants to invest in a neighborhood that is up and coming.  There neighborhoods go through phases.  Get ahead of the crowd and you can make a lot of money, choose the wrong neighborhood and you could be stuck in an area where nobody wants to live.  In my career, I have done both.

At the beginning of a neighborhood transition the houses sell for almost nothing, at the end of the transition the houses can be very expensive.  Money is made in between these two points.

The Pittsburgh real estate market is unique in that we never really have a lot of natural appreciation in our neighborhoods, with a few glaring exceptions.  The Pittsburgh sub-markets of Shadyside, Lawrenceville, and Southside are all recent examples.  Be warned because traditional war zones like Pittsburgh’s Hill district were once big money neighborhoods that went the wrong way.

Using Lawrenceville as an example, you could have bought up half of the neighborhood for $50,000 a few years ago, and now many properties sell for over $300,000.   So what changed?  The neighborhood transitioned from a neighborhood of lower blue collar workers to more of a younger affluent population.    So why did Lawrenceville change and not some other neighborhood like Polish Hill, or Millvale just across the river?  That is the million dollar question.  If we can learn to see the early signs of this change then maybe we can get ahead of the rush to buy these properties and make a fortune for ourselves.

In my mind the first sign of a neighborhood truing in either direction can be the actions of local government.  At the time of this writing the town of Swissvale is doing everything that they can do to discourage investment.  They are charging landlords fees that will prohibit investment by making positive cash flow harder to attain.  Landlords and investors are fleeing the area.  It is easy to see that Swissvale is not trending in a good direction and that the neighborhood is well on its way to total war zone.

Big development can be an indicator of a neighborhood turing in the right direction.  I will give you the example of McKees Rocks.  This area is ideally situated just outside of the City of Pittsburgh.  Real estate is cheap and cash flow is great, but the neighborhood is pretty rough.  The recent funding of an intermodal transportation hub as well as an RIDC park could lift this area out of lethargy and make it a hot neighborhood for investors, but I doubt it.  McKees Rocks has more than 1000 abandoned properties.  Many of these properties have liens against them that are worth more than the property.   The local government is content to let these properties sit and rot, rather than take the property to judicial sale and offer them at a price which would encourage investment.    Keep an eye on McKees Rocks.  If the local government ever figures out basic economics, this area is ripe to take off, but not just yet.

Coraopolis is and adjacent Neville Island are both potential hot areas.  They both exist just outside of the city, with easy access to the city and major transportation links.  They have their own independent school district which helps, and they have some commercial development to ease the tax burden on potential owners.   What Neville Island lacks, is a good supply of large outdate houses, which can be rehabbed to drive the market value of property upwards.  Coraopolis has this.  The problem that Coraopolis has is that it is on the wrong side of the Sewickley Bridge.  This bridge is a traffic nightmare.

Each of the neighborhoods that I have mentioned has at least one problem that is keeping it from getting hot.  In truth, for a neighborhood to become hot, it needs a few things.  I have already mentioned large houses, suitable for rehabbers to come in and force upward appreciation.  It also needs to either have a commercial district or have easy access to stores.   Mount Lebanon and Shady Side are good examples of self-contained areas, where the northern suburbs of Pittsburgh offer easy access to shopping.  The area needs to be free from politicians who think that they can tax an area into prosperity.  Some of the worst neighborhoods in Pittsburgh also have the highest taxes, Wilkinsburg is a great example of this.

In short, no neighborhood is perfect, but you need to learn to look for the factors that could help a neighborhood become that next hot area.   If you can identify that next hot area, then you can make a pile of money.

 

 

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