Favorite Rental Areas

[Mike Pastor]

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) 

[Account Closed]

@Mike Pastor
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.

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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