Flipping homes popular in Pittsburgh, can be ‘too much of a good thing’
The solicitations arrive in Dan Szramowski’s mailbox daily, some appearing to be handwritten letters from long lost friends.
“They write you like they’re you’re old cousin,” said Szramowski, 60, of Lawrenceville. “‘We’d really like to buy your home.’ Some of them come to you almost like a Christmas card.”
Szramowski has never met the senders — real estate investors offering cash for his house on Lotus Way. Szramowski drops the mailings into the trash even though he could sell his property for many times more than the $7,500 he paid for it in 1977. He’s committed to the neighborhood where he has spent his entire life, even as an influx of new residents and private investment turn Lawrenceville into a place he barely recognizes.
The neighborhood’s thriving business district and cultural offerings have made it a destination for urban living. But that transformation has also attracted a small army of so-called “home flippers” looking to scoop up properties like Szramowski’s on the cheap, renovate and unload the homes months later for several hundred thousand dollars.
Lawrenceville has become something of a ground zero for house flipping in Pittsburgh, which was cited by real estate data tracker Realty Trac as among the most profitable markets for property investors.
Home flippers were blamed for feeding home price inflation in markets hit hard during the housing crisis. The practice was never that common in Pittsburgh, but has become more prevalent lately as investors look to capitalize on the national attention the city has received as an attractive place to live.
These arms-length sales are now more common in Pittsburgh than during the peak of the nationwide housing bubble in 2005, according to Realty Trac, leading to concerns about whether a bubble is building.
“When flipping becomes too much of a good thing, it can overinflate home prices beyond what the fundamentals of the market can support,” said Daren Blomquist, vice president of Realty Trac.
Lawrenceville was recently included on Realty Trac’s list of “Top 30 Hipster Zips for Home Flips.” Property values there have increased 74 percent since 2006, faster than nearly every other area of Pittsburgh, according to Zillow data. And flippers are starting to look to adjacent neighborhoods, like in the North Side, for new opportunities.
Josh Caldwell, president of the Pittsburgh Real Estate Investors Association, said he fields daily inquiries from people who want his advice on how to make easy money flipping homes. He tells them it’s not that easy.
“We’re getting a heating up in inflation right now because of this national attention,” he said. “A lot of uneducated people are jumping into rehabbing who should not be rehabbing. And they’re going to lose their (backsides).”
Pittsburgh’s housing stock is cheap for a reason, he said. Much of it is more than a century old and requires $100,000 in renovations just to address structural issues to make them safe.
Caldwell says he generally aims for profits of 30 percent to 40 percent on his properties. Rising prices have made such margins difficult to achieve in markets like Lawrenceville.
“That market scares me right now,” Caldwell said of Lawrenceville. “I would not want to be holding on to stuff that I paid top dollar for.”
Prices on the rise
Josh Adamek doesn’t believe there’s a bubble building in Lawrenceville, where he has been an active investor.
Adamek buys, renovates and sells homes around the city through his real estate investment firm, Ross-based Synergy Capital. His first home flip in Lawrenceville was a three-bedroom row house on Plummer Street. He bought it for $61,000 in March 2012, did a full-gut renovation and sold it for $165,000 seven months later.
The neighborhood has become pricier. Last year, Adamek sold a four-bedroom home a block away on Plummer for $399,000. He won’t say how much he paid for renovations, but said it was into six figures. Adamek had plenty of room to clear a decent profit. He paid just $110,000 for the property less than eight months before.
There are plenty of people willing to pay up to half a million dollars to live in Lawrenceville, he said.
“Definitely, prices are on the rise, but I don’t think there’s a bubble that’s going to burst,” he said.
Pittsburgh has never seen much of a housing bubble. Home prices never spiked during the run-up to the housing crisis the way they did in Florida or Arizona, and Adamek doubts that is happening now. Unlike those bubble markets, which had a lot of speculative homebuilding and no buyers to support it, there are well-heeled executives at UPMC, Google and Uber who want to live close to work and can afford Lawrenceville’s rising home prices.
Despite the rise in home flipping here, it remains a relatively small share of total sales at just 3.2 percent, compared to 5.5 percent nationally, according to Realty Trac. Lawrenceville has a higher share at 7.5 percent, but is still below the 10 percent level where there would be concerns about driving over inflation in the market, Blomquist said.
In Cape Coral, Fla., which was at the epicenter of the housing crisis, 17 percent of all sales were flips in 2005.
Also, most of Pittsburgh’s flipped properties are bought with cash, making it less likely that investors will take risky bets because they are using their own money, Blomquist said.
“Pittsburgh, by that measure, isn’t in a huge danger zone,” he said.
There are still concerns for a neighborhood’s stability from the residential churn that accompanies home flipping. Long-time homeowners are more likely to invest in the community and support local businesses than an influx of new residents and renters, community advocates say.
Seniors may benefit from the rising value of their homes, but could be duped into selling their home for less than its worth, said Lauren Connelly, executive director of Lawrenceville United, an advocacy group of local residents.
“(The buyer will) present paperwork to the seller and push them to move quickly,” she said. “We encourage the homeowner to have someone look over that paperwork.”
Lawrenceville United is developing programs to educate and protect seniors. Other groups, such as Lawrenceville Corporation, are addressing the need for permanent, affordable housing through initiatives such as a community land trust, which develops housing for low-income residents.
Lawrenceville resident Barb Kelly says she’s been encouraged by the changes along Sherrod Street, where she and her husband have lived 38 years. She hears concerns about rising property taxes from her customers at Technicuts, where she is a hair stylist, but believes the complaints mostly stem from a reluctance to change.
“They want to keep it the way it is,” said Kelly, 65. “You need some new things because if you don’t, then the neighborhood will go to nothing. You have to change. It’s what life’s all about.”
Neither Kelly nor Szramowski intend to sell their homes. Kelly said she enjoys her neighbors and likes walking to work. Szramowski, a plumber, expects to retire this spring and wants to spend more time with his children and grandchildren, all of whom live within walking distance.
Lawrenceville is different from the working class neighborhood of his childhood, the corner markets and shops replaced with “destination” businesses such as bars and boutiques, he said. But he’ll never move. Where else, he asks, would he live?
“It isn’t really a neighborhood, it’s just a place to live,” he said. “But, here I am.”
Chris Fleisher is a Tribune-Review staff writer. Reach him at 412-320-7854 or [email protected].