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Lending challenges, rehab costs thwart efforts to revitalize

Natasha Lindstrom
PTRCHEAPHOMES01092114
Dundee Construction's Michael Rohac, right, and Brandon Muir, left, work on the finishing touches of a home along Park Avenue in Swissvale on Friday afternoon, Sept. 19, 2014.
PTRCHEAPHOMES02092114
A home being rehabbed by Dundee Construction along Park Avenue in Swissvale on Friday afternoon, Sept. 19, 2014.

Real estate agent Jose Collazo eagerly took on a Monroeville listing he was sure was worth every bit of the $138,000 the seller wanted last summer — until he inspected the house.

The four-bedroom, split-level home nestled in the corner of a quiet cul-de-sac next to a path into Bellwood Park had potential, but the 55-year-old property needed roofing, mold removal and extensive work on the foundation, among other repairs. Collazo broke the news to the seller that she had to lower her expectations drastically.

“That was a hard talk I had to have with the seller — there were tears,” recalled Collazo of McKeesport, noting the owner had raised her children there and hoped to pass the home to a budding family. “As we started decreasing the price slowly, all that was calling were investors.”

One investor snapped up the house in February for $49,000 — $30,000 less than the county-assessed value in 2013 and about one-third of what the seller initially wanted.

For aspiring homeowners, the listing price of the American dream isn’t too expensive; it’s too cheap.

In neighborhoods with the lowest prices, homes often have hidden costs and rehabilitation needs so extraordinary, they block transactions to average homebuyers.

The conundrum is thwarting attempts to revitalize this region’s most blighted and economically depressed communities without relying on investors flush with cash.

In the second quarter of 2014, cash sales accounted for a whopping 80 percent of real estate transactions in Duquesne; between 77 percent and 83 percent in McKeesport’s 15132 and 15133 zip codes; and 68 percent in Bloomfield, according to data compiled by RealtyTrac for the Tribune-Review.

“You have this low-priced housing that potentially could be very affordable for some people and a way for them to take ownership and build wealth,” said Daren Blomquist, vice president of the Irvine, Calif.-based RealtyTrac industry data firm, “but because of the difficulty in getting such a small loan and the rehab costs, that remains somewhat out of reach for them.”

Too cheap to sell

Some lenders don’t want to deal with properties under $50,000 — a threshold higher than the median home price in communities such as Duquesne, McKeesport, Turtle Creek and the Hill District, RealtyTrac data shows.

“First, you’ve got to shop like crazy to try to find somebody that’s going to finance it, then repairs have to be done,” said Linda Maslanik Stanley of Valley Realty in Ambridge, a Beaver County borough plagued by dilapidated properties.

Places such as Wilkinsburg, McKeesport and the Natrona Heights area deal with similar challenges, including growing backlogs of properties set for demolition.

“A lot of these buildings are getting death sentences because nobody can afford to fix them up and bring them up to code,” said Barry Denk, director of the Center for Rural Pennsylvania.

Lending challenges

The dilemma is exacerbated by tighter regulations. Lenders are scrambling to adapt to government rules put in place after the housing bust.

“It has really just been a tsunami of change,” said Kate Newton, director of homeownership programs for the Pennsylvania Housing Finance Agency, which aims to bolster affordable housing options.

The PHFA has a rehabilitation loan program, but applicants must have credit scores of 620 or higher.

Federal Housing Administration financing is “easier on the buyer but harder on the house,” Stanley said. The government-backed FHA 203K loan often requires hiring an independent consultant to prepare the exhibits needed to secure one.

It’s not impossible to secure financing for properties worth less than $50,000, and most lenders carry some low-end mortgages — but they don’t typically advertise. That’s because many loan servicing costs are the same no matter the size of mortgage, making it less profitable to take on ultra-cheap ones.

Local agents say the best bets to finance cheap properties are small banks and credit unions.

“I specialize in low-end properties, and I use lenders who give me absolutely no trouble whatsoever with $50,000 loans and less,” said Lori Maffeo of Berkshire Hathaway Home Services. “I know there are lenders out there who won’t write them, but I just don’t use them.”

Wary of too many renters

Amid this investor-driven market, it’s important to ensure “there’s equilibrium between rental and homeownership,” said Patrick Shattuck, director of real estate for Mon Valley Initiative, which spends $4 million to $9 million annually on real estate improvements in 10 communities along the Monongahela River.

“Renters really don’t have that pride of ownership,” acknowledged Josh Caldwell, president of Pittsburgh Real Estate Investors Association, which includes about 650 members. “At the same time, when a neighborhood has bottomed out, you’re praying that investors are going there.”

Following a slew of improvements, the Monroeville property that Collazo sold the investor is “back to every bit of $135,000 to $140,000” the original homeowner wanted, Collazo said. Turns out, the new owner is not about to flip it for a profit or take on renters.

He liked the home so much, he’s decided to stay.

Natasha Lindstrom is a staff writer for Trib Total Media. She can be reached at 412-380-8514 or [email protected].

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