Ask any financial representative, and they will explain that the key to a balanced and successful portfolio is diversification. That is why many people have chosen to purchase and hold investment rental properties in their portfolios. While an investment in real estate is not always the most liquid, it does come with its perks. What you trade away in liquidity, you gain in the form of a steady return, often resulting in an annual return of 15 – 18%. You also have the potential for a considerable amount of built in equity.
One of the most attractive attributes of investing in the Pittsburgh Real Estate market is that it is consistently ranked high nationally among real estate investors. The International Business Times listed Pittsburgh as the 5th most affordable major metro area to purchase real estate, just behind Detroit. Unlike Detroit, Pittsburgh has been experiencing steady economic growth and a solid rental market. Pittsburgh was recently noted as being the number 2 market in the country for house flippers. While there are many who strive to follow a get rich quick format and use house flipping as their vehicle of choice, the buy and hold model of real estate investing is an old standby. An increasingly solid rental market, bolstered by many of the smaller neighborhoods within the city of Pittsburgh undergoing a revitalization, the area has become a beacon to many out of state investors. That sudden influx of cash in the local real estate market makes now a sort of “ground floor” time to get involved.
In the wake of the 2008 – 2009 financial crash, many areas were left without access to mortgages and as a result, house prices started trending down. Because of this dip in to cost of housing, many large institutional investors, both publicly traded and private equity groups, started buying up single family houses across the country. Unlike in larger multi-family properties where all of the costs are carried by the property owner, the day to day costs of operating the house (ie: utilities, lawn care, etc.) are passed on to the tenant, making single family houses the real estate investment of choice. Currently only 65% of all occupied single family properties are owner occupied, leaving the other 35% as rental properties.
According to an article published on MarketWatch.com on 11/24/14, it’s a landlords market. With vacancy currently hovering below 4%, and rents expected to outpace inflation over the next 2 years, it means that you can expect to have a consistently occupied property, and have the ability to continually raise the rent every year. There is a large cost associated with moving, so tenants tend to stay where they are happy and comfortable, even if the rents are consistently hiked. A steady 4 – 5% increase in rent annually is also attractive to investors. That 5% hike in rents actually equates to an average 7% increase in annual returns.
One of the largest demographics of renters are the “Millennials”, those people currently under the age of 35. Collectively, this demographic is highly educated and underemployed but upwardly mobile. According to an article recently published by AppFolio, a leading software platform for the property management industry, millennials also account for 40% of the overall housing market, with 90% of them choosing to rent. This number indicates huge potential for the savvy real estate investor. Because Pittsburgh has recreated itself as a national business hub, many young professionals are moving to the area for work. However, gone are the days of the 40 year long career, and many of these people moving into the area will be moving back out in 2 to 3 years, bound for a different job in a different city. They will in turn be replaced by a new wave of people moving into the area for work. Because of this transient, short term phenomenon, many of these people are choosing to rent, not wanting to be tied to a mortgage or the need to sell their home in 3 years in the midst of an uncertain housing market.
There are a number of options available to real estate investors. If you don’t want to tie up a large amount of money in a real estate asset, you can invest in a REIT, or real estate investment trust. This vehicle is like a mutual fund, comprised of a portfolio of many houses across the country, whose collective returns dictate the performance of the fund. The tradeoff is that you will not realize a steady stream of income, and the returns are shared with millions of other stockholders.
Another option is to purchase and hold a rental property as a long term investment. Many people are choosing to add this dimension to self-directed IRA’s or other investment portfolios. One of the biggest fears in selecting a property, especially for novice investors, is whether the property they select will provide the returns that are anticipated. The professionals at Real Property Management Three Rivers can help to alleviate those fears. We specialize in providing professional property management services to real estate investors. We also offer full property maintenance and rehab services, so that we can get your rental property to a level that will pull a peak rent rate, maximizing your investment and taking the headache out of the process. We look forward to discussing your real estate investment options with you.