Bigger rental returns in Allegheny, Beaver counties could lure outside investors, real estate experts say
Homebuyers in parts of the Pittsburgh region could experience more competition from real estate investors looking for bigger returns on rental properties as their profits decline elsewhere.
Data released Thursday by real estate information firm RealtyTrac shows that investors could make more money buying homes to rent in Allegheny and Beaver counties than they could in other markets around the United States, including in Washington County.
Real estate experts said that could draw more attention from investors who have overlooked those markets in the past.
“I expect to see a lot of them,” said Colleen Martin, a real estate investor and owner of Honest Property Management in Crafton, which has rental properties in Allegheny County. “I think they'll be coming from the big places like San Francisco, California, New York, Miami … any place where the market is up.”
Pittsburgh's housing market has been a rock of a stability through boom times and bust, and has been largely ignored by outside investors because it didn't offer the big paydays of more volatile markets such as Florida and Nevada. But that could change as the profits on rental properties in the region remain stable amid declines elsewhere.
Pittsburgh rental prices have risen 21 percent in less than four years, the median at $1,124 per month, according to real estate information website Zillow. Home values, meanwhile, have risen 11 percent in the same period.
Investors who purchased a three-bedroom property to rent in Allegheny County could realize a 9.68 percent gross annual return, the same as a year ago, according to RealtyTrac. And in Beaver County, the return is 11.73 percent, up from 10.8 percent last year. Nationwide, the trend has been in decline. The average return for a three-bedroom rental was 8.94 percent this year, from 9.07 percent in 2014, according to RealtyTrac's analysis of 285 counties.
With Allegheny and Beaver counties showing above-average returns, it would not be surprising to witness more competition from investors there and potentially rising home prices.
“That is the typical result we see when these buy-to-rent operators come to town,” said Daren Blomquist, vice president at RealtyTrac. “It creates more demand for homes, especially the starter home range. You typically will see that price range piece of the market rise in terms of prices as there's more demand from those renter operators.”
There may even be shifting emphasis among local investors as certain places get more expensive to buy. The only other Western Pennsylvania county included in the RealtyTrac report was Washington, where home prices have risen faster than elsewhere and yields on rentals fell to 8.38 percent, down from 8.66 percent a year ago.
Even if competition ramps up in Allegheny and Beaver counties, they should remain among the more affordable in the United States, Blomquist said, and certainly places where it makes more sense to buy rather than rent.
The cost to buy in Allegheny County is 21.88 percent of the median income, compared with 24.48 percent to rent, according to RealtyTrac data. In Beaver County, the difference is even starker — 19.77 percent of median income to buy, compared to 26.36 percent to rent.
“There seems to be a lot of room for (price) growth,” Blomquist said. “The affordabililty piece for this is still pretty good.”
Chris Fleisher is a staff writer for Trib Total Media.