Wild Housing Market Made His Modest Home a Hot Property

By Ben Eisen | Photographs by Nate Smallwood for The Wall Street Journal

PENN HILLS, Pa. -- Chuck Vukotich's yellow-brick Cape Cod is one of five houses that crowd around a cul-de-sac not quite large enough to make a U-turn.

His parents bought the place in this working-class Pittsburgh suburb in 1961. He paid his mother $55,000 for it in 2016 to keep it in the family after she moved to a nursing home.

The house isn't for sale, but that isn't a problem for bargain-hunting real-estate speculators. They call Mr. Vukotich multiple times a week offering to buy it. They fill his mailbox with fliers teasing all-cash deals and quick closings. Mr. Vukotich guesses he has received more than 100 inquiries.

"I don't mind somebody trying to make a buck, but it's kind of a pain in the butt," he said.

A housing boom that has sent prices soaring in such places as Austin, Texas, and Miami has come to Mr. Vukotich's nondescript neighborhood. Fevered buying has stretched beyond the vacation homes and upscale suburbs that white-collar workers sought out during the pandemic year. Even small towns and distant suburbs where homes routinely sell for less than $100,000 are abuzz.

One of those places is Penn Hills. In this community 15 miles northeast of downtown Pittsburgh, the median sale price was up 19% in April from a year earlier, according to real-estate brokerage Redfin Corp., not much lower than the 22% rise nationally.

The median sale price in Penn Hills was $132,000 in April compared with almost $371,000 nationally. In the Pittsburgh area, "You can still get a house for $50,000 that only needs cosmetic work and a roof," said Krystina Krysiak, a Redfin real-estate agent.

These prices are drawing a particular type of small-time investor who is looking to find good deals in a market that is short on supply and long on demand. These buyers scour lead lists looking for inexpensive houses and trade tips on social media -- much like their day-trading counterparts who are buying penny stocks and betting on bitcoin. Some of the buyers flip the homes, and some rent them out. Some work with big-time investors for a cut of the proceeds.

Mr. Vukotich guesses that investors started contacting him about two years ago, though outreach has picked up in the past year. A recent pitch arrived on a pink note card: "Could we possibly discuss making you a cash offer? Either way, please let me know. Blessings, Nick."

Nick Schindehette said he mails out between 5,000 and 20,000 of these cards each month to homeowners in 20 ZIP Codes. He got into the real-estate game after he attended a tutorial event.

Mr. Schindehette, 24 years old, targets what he says are "C+ neighborhoods," where homes are cheap but neighborhoods aren't falling apart. In Penn Hills, according to investors, it is possible to generate solid rental income or a tidy profit on a flip.

Mr. Vukotich's family moved to Penn Hills from nearby Wilkinsburg after he finished the sixth grade. They had lived in a duplex and wanted a stand-alone house. The one they bought has four bedrooms and 2 1/2 bathrooms.

Mr. Vukotich and his friends would congregate at his place after school and throw around a football. His best friend lived down the street. The lady near the corner raised two boys who turned out to be famous hairstylists. Before his mother moved into the nursing home, the next-door neighbors would check on her.

The trees in the backyard were about Mr. Vukotich's height when his family arrived. Now they are big enough to shade the entire yard. On a recent sunny Friday afternoon, kids walked home from school and adults chatted outside. A Slip 'N Slide in a front yard beckoned.

"The neighborhood hasn't changed," he said. "It's a nice, quiet, working-class neighborhood."

Mr. Vukotich doesn't live in the house anymore. Following his mother's wishes, he handed it over to his son, Charles, and daughter-in-law, Alexis Papalia, who currently live there. Mr. Vukotich's name is still on the deed.

Charles grew up visiting his grandmother at the Penn Hills house. When he moved in, he pulled up the old carpeting and rolled his eyes when he found it covered in gold-flecked linoleum. He pulled that up too and found hardwood floors still in good condition.

He changed the light fixtures but left his grandmother's chandelier in the dining room. The house has its quirks, including book shelves on the second floor that open to reveal storage space.

Investors often buy lists of homeowners from companies that scrape public data to find homes that fit their criteria. Mr. Schindehette said he found the elder Mr. Vukotich on three lists, including one of people who don't live in the homes they own.

A successful response rate for his note cards would be 1%, Mr. Schindehette said. The people who sell to him often need to get rid of their homes quickly. The houses might need a lot of work. He said he has been involved in about 50 real-estate transactions.

"Sometimes we're a good option for people," he said. "Sometimes we're not."

In such a sale, there is no real-estate agent and no open house. The investors rarely compete with families, and they usually buy at a discount. A rule of thumb popularized by real-estate websites such as BiggerPockets maintains that investors should never offer to buy a house for more than 70% of the after-repair value, minus the cost of repairs.

Jeffrey Bell, who invests in real estate mostly in Pittsburgh's southern suburbs, said he recently picked up a three-bedroom, one-bathroom for $12,000. The family of the deceased owner might have fetched more in the open market, but they wanted to get rid of the property with minimal effort.

Mr. Bell spent another $12,000 cleaning it out, painting and renovating the kitchen and bathroom himself. He figures it could sell for about $55,000 but decided to rent it for $875 a month. "I will have that paid off, if I sustain a tenant in there, in 2 1/2 years," he said.

Some buyers don't put their own skin into the game. They negotiate to buy the property on behalf of another investor and never take ownership. They are paid for finding the property by taking the difference between the seller's price and the buyer's price. This tactic, known as wholesaling, doesn't require capital to get started, so the barriers to entry are low. In some areas, wholesalers have been accused of cajoling poor homeowners into accepting lowball offers, prompting state and local governments to crack down on them.

As the pandemic wore on, local real-estate investors noticed that their ranks were swelling. That means more phone calls and mailers. For homeowners who do pick up the phone, it means more options. For investors, it can mean higher prices.

"They're sitting there with a stack of postcards, and they're like: 'If I don't like what I hear from you, I'm going to the next guy,'" Mr. Bell said.

Mr. Vukotich hasn't spoken to any of the investors long enough to get an offer. Two neighbors said investors had, unprompted, offered them $50,000.

It is hard to say how much Mr. Vukotich's house is worth. The county tax assessment values the property at $47,900. In 2016, it was appraised for $55,000, the price Mr. Vukotich paid his mother for it. Zillow Group Inc.'s Zestimate tool, which isn't as accurate as an appraisal, puts it at over $125,000.

Mr. Bell, who doesn't invest in Penn Hills, said his models suggest the fixed-up house might go for between $115,000 and $120,000 -- well above what an investor would look to pay.

Mr. Vukotich has no plans to sell, though his son and daughter-in-law would like to live closer to public transportation one day. He knows one thing: He won't be calling any of the numbers on the mailers.

"It's an owner-occupied neighborhood, and we want to keep it that way," Mr. Vukotich said.

Write to Ben Eisen at [e-mail]

(END) Dow Jones Newswires

06-05-21 0544ET