Looking for a new location to diversify your real estate investment portfolio? Well, then you should consider investing in Philadelphia real estate.
Philadelphia’s Population and Economy
To begin with, this is the fifth most populous city and the seventh largest metropolitan economy in the US. The population is generally young, and the millennials in Philadelphia are showing an interest in urban living, away from sub-urban homes. That’s already a strong factor pushing Philadelphia real estate investments forward. Moreover, the economy is vibrant, with a new focus on information technology and services. Philadelphia also remains a center of higher education (especially health education and other research centers) and financial services, in addition to featuring strong oil refining, manufacturing, food processing, and tourism industries. With regards to tourism, one of the main drivers of real estate markets, Philadelphia is the first nation’s World Heritage City, declared by UNESCO, and attracted over 41 million visitors in 2015 alone. To sum up, all these factors position investing in Philadelphia real estate at the top of the US real estate market and make a Philadelphia investment property an excellent option.
Philadelphia Real Estate Market
In brief, Philadelphia’s real estate market is on the rise, with regards to demand, sales, and prices. In its quarterly report on Philadelphia’s housing market for Q3 2016, the Lindy Institute for Urban Innovation at Drexel University reported a post-recession high for total sales of single-family homes as well as a new all-time high for sales of million-dollar homes. The citywide house price index reached a new all-time high, 10% higher than the previous peak in mid-2007. All this means that Philadelphia’s real estate market is a seller’s market, so any investor looking forward to buying a Philadelphia investment property should hurry up before prices increase even further.
Investing in Philadelphia Real Estate: The Figures
The single most important thing that a real estate investor should look at before deciding whether to go for a certain investment or not is the comps. Mashvisor’s investment property calculator saves you a lot of time and energy by eliminating the need to do a real estate market analysis and supplying you with the ready figures instead: at the city, neighborhood, and property level. First, let’s look at the city level figures for investing in Philadelphia real estate:
- Median Property Price: $342,000
- Traditional Rental Income: $1,570
- Airbnb Rental Income: $2,350
- Traditional CoC Return: 3.1%
- Airbnb CoC Return: 5.8%
- Traditional Cap Rate: 6.3%
- Airbnb Cap Rate: 9.2%
- Airbnb Occupancy Rate: 30.2%
Regardless of what we said above about the multiple million-dollar sales in recent months in Philadelphia’s real estate market, Philadelphia real estate investments remain highly affordable compared to many other top real estate investment markets such as San Francisco, Boston, and Los Angeles, for example. An average Philadelphia investment property is expected to generate some good rental income, taking into consideration the median property price of under $350,000. The city average cash on cash (CoC) return and capitalization (cap) rate, calculated by Mashvisor’s investment property calculator, are both quite good, especially for Airbnb. According to Mashvisor’s data, Airbnb is the better rental strategy for Philadelphia real estate investments. Although the Airbnb occupancy rate does not place Philadelphia real estate investments among the top cities for Airbnb occupancy, the expected CoC return of 5.8% and cap rate of 9.2% are quite good. Nonetheless, don’t forget that city (and neighborhood) average profitability values are significantly lower than the values for most actual Philadelphia investment properties.
You will be happy to hear that Airbnb is fully legal in Philadelphia. In July 2015 the Philadelphia City Council unanimously passed a package of new regulations which legalized Philadelphia Airbnb while imposing some restrictions on this kind of business. In specific, Airbnb Philadelphia is generally prohibited in residential neighborhoods and is limited to a maximum of 180 days per year, requiring a city license for rentals lasting more than 30 days. Moreover, the City of Philadelphia introduced a hotel tax of 8% on any Airbnb Philadelphia investment property, which is not high compared to other major cities in the US.
Top Neighborhoods for Investing in Philadelphia Real Estate
Choosing the right neighborhood for your income property is as important as choosing the right city. Mashvisor’s rental property calculator makes your life as a real estate investor much easier by providing you with ready answers to the question: Which are the best neighborhoods for buying a Philadelphia investment property based on affordability and profitability? So, let’s take a look at them:
1. Graduate Hospital
- Median Property Price: $290,000
- Traditional Rental Income: $1,820
- Airbnb Rental Income: $2,640
- Traditional CoC Return: 4.1%
- Airbnb CoC Return: 7.3%
- Traditional Cap Rate: 7.4%
- Airbnb Cap Rate: 10.8%
- Airbnb Occupancy Rate: 55.5%
This neighborhood named after the no-more functional medical facility is also known as Southwest Center City. Graduate Hospital Neighborhood features a mixture of historic and new single-family homes in addition to some luxurious condos. The population is divided into equal parts of home owners and renters.
2. East Passyunk
- Median Property Price: $409,000
- Traditional Rental Income: $1,810
- Airbnb Rental Income: $3,840
- Traditional CoC Return: 2.4%
- Airbnb CoC Return: 8.0%
- Traditional Cap Rate: 5.3%
- Airbnb Cap Rate: 11.3%
- Airbnb Occupancy Rate: 54.6%
Located just a few minutes away from Center City, in South City, East Passyunk is mostly known for its abundant shopping and dining opportunities. This makes the neighborhood an excellent choice for Airbnb Philadelphia real estate investments as the CoC return and cap rate show.
3. East Poplar
- Median Property Price: $365,000
- Traditional Rental Income: $1,750
- Airbnb Rental Income: $2,580
- Traditional CoC Return: 3.5%
- Airbnb CoC Return: 7.2%
- Traditional Cap Rate: 6.7%
- Airbnb Cap Rate: 10.6%
- Airbnb Occupancy Rate: 51.7%
East Poplar is another top neighborhood for investing in Philadelphia real estate. It offers about city-average property prices. The best rental strategy here is Airbnb.
In your search for a new income property at the beginning of 2017, you should definitely take a look at Philadelphia and its top neighborhoods. Don’t forget to check out Mashvisor for figures on actual Philadelphia investment properties.