Philadelphia is a major city in the State of Pennsylvania as well as an education and economic hub of national and international importance.
Philly’s population of 1.58 million residents makes it the largest city in the state and the 6th largest in the entire US (after New York, Los Angeles, Chicago, Houston, and Phoenix). The city’s boundaries coincide with with Philadelphia County, the most populous county in Pennsylvania and the core of the 8th most populous metro statistical area nationwide with its population of over 6 million people. The city also functions as the cultural and economic center of the Delaware Valley, the 8th largest combined statistical area in all of the US, with a population of more than 7.2 million residents.
Philadelphia has a diverse economy which is an important factor for the performance and development of the real estate market. Philly is home to numerous educational institutions including Philadelphia University, Thomas Jefferson University, Chestnut Hill University, Peirce College, Community College of Philadelphia, and others. The city has the 3rd major student population on the East Coast, which makes it an educational and academic center in the region. Philadelphia also constitutes one of the most important health education and research hubs in the US. Economy-wide, financial services is the largest sector and employer. Other significant industries include biotechnology, telecommunications, manufacturing, oil refining, and tourism. This economic diversity attracts both commercial and residential real estate investments in the Philadelphia real estate market.
The average income per capita in Philly amounts to $22,542 and is below the national level of $28,555. The median annual household income, meanwhile, equals $37,460, which is significantly less than the nationwide median level of $53,482. This means that out of state real estate investors can easily compete with local homebuyers and investors due to the higher income of the former.
The rich history of Philadelphia attracts as many as 45 million visitors per year, including both domestic and foreign tourists. People visit Philly both for leisure and for business reasons because of its diverse and prospering economy. Some of the most important tourist attractions in the city comprise of the Liberty Bell, the Independence Hall (where the Declaration of Independence and the Constitution were signed), Peddler’s Village, Franklin Square, the Philadelphia Zoo, the Philadelphia Museum of Art, and others.
The vibrant tourism sector supported by the many historical attractions makes Airbnb Philadelphia one of the hottest short term rental businesses in the entire country.
With regards to real estate investments in traditional, long term rental properties, it is important to highlight that nearly half (49%) of the population rents rather than owns a home in the Philadelphia housing market. With over 742,000 renters, rental demand in the Philadelphia real estate market is strong. The demand for both long term and short term rental properties in Philadelphia is an encouraging factor for local and out of state real estate investors.
Philadelphia Real Estate Market 2019 Overview
- Median Property Price: $321,200
- Real Estate Appreciation: 147% since 2000 (significantly above the Pennsylvania real estate appreciation rate and the US average)
- Days on Market: 87
- Listings for Sale: 2,650
- Price to Rent Ratio: 19 (moderate)
- Buyer’s Market or Seller’s Market: A seller’s market
- Renters’ Percent of Population: 49%
The Philadelphia housing market continues to be one of the best places to invest in real estate in the US. In the PwC’s Emerging Trends in Real Estate: United States and Canada 2020 report, Philly is ranked as #25 among the 79 featured markets for overall real estate perspectives, which marks a major improvement from position #31 in the 2019 edition. The 2020 list is headed by Austin, Raleigh/Durham, Nashville, Charlotte, and Boston. According to the publication, real estate development and redevelopment opportunities in Philadelphia are strong, and so is investor demand.
One of the most important drivers of the Philadelphia real estate market in 2019 and 2020 is the above-average population growth. Philly is already the 6th most populous city in the entire US housing market, and the number of residents is increasing at a high rate as a result of the strong economy and the expanding labor market.
Like some other top locations for real estate investing in 2019 and 2020, such as the Dallas real estate market, the Atlanta real estate market, the Austin real estate market, the Chicago real estate market, the Orlando real estate market, and the Phoenix real estate market, Philadelphia is also undergoing a change. The Philadelphia housing market started 2019 as a hot seller’s market but has been shifting towards a buyer’s market. This transition is expected to be completed within a couple of months, so in 2020 conditions in Philly will favor property buyers over property sellers. This makes Philadelphia a perfect place for first-time real estate investors who do not have much experience in buying rental properties and who prefer to avoid bidding wars with homebuyers, other property investors, and flippers. With 2,650 houses for sale in Philadelphia, investors have plenty of options and opportunities to find a top-performing investment property which meets all their requirements and expectations.
Affordability is another important trend in the Philadelphia real estate market. Although the median price of Philadelphia real estate listings is about 39% above the national median home value of $231,000, it is significantly below the price level in many other best locations for residential real investment at the moment. The price of Philadelphia houses for sale is a fraction of the home values which investors encounter in the New York real estate market, the San Diego real estate market, the Boston real estate market, the Los Angeles real estate market, and the San Francisco real estate market.
Furthermore, in recent years the Philadelphia real estate market has enjoyed strong appreciation, which exceeds both the Pennsylvania and the national averages. Since the beginning of 2000, real estate appreciation in Philly has amounted to 147%, and this trend is expected to continue in 2020. However, the increase in Philadelphia property values will not be enough to cause fear of a housing bubble or crisis. Instead, it will be just enough to provide healthy long term return on investment for rental properties. Thus, the ideal real estate investing strategy in Philadelphia is buy and hold combined with renting traditionally or on Airbnb.
Best Property Types for Investing in the Philadelphia Residential Real Estate Market
- Single Family Homes for Sale in Philadelphia, PA: 415
- Median Property Price: $281,200
- Average Monthly Traditional Rental Income: $1,430
- Average Traditional Cap Rate: 2.1%
- Average Monthly Airbnb Rental Income: $2,170
- Average Airbnb Cap Rate: 4.1%
- Condos for Sale in Philadelphia, PA: 316
- Median Property Price: $482,800
- Average Monthly Traditional Rental Income: $1,700
- Average Traditional Cap Rate: 2.0%
- Average Monthly Airbnb Rental Income: $2,310
- Average Airbnb Cap Rate: 2.6%
- Townhouses for Sale in Philadelphia, PA: 1,653
- Median Property Price: $295,300
- Average Monthly Traditional Rental Income: $1,420
- Average Traditional Cap Rate: 2.7%
- Average Monthly Airbnb Rental Income: $2,180
- Average Airbnb Cap Rate: 4.3%
- Multi Family Homes for Sale in Philadelphia, PA: 272
- Median Property Price: $438,900
- Average Monthly Traditional Rental Income: $1,350
- Average Traditional Cap Rate: 2.2%
- Average Monthly Airbnb Rental Income: N/A
- Average Airbnb Cap Rate: N/A
- Foreclosed Homes for Sale in Philadelphia, PA: 107
- Median Property Price: $157,800
- Average Monthly Traditional Rental Income: $1,330
- Average Traditional Cap Rate: 5.9%
- Average Monthly Airbnb Rental Income: $2,010
- Average Airbnb Cap Rate: 8.7%
Townhouses are the prevailing property type in the Philadelphia real estate market as they make up 62% of all Philadelphia real estate listings. This sets Philly apart from other top locations for real estate investing which are usually dominated by single family homes. Single family homes for sale in Philadelphia constitute 16% of the total inventory, followed by condos with 12% and multi family homes with 10%.
Why Investing in Single Family Homes in Philadelphia
The listing price of single family homes for sale in Philadelphia is 14% below the city median level, while the traditional and Airbnb rental income for this property type is comparable to the city-wide average. Philadelphia real estate market analysis reveals that single family homes are the third most profitable property type for traditional rental properties after townhouses and multi family homes and the second most profitable for Philadelphia Airbnb rentals after townhouses. Real estate investors interested in long term rentals should consider the fact that single family homes attract young professionals and small families as renters, and these groups make for good tenants as they tend to pay rent on time, stay for relatively long periods, and cause only minimal tear and wear. Even though single family homes are not the most numerous in the Philadelphia housing market, there are still 415 of them, which means that various real estate investors can easily find a rental property which meets their expected rate of return and other search criteria.
Why Investing in Condos in Philadelphia
Buying one of the condos for sale in Philadelphia costs, on average, 47% more than investing in another property type, which makes them less affordable than other options. Meanwhile, the monthly rental income generated by condos rented out on both long term and short term basis exceeds those generated by other property types, but this is not enough to result in an above-average return on investment. Investing in condos in Philadelphia for sale is less profitable than investing in townhouses, single family homes, and multi family homes. With 316 condo real estate listings in the Philadelphia real estate market, investors have enough properties to choose from. However, before buying a condo to rent out, they should remember to check out the rules and regulations of the HOA. Many condo buildings limit or altogether prohibit the use of housing units as rental properties, especially as vacation rental homes.
Why Investing in Townhouses in Philadelphia
Townhouses for sale in Philadelphia emerge as the best property type to invest in. First of all, their price is about 10% less than the median value of other property types. The Airbnb and traditional rental income which they offer is about the same as the city-level average. As a result, townhouses provide the highest return on investment in the Philadelphia housing market in terms of both cap rate and cash on cash return. In addition, this is the most numerous type of real estate listings in Philly, so investors have over 1,650 townhouses to choose from.
Why Investing in Multi Family Homes in Philadelphia
Buying one of the multi family homes for sale in Philadelphia is another profitable and lucrative opportunity which investors should consider. One of the most important advantages of multi family rental properties is that they provide investors with an easy and affordable opportunity to diversify their real estate investment portfolio. Both for landlords of long term rentals and for Airbnb hosts, this means more efficient rental property management as all investment properties are placed within the same location. If, on the other hand, you are interested in passive rental income, hiring professional property management makes more sense with multi family homes investing. When rented out traditionally, Philly multi family homes offer very good return on investment. However, there is not enough Airbnb data to calculate their rate of return as Airbnb investment properties. There are a total of 272 multi family homes for sale in the Philadelphia housing market at the moment.
Why Investing in Foreclosures in Philadelphia
Real estate investors searching for cheap investment properties should consider buying a foreclosure. Foreclosed homes for sale in Philadelphia get listed for less than half (48%) of the price of other property types. Such a low sale price offers the opportunity to maximize return on investment immediately as the rental income of foreclosures is the same as MLS listings and off market properties for sale after some small fixes and repairs. Moreover, foreclosure homes are usually a good opportunity for forced appreciation as even minimal repairs can push up the home value significantly. Currently investors in the Philadelphia real estate market have over 100 foreclosed homes for sale to find the one that matches their search criteria and expected cap rate and cash on cash return.
Important Stats for Philadelphia Real Estate Investors
Safety in the Philadelphia Real Estate Market
- Crime Rate Index: 10 (100 is highest)
Philadelphia is safer than 10% of US cities, with a high overall crime rate of 40 crimes per 1,000 residents.
Access in the Philadelphia Real Estate Market
- Walk Score: 79
- Transit Score: 67
- Bike Score: 66
Philadelphia is the 5th most walkable large city nationwide. It has good public transportation and is somewhat bikeable. Overall, Philly is a very walkable city where most errands can be ran on foot.
Affordability in the Philadelphia Real Estate Market
- Cost of Living Index (Excluding Rent): 80
- Rent Index: 45
- Cost of Living Plus Rent Index: 63
The cost of living in Philadelphia index excluding rent is 20% cheaper than in New York City. Rent is 55% less expensive than in NYC. Overall, the average cost of living in Philadelphia, Pennsylvania index plus rent is 37% below the level in New York City.
Philadelphia Real Estate Tax Rates
- City of Philadelphia Real Estate Tax Rate: 1.3998%
- Allocated to the City: 0.6317%
- Allocated to Schools: 0.7681%
Property tax in the Philadelphia housing market is paid on the market value of the home. Pennsylvania property taxes range from 0.9% to 2.5%. The Philadelphia County and the City of Philadelphia real estate taxes coincide with an effective rate of 1.3998% of the current market value of the property.
Philadelphia Real Estate Market: Traditional Rentals
- Average Monthly Traditional Rental Income: $1,440
- Average Traditional Cap Rate: 2.5%
- Price to Rent Ratio: 19
- Renters’ Percent of Population: 49%
- Optimal Property Type: Townhouse or multi family home
- Optimal Number of Bedrooms: 3 and 4
- Traditional Rental Listings: 8,117
- 3 Best Neighborhoods in Philadelphia for Investing in Traditional Rental Properties: Eastwick, Fairhill, and Mill Creek
- 3 Worst Neighborhoods in Philadelphia for Traditional Rental Properties: Mount Airy East, Cedarbrook, and Grays Ferry
Buying a traditional rental property in the Philadelphia housing market is one of the best real estate investing strategies for beginners as well as experienced investors in 2019 and beyond. One of the most important features of Philadelphia investment properties is their relatively low prices, compared to other best places to invest in real estate. This means that financing a rental property in the Philadelphia real estate market is relatively easy and affordable, even with a mortgage.
According to our Philadelphia real estate market analysis, the city-wide capitalization rate for long term rental properties is 2.5%, which is much below the usually recommended good cap rate of 8-12%. However, investors should know that this is just the average value for the entire market, while the top neighborhoods in Philadelphia for investing in real estate offer a significantly higher cap rate for traditional rentals. Furthermore, rental property analysis of the Philadelphia real estate listings shows that many of them offer a double-digit return on investment.
Another factor which property investors in the Phoenix housing market should consider is the strong rental demand from tenants. Nearly half (49%) of all Philly residents choose to rent rather than buy a home, which means that there are over 774,000 tenants in the Philadelphia rental market for traditional investment properties. Moreover, this number is expected to grow in the coming years due to the positive population growth and preferences among millennials to rent rather than own a home. Demand is an important determinant of rate of return in real estate investing.
In addition to the proportion of renters vs. homeowners, the price to rent ratio is another chief indicator of rental demand. The moderate to high price to rent ratio in the Philadelphia real estate market indicates that it makes more financial sense for regular people to rent a property instead of buying their own home. At the same time though, the ratio is not high enough to prevent good return on investment from the point of view of investors.
Unlike in other most profitable locations for traditional rental properties, the majority of Philadelphia homes for sale are townhouses and not single family homes. In addition, they offer the highest return on investment with regards to both cash on cash return and cap rate. This is good news for those considering buying an investment property in Philly as townhouses are ideal for renting out on long term basis. They do not require excessive maintenance and, generally speaking, tend to attract good tenants such as young professionals and small families. This means easy rental property management and low expenses on fixes and repairs. The absolute best traditional rental property in the Philadelphia real estate market is a townhouse with 3 bedrooms or 4 bedrooms, according to analysis of the data.
Landlord-Tenant Law and Regulations in the Philadelphia Rental Market
The landlord-tenant relations in the Philadelphia real estate market are regulated by the Pennsylvania Tenant-Landlord Law. This is similar to other major cities in the state including the Pittsburgh real estate market, the Erie real estate market, and the Lancaster real estate market. In brief, Pennsylvania is a rather landlord-friendly state.
In terms of security deposits, Philadelphia real estate investors can charge tenants with a security deposit with a maximum amount equivalent to two monthly rents in the first year, while the upper limit in subsequent years becomes one monthly rent. Security deposits of more than $100 have to be kept in a federally or state regulated institution. The landlord has to return the deposit to the renter within 30 days of his/her vacating the property. A security deposit can be withheld in case of excessive wear and tear, unpaid rent, and/or breach of lease.
Meanwhile, a written rental agreement is required in the Pennsylvania housing market only for tenancies of 12 months of more. In case of a year-to-year lease, the landlord has to inform tenants of any changes to the lease at least 30 days in advance, while this period is decreased to 15 days for month-to-month leases and in the absence of a written rental agreement.
In the Philadelphia real estate market there are neither requirements nor limits on late fees or grace periods. Nonetheless, once the rent is 10 days late, the landlord can declare the tenant to be in default or accept the rent and the late fee.
While every real estate investor hopes to not have to deal with an eviction, it is good to know that the local regulations are in your favor in such a case. In the Philadelphia housing market evictions are regulated by the Landlord-Tenant Act of 1951 and are allowed in case of late rent, the renter’s refusing to move out after the end of the rental term, and breach of the provisions of the rental agreement. The first step in the eviction process is to hand an eviction notice to the tenant in person or post it on the rental property. If the tenant fails to meet the expectations set in the eviction notice, a Philadelphia landlord files a complaint with the relevant District Justice’s office.
If you want to consider investing in rental properties in other landlord friendly states, check out the return of long term investment properties in Texas, Indiana, Colorado, Georgia, Kentucky, and Alabama.
Best Philadelphia Neighborhoods for Investing in Traditional Rentals
- Median Property Price: $157,500
- Average Monthly Traditional Rental Income: $1,360
- Average Traditional Cap Rate: 8.3%
- Walk Score: 19
The Eastwick neighborhood is on top of the list of the best neighborhoods of Philadelphia for buying an investment property to rent out traditionally. One of the best features of this area which makes it so good for real estate investing, according to the Philadelphia real estate market analysis, is the low home values there, combined with decent rental income. This translates into above-average return on investment on a rental property. Moreover, Eastwick is an affordable location even for beginner property investors who can’t use rental income or equity from other rental properties to buy a new one. All in all, investing in rental properties in Eastwick will be one of the best ways to make money from real estate in 2020.
- Median Property Price: $69,600
- Average Monthly Traditional Rental Income: $1,010
- Average Traditional Cap Rate: 6.6%
- Walk Score: 89
The Fairhill neighborhood is #2 among the best Philly neighborhoods for owning a rental property based on the data in this Philadelphia real estate market report 2019. The area offers really cheap real estate investment properties, which is an important prerequisite for high return on investment. Moreover, the median property price of much below $100,000 allows investors to diversify their real estate investment portfolio by purchasing a few cheap properties instead of one expensive rental. Fairhill provides its residents with a mix of urban and suburban lifestyle and many nightlife opportunities. Philadelphia landlords should keep in mind that the majority of the population here rents, which means demand for traditional rental properties is high. Buying a rental property in Fairhill is a good real estate investment strategy in 2019, 2020, and beyond.
3. Mill Creek
- Median Property Price: $98,500
- Average Monthly Traditional Rental Income: $1,060
- Average Traditional Cap Rate: 6.6%
- Walk Score: 79
Neighborhood analysis shows that the Mill Creek neighborhood ranks as #3 among the best areas for buying Philadelphia houses for sale to rent out on long term basis. Once again, real estate prices in this neighborhood are affordable for just about any investor in the US housing market. One of the reasons which makes Mill Creek such a good location for investing in traditional rentals is the fact that a large proportion of the population chooses to rent rather than buy a home. The neighborhood offers a mix of urban and suburban features combined with high walkability which is an important factor for attracting renters. Owning a traditional rental property in Mill Creek is a profitable real estate investment at the moment.
4. Allegheny West
- Median Property Price: $139,300
- Average Monthly Traditional Rental Income: $1,210
- Average Traditional Cap Rate: 6.4%
- Walk Score: 77
Allegheny West is another one of the top Philadelphia neighborhoods for investing in real estate. While home values here are a bit higher than in the previous three areas, they are still significantly below the median Philadelphia real estate price. Analysis of the Philadelphia housing market highlights the good walkability of the area as well as the mix of parks, restaurants, and coffee shops which attracts many tenants. Most of the population rents rather than owns a home which is a positive signal for Philly landlords. The Allegheny West neighborhood is an ideal location for beginner investors due to the affordable prices and high traditional rental demand. Buying real estate in Allegheny West is an excellent way to make money in 2019 and beyond.
5. Strawberry Mansion
- Median Property Price: $93,700
- Average Monthly Traditional Rental Income: $990
- Average Traditional Cap Rate: 5.7%
- Walk Score: 82
Our Philadelphia real estate market 2019 report ranks Strawberry Mansion as the 5th best place to invest in real estate in Philly. Similar to the other top locations, home values here are low, so even a rental income of below $1,000 a month can result in a good cap rate. The Strawberry Mansion neighborhood is home to many families who rent rather than own. The above-average walkability is definitely one of the reasons why so many families decide to live here. From the perspective of real estate investors, buying traditional rental properties in Strawberry Mansion promises to allow them to make good money in real estate.
6. Germantown Morton
- Median Property Price: $167,100
- Average Monthly Traditional Rental Income: $1,330
- Average Traditional Cap Rate: 5.2%
- Walk Score: 83
Germantown Morton is the last on this list of the best Philadelphia neighborhoods for landlords. The combination of low property prices and good traditional rental income results in above-average rate of return in terms of both cap rate and cash on cash return. The Germantown Morton neighborhood offers its residents a mix of urban and suburban features including numerous parks, restaurants, and coffee shops. Buying an investment property in Germantown Morton to rent out on long term basis is a top real estate investing idea in 2019 and beyond.
Philadelphia Real Estate Market: Airbnb Rentals
- Average Monthly Airbnb Rental Income: $2,200
- Average Airbnb Cap Rate: 4.1%
- Average Airbnb Occupancy Rate: 52.4%
- Optimal Property Type: Townhouse or single family home
- Optimal Number of Bedrooms: 4 and 0
- Airbnb Rental Listings: 16,328
- 3 Best Neighborhoods in Philadelphia for for Airbnb Rental Properties: West Parkside, Dunlap, and Southwest Schuylkill
- 3 Worst Neighborhoods in Philadelphia for Airbnb Rental Properties: Wynnefield Heights, Glenwood, and Mount Airy West
- Philadelphia Airbnb Legal Status: Philadelphia short term rentals are legal, provided that the Airbnb host meets some requirements discussed in detail below. A Limited Lodging Home permit may or may not be required. While a rental license is not required, a Commercial Activity license is. An 8.5% City of Philadelphia Hotel Tax has to be paid.
- Annual Events in Philadelphia with the Highest Airbnb Occupancy Rate:
- Mummers Parade: 1 January
This annual event offers a unique way to celebrate New Year with a parade of charismatic Mummers dressed in colorful, extravagant clothes. The parade takes place along Broad Street and culminates at the Pennsylvania Convention Center.
- Chinese New Year Parade: January
This annual celebration includes a dragon parade, authentic Chinese food, and many other traditional festivities. It takes place in Philadelphia’s Chinatown.
- Philadelphia Auto Show: February
This major auto show features hundreds of vehicles and reveals the latest models and trends in the auto industry at the Pennsylvania Convention Center.
- Philadelphia Flower Show: March
Initiated in 1829, this is not only the most significant US flower show but also the US largest and longest-running horticultural event. The show features displays by some of the most renowned global floral and landscape designers.
- Subaru Cherry Blossom Festival: April
This annual week-long festival celebrates the beginning of spring in addition to Philadelphia’s connection to the art, music, food, and beauty of Japan.
- The South 9th Street Italian Market Festival: 18-19 May
Annually the nation’s oldest outdoor market celebrates the Italian Market Festival with numerous events including live music entertainment, arts, crafts, and others, accompanied by delicious food all along.
- Odunde Festival: June
Running over 44 years, this major festival celebrates the Yoruba New Year with 12 blocks of vendors along South Street including arts and crafts booths and African, Carrebean, and soul food.
- Wawa Welcome America: 30 June-4 July
This is one of the best ways to celebrate Independence Day in all of the US with a week-long list of family-friendly fun events, free concerts, wonderful fireworks, and a patriotic parade passing through America’s most historic sites.
- Festival 0: September
This annual festival features numerous opera performances at the globally famous Opera Philadelphia.
- Philadelphia Film Festival: October
Annually this world renowned festival features over 100 movies ranging from Oscar contenders to local breakthrough films.
- Philadelphia Marathon Race Weekend: November
This event of the American Association for Cancer Research (AACR) attracts over 30,000 participants who run along America’s Historic Mile.
- Philadelphia Thanksgiving Day Parade: Thanksgiving Day
For over 95 years, this annual parade features giant floats, balloons, and marching bands from all of the US along the Benjamin Franklin Parkway.
- SugarHouse New Year Eve’s Fireworks on the Waterfront: 31 December
Having two sets of fireworks – at 6 P.M. and midnight – over the Delaware River is an annual tradition in Philadelphia.
Airbnb Philadelphia is one of the top-performing short term rental businesses across the US. In 2019 Philly Airbnb hosts generated income of over $62 million. This major growth in Philadelphia vacation rentals has happened despite some restrictions which the city authorities introduced in 2015. However, unlike many other top tourist destinations across the US, Philadelphia short term rentals are still a possibility, even non-owner occupied ones, as long as some requirements are met.
Investing in an Airbnb rental property in the Philadelphia real estate market is one of the top real estate investment strategies in 2019 and beyond. This is due to the fact that Philly is one of the most visited US cities due to its status of an economic, business, cultural, and educational hub of national and international importance. Airbnb Philadelphia rentals offer a cap rate which exceeds what the majority of other best places to invest in real estate have to offer in 2019. If you are considering buying an investment property in the Philadelphia housing market to rent out on short term basis, you should keep in mind that townhouses and single family homes generate the highest return on investment with this rental strategy. The optimal number of bedrooms for short term rentals is 4 or 0 (a studio).
Philadelphia Airbnb Laws and Regulations
A wave of strict Airbnb laws and regulations – and even prohibitions – have been sweeping the US housing market in the past decade. The City of Philadelphia introduced some regulations to the local short term rental industry back in 2015. While they do not prevent this rental strategy, they impose some specific requirements and expectations for Philadelphia Airbnb hosts.
First of all, vacation rental homes in the Philadelphia real estate market are referred to as Limited Lodging. This includes the short term rental of a home or a room in a home and cannot exceed 30 days per visitor. There are a few different types of short term rentals with varying requirements depending on the length of the stay:
- Short Term Limited Lodging: If you rent out your home in the Philadelphia housing market on short term basis for no more than 90 days per calendar year, you don’t need a limited lodging permit.
- Limited Lodging Home: If you rent out your Philadelphia home for more than 90 but less than 180 days per calendar year, you will need to obtain a Limited Lodging Home permit from the City’s Department of Licenses and Inspections. This permit costs $125.
- Visitor Accommodations: If you want to operate an Airbnb Philadelphia rental property for more than 180 days per calendar year or the property is not your primary residence, you need to get a registration permit for a Visitor Accommodations use.
Owning and operating an Airbnb Philadelphia rental does not require a rental license. However, it requires a Commercial License, which can be obtained through the website of the City of Philadelphia or at Licenses and Inspections.
These are not the only requirements which the Philadelphia real estate market imposes on short term rental property owners. A legally operating Airbnb rental needs to have smoke alarms in each bedroom, in the hall area in the immediate vicinity of the bedrooms, and on each floor. In addition, carbon monoxide alarms have to be installed within 15’ of the entrance to each bedroom or within 15’ within a bed in sleeping areas with no enclosed bedroom. There are a few other requirements for Philadelphia vacation rental homes, which you can check out here.
Moreover, Philadelphia Airbnb hosts have to pay the City of Philadelphia Hotel Tax which amounts to 8.5% of the money they receive from Airbnb guests. The tax has to be paid on monthly basis.
Despite these requirements and regulations, the Philadelphia housing market remains one of the top locations for investing in real estate where Airbnb is still legal and feasible, even for non-owner occupied short term rentals. This sets Philadelphia apart from cities such as Airbnb New York, Airbnb Los Angeles, Airbnb Chicago,Airbnb San Francisco, Airbnb Las Vegas, and Airbnb Santa Monica, where investing in vacation homes has become almost illegal.
Best Philadelphia Neighborhoods for Investing in Airbnb Rentals
1. West Parkside
- Median Property Price: $139,100
- Average Monthly Airbnb Rental Income: $2,410
- Average Airbnb Cap Rate: 15.8%
- Average Airbnb Occupancy Rate: 48.7%
- Walk Score: 43
The West Parkside neighborhood is the most profitable location for investing in Airbnb rentals in the Philadelphia real estate market at the moment. One of the main reasons for this is the availability of various attractions such as parks, restaurants, coffee shops, and bars. This relatively small neighborhood offers real estate investors affordable home values and high Airbnb income which lead to very good cash on cash return and cap rate. Buying an Airbnb investment property in West Parkside is a profitable strategy in 2019, 2020, and beyond.
- Median Property Price: $138,900
- Average Monthly Airbnb Rental Income: $2,410
- Average Airbnb Cap Rate: 14.9%
- Average Airbnb Occupancy Rate: 54.2%
- Walk Score: 93
This Philadelphia real estate market report 2019 ranks the Dunlap neighborhood as #2 for buying an Airbnb property in Philly. The Airbnb occupancy rate here is high, which is one of the most important factors for good return on investment on short term rental properties. Dunlap enjoys particularly high walkability which attracts out of state Airbnb guests who did not bring their own car. Investing in Airbnb in Dunlap promises to bring high rate of return to Airbnb hosts in 2020.
3. Southwest Schuylkill
- Median Property Price: $203,000
- Average Monthly Airbnb Rental Income: $2,830
- Average Airbnb Cap Rate: 14.1%
- Average Airbnb Occupancy Rate: 57.8%
- Walk Score: 85
The Southwest Schuylkill neighborhood is the 3rd most profitable neighborhood in Philadelphia for buying a vacation home at the moment. While Philadelphia property values here are higher than in the other top neighborhoods for real estate investing, they are low enough to bring good cap rate when combined with the high Airbnb rental income. The area attracts Philadelphia Airbnb guests with high walkability and numerous parks, restaurants, bars, and coffee shops. The Airbnb occupancy rate is high, and so is the rate of return. Investing in short term rentals in Southwest Schuylkill is a money-making real estate strategy in 2019.
- Median Property Price: $224,400
- Average Monthly Airbnb Rental Income: $1,270
- Average Airbnb Cap Rate: 14.0%
- Average Airbnb Occupancy Rate: 49.3%
- Walk Score: 89
This Philadelphia real estate market report highlights Hartranft as the 4th most profitable location for investing in Airbnb rentals in the Philly housing market in 2019. Airbnb guests come to the Hartranft neighborhood for the mix of urban and suburban lifestyle and the numerous attractions. Buying a vacation home in Hartranft is a good real estate investment strategy for those looking for the best options to start an Airbnb business in 2020.
- Median Property Price: $95,500
- Average Monthly Airbnb Rental Income: $890
- Average Airbnb Cap Rate: 12.8%
- Average Airbnb Occupancy Rate: 53.8%
- Walk Score: 89
Elmwood is yet another of the Philadelphia neighborhoods worth the attention of Airbnb Philadelphia investors. Property prices here are particularly low with a median value below $100,000. The Airbnb occupancy rate in the Elmwood neighborhood is high which pushes up the Airbnb cash on cash return and the Airbnb cap rate. Investing in an Airbnb rental property in Elmwood can make lots of money to investors who conduct careful investment property analysis with the help of the best real estate investment tools.
- Median Property Price: $128,500
- Average Monthly Airbnb Rental Income: $1,010
- Average Airbnb Cap Rate: 12.7%
- Average Airbnb Occupancy Rate: 55.3%
- Walk Score: 88
Haddington is the last area on the best Philadelphia neighborhoods map for buying a real estate property to rent out on Airbnb or another homesharing platform. The high return on investment is the result of cheap Philadelphia homes for sale, good Airbnb income, and high Airbnb occupancy rate. The Haddington neighborhood is yet another location within the Philadelphia real estate market which offers excellent walkability to Philly Airbnb guests. Owning a vacation rental home in Haddington could be a very profitable real estate investing strategy in 2020 if investors conduct careful real estate market analysis and diligent rental property analysis before buying.
Investing in Philadelphia Real Estate Properties: Optimal Rental Strategy
Analysis in this Philadelphia real estate market report 2019 reveals that both rental strategies can lead to profitable real estate investments in Philly. The cap rate and the cash on cash return generated by both traditional Philadelphia investment properties and short term Philadelphia rental properties exceeds what the majority of other best places to invest in real estate in 2019 offer. The diverse economy, the positive population growth, the strong labor market, the affordable property prices, the high percentage of renters vs. homeowners, and the numerous tourists drive these positive and optimistic Philadelphia real estate trends.
Nevertheless, Philadelphia real estate data shows that short term rentals are the more profitable real estate investment strategy. Airbnb Philadelphia rentals bring a cap rate of 4.0%, compared to the 2.5% cap rate offered by long term rental properties. Indeed, this return on investment is significantly higher than what other most profitable Airbnb cities offer in 2019. This is not surprising taking into consideration the 45 million annual visitors which come to Philly, comprised of both leisure tourists and business travelers.
Moreover, the Philadelphia short term rentals industry has been supported by the stance of the local authorities. While many major cities in the US housing market chose to make Airbnb illegal, the City of Philadelphia decided to regulate Airbnb rentals for the benefit of its citizens without harming local Airbnb hosts. The City imposed certain rules and regulations, but Philadelphia vacation rentals remain legal for both owner-occupied and non-owner occupied short term rentals.
Those real estate investors who prefer traditional long term rentals should know that they can find very profitable opportunities in the Philadelphia housing market. Equipped with the must-have real estate investment tools to conduct real estate market analysis and investment property analysis, investors in the Philadelphia real estate market can locate and analyze top-performing traditional rental properties in a matter of minutes. Positive cash flow, good cap rate, good cash on cash return, and passive rental income are all feasible and achievable in Philly in 2019, 2020, and beyond.
Why You Should Invest in Real Estate in Philadelphia in 2019: The Pros
The most important reason why local and out of state real estate investors should consider buying a rental property in the Philadelphia housing market is the expected high return on investment. Nationwide real estate market analysis shows that Philly has one of the best rate of return in terms of both cap rate and cash on cash return regardless of the rental strategy: traditional or Airbnb. Finding positive cash flow properties with high return on investment is a must for making money in real estate in any market.
Another important feature of the Philadelphia real estate market which attracts both experienced and beginner real estate investors is the low property prices. Indeed, affordability sets Philly apart from other best places to invest in real estate in 2019 where property prices have been skyrocketing, driving out not only residents but also investors. From the point of view of investors, cheap real estate investment properties are, first of all, easier to finance, whether in cash or with a mortgage loan. Second, the risk of ending up in a foreclosure is smaller, and losing his/her rental to the bank or another financial institution is something which no property investor ever wants. Third, low sale price is a prerequisite for high rate of return as it is inversely proportional to how much money an investor will make from real estate.
Rental demand is high in Philadelphia for both traditional rental properties and Airbnb rentals. There are more than 774,000 renters in the Philadelphia housing market, where nearly half of the population prefers to rent a property rather than own a home. The main driver behind this trend is the medium to high price to rent ratio which tells people that renting makes more sense financially. This is excellent news for real estate investors and landlords, ready to cater to the needs of these potential tenants. Furthermore, with over 45 million visitors per year, attracted by the historical sites and other tourist destinations which Philly has to offer, demand for Airbnb Philadelphia is also high.
Speaking of Airbnb Philly, this remains one of the few major US cities where short term rental properties are legal in all neighborhoods, for all property types, and for both owner-occupied and non-owner occupied properties. Many of the most profitable locations for vacation rentals have experienced the imposition of restrictive and even prohibitive laws and regulations, pushing real estate investors out. For example, Airbnb Las Vegas rentals are not allowed for less than 30 days, while Airbnb Los Angeles is only legal for primary residences. This means that investors in favor of the short term rental strategy are looking for places where buying an investment property for the sole purpose of renting it out on Airbnb is legal and possible. Thus, the Philadelphia real estate market can expect an influx of such property buyers in the coming years.
In addition, the Philadelphia housing market forecast 2020 is looking all good and positive for the coming years. The ongoing transition from a seller’s market to a buyer’s market will make it even easier for local and out of state investors to buy rental properties in Philly. Big data and predictive analytics show that return on investment will remain above average in the Philadelphia real estate market due to high demand and reasonable home values. This means that real estate investors can proceed with confidence as long as they get access to the must-have tools for profitable investments.
Why You May Not Want to Invest in Real Estate in Philadelphia in 2019: The Cons
Investing in the Philadelphia real estate market 2020 offers many advantages and profitable opportunities. Nevertheless, there are a few factors which investors should consider before buying a rental property in Philly. Importantly, the crime rate in Philadelphia is really high compared to other major cities. This means that landlords and Philadelphia Airbnb hosts will need to budget for some additional one-time startup costs to install all necessary safety and security systems to keep their tenants and Philly Airbnb guests as well as property safe. However, the good traditional and Airbnb rental income will compensate investors for this initial expense.
Another trend which property buyers should keep in mind is that real estate appreciation might slow down in the Philadelphia housing market. Philadelphia real estate prices have increased at an above-average rate in the past few years. However, the expected shift from a seller’s market to a buyer’s market means that the growth in home values will be less in the coming year. This should not discourage buy and hold real estate investors as appreciation will continue happening, just at a lower pace. If you are interested in a quickly appreciating property, you can consider buying one of the many Philadelphia foreclosures for sale and working on some cost-efficient fixes and repairs. In this way you can make money in real estate from forced appreciation.
Philadelphia Real Estate Market Forecast 2020
Overall, the forecast Philadelphia real estate market trends 2020 are positive and pointing to a healthy, strong housing market full of profitable real estate investment opportunities. The strong performance of the Philadelphia housing market in 2020 will be driven by the increasing population, the expanding economy, and the growing tourism sector. Some of the most important trends which will attract real estate investors include affordable property prices, above-average natural appreciation rates, large inventory of townhouses for sale, legal Airbnb Philadelphia rentals, strong rental demand for both strategies, and high short term return on investment for rental properties. All these factors mean that Philadelphia real estate will remain one of the best places to invest in real estate in 2020 and beyond.
Additional Resources for Investors in the Philadelphia Rental Market
Best Philadelphia Investment Properties
As this Philadelphia real estate market report shows, investors can make a lot of money in real estate with Philadelphia rental properties. With the help of an investment property calculator, first-time investors can search through the 2,650 homes for sale in Philadelphia, PA and filter the ones that meet their criteria such as budget, neighborhood, property type, optimal rental strategy, cap rate, and cash on cash return in a matter of minutes. A heatmap tool will provide property investors with a color-coded map of Philadelphia neighborhoods to find out the best neighborhoods in Philadelphia to buy an investment as well as the worst neighborhoods in Philadelphia for residential real estate investments. A Property Finder will allow even beginner investors to land a top-performing investment property depending on their preferred rental strategy and other criteria.
Real Estate Agents in Philadelphia, PA
First-time real estate investors as well as those out of state, part-time ones, and those looking for passive real estate investing can hire one of the best Philadelphia real estate agents. An experienced Philadelphia real estate agent specializing in working with investors will not only help buyers find a good property but also negotiate the best price with property sellers and close the deal quickly and efficiently. Here are some of the top real estate agents in Philadelphia:
Philadelphia Real Estate Auctions
Real estate investors interested in investing in foreclosed homes in Philadelphia, PA can check out this calendar for auctions as well as other foreclosure related events in the Pennsylvania real estate market.
Property Management of Long Term Philadelphia Rental Properties
Investing in traditional rentals in the Philadelphia, Pennsylvania real estate market does not have to mean becoming a landlord and being in charge of all the daily responsibilities associated with this job. Real estate investors can hire a professional property manager to take care of all the duties of a landlord, while they enjoy their passive rental income.
Property Management of Short Term Philadelphia Rental Properties
If you want your Philadelphia vacation rentals to be passive real estate investments, you can choose one of the top property managers in the local market to handle all responsibilities related to owning and renting out an Airbnb Philadelphia property.
Our Top Blog Posts for Investors in the Philadelphia Real Estate Market
- Why You Should Be Investing in Philadelphia Real Estate
- Philadelphia Real Estate Market Trends 2020
- Should I Invest in Airbnb Philadelphia in 2020?
- Philadelphia Real Estate Market 2019: Why and Where to Invest
- Top Philadelphia Real Estate Market Trends for This Year
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