Is it worth it to buy and rent out properties in Philidelphia?

Question

Alexander Brian Frederick · Answer

Hey Jonathan, I think Philadelphia is an incredibly hot rental market that will suit you much better than New York. Annual property tax in philly is low and the price of the houses makes the decision easy. You can find great houses that need a little rehab and even rental ready properties for under 100k very easily. If you need any help finding deals, let me know and I can point you in the right direction.

Brendan Markle · Answer

Short answer, yes.  If the numbers aren't working out in NYC (and they clearly aren't)  then you need to find a market that makes sense-  and is close enough to travel to fairly consistently.  There are many areas of the city that are developing where you can find good deals, especially for cash flow.  I would recommend looking into diplexes and triplexes in areas that are in the path of progress- Port Richmond, parts of Kensington, Germantown, parts of West Philly etc.

I just bought a duplex in Kensington with great numbers that I feel very confident about.  yes, competition is increasing, but not to the point where you can't grab a good deal.  One more thing, I would highly recommend using a property manager since you are living in NYC.  Let me know if you have any questons, i'm an agent/investor in the city.

Jeremy Chaudet · Answer

Hi @Jonathan Yeung,

I think that it is important to buy where the numbers work. Philadelphia is not too far from NYC so you can easily drive down to Philly on the weekends if needed. Properties in Philly cash flow well and have a much cheaper entry-point.

Frank Chin · Answer

It might be worth your while to take a look at Philadelphia. We did, but some 20-30 years ago.

Since no one commented, figure I'll share my experience from years ago, and still holds true. The GRM, the ratio of rent to gross price back then is a fraction of NYC, and the crazy escalation in NYC recently more so. I understand Philadelphia has more industries now.

My wife attended the University of Pennsylvania, and still have many friends there, though we're now at retirement age. That gives us flexibility, when we take trips there to research, we got friends we stay with. For our first investment in NYC, we got a triplex for $150K, and rents from 2 units covered the mortgage. My wife's friend, a woman single at the time bought a duplex for around $40K, had $25K in savings and inheritance, and with the rent she collected, was able to live rent free, and had the smallest $15K loan paid off in 3 or 4 years. It was not a mortgage since she can't get mortgages that small, but a loan from a small local bank. Those were the days from 30 years ago. When that was paid off, she kept the duplex and bought a SFH, all before the age of 30.

We decided to do our investments in NYC and the crash of 1986-1993 helped a lot as it bought prices in NYC down to earth. I invested in foreclosures in NYC and Springfield Ma, where my sister manages my property. In Philadelphia, it was a bit far for me to self manage, although 2 to 3 hours driving is manageable for some people. We had very good W2 jobs back then, but both my wife and I know co-workers who actually live in Philadelphia and work in NYC precisely because the houses there are so reasonable. Back then, when the price of SFH in NYC was in the $175K range, my wife's co-worker invited us to visit their home they purchased there for under $50K, a mansion in need of some work, and this co-worker actually commutes to work in NYC. I had co-workers in the same category, in fact one fella commuted for over 20 years that way, and I learned of it at his retirement party.

From what I can tell you, many people's been there, done that, and you should check it out.

Chris Purcell · Answer

You’re over analyzing

Find your numbers that work - purchase price, rehab costs, appraised value when completed:

Then put offers in

Seems like you’re in that analysis paralysis stage and you will never move on anything

Max T. · Answer

All in at 150k and under is tough... You're going to be looking at the rougher neighborhoods. Although they do cash flow better. That has not been my strategy. I've been able to hit 12-20% returns on more expensive properties (175-250k) and get rents at the 1% to price ratio, but they are getting harder and harder to find.

Joseph Scorese · Answer

Hi @Jonathan Yeung

Welcome to BP!

Is Philadelphia a good market to buy in on a East Coast Perspective and based on  DC and NYS. Yes.

Being an out of state buyer though you still need to be on top of your real estate holdings and not be hands off with 'turn key companies or claims' you will get eaten alive. We have a strong real estate associations that are not for profit that assist in your education and power team building correctly.

Diversified Investors Group - Real Estate Investors Association

HAPCO - Philadelphia's Landlord Association

BIA - Building Industry Association

They are  not for profit real estate education organizations providing direct contacts and education on the market.

Build your team first, to identify what you can afford and then zone in on the team to support you.

Let me know if you have any questions.

Regards

Joe Scorese

Chris Martino · Answer

Hi @Vinod Badami, although the number of for sale signs all over the city does seem to be high. The SFH inventory in 2018 for April, May, and June have been ranging from 4,214-4,366 units between the 3 months. This is the lowest inventory of SFH that Philadelphia has seen in the past 10 years. I do believe this will eventually even out with all the additional inventory becoming available, but for now it seems like the buyers are still absorbing the new inventory.

Vinod Badami · Answer

@Chris Purcell - Hey Chris, so I do not know the Philly market well but I have looked at the MLS , Zillow and Realtor.com. I am trying to get comfortable with the level of risk but when I look at the websites mentioned above I see a ton of inventory with over 50% of them (and I did some basic analysis) sitting for over 180 days. Don't get me wrong I am not saying Philly is not a good investment....I am instead trying to better understand the Philly market and doing my due diligence.

Veronica Woods · Answer

I would highlight the comment above about self-managing. Philadelphia is "neighboring" but if you have another job, a 2-3 hours distance to monitor projects can be tough. You should start evaluating a local team (contractors, realtors, property managers, etc) along with the real estate. Yes, there are still many NY/NJ investors competing with the local players for deals now. Your costs can go left quickly without the right team though and kill your margins.

Is it worth it to buy and rent out properties in Philidelphia?

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