In the thick of the coronavirus pandemic last February, home sales in the Philadelphia real estate market fell by 43% from
the previous year. New listings also went down by 29% from 2019, as well as other challenges that many other cities across the country faced. So, one would be forgiven for thinking Philadelphia had it really rough.
Not really though. The Philadelphia real estate market was one of the stars of 2020, despite the pandemic. The city’s housing market had some quick recovery, even faster than many other markets in 2020. Rental demand didn’t suffer as much as people expected. For example, according to RENTCafe, rental applications in Philadelphia increased by 8%, largely contributed by the number of renters that moved in from other places (4%). This is just one of the real estate trends that we noticed for Philadelphia.
And while the signs are promising, one question remains on every investor’s lips: What does 2021 hold for Philadelphia real estate investment? Will housing prices go down? Will housing inventory increase during the year?
That’s what this article will be talking about in detail.
But first, let’s take a look at Philly as an investment destination before delving into what it’s like to put your money in Philadelphia rental properties for sale.
Overview of the Philadelphia Real Estate Market 2021
Philadelphia is the sixth-most populous city in the U.S., with over 1.5 million people who call the city home. The Philadelphia population is largely dominated by professionals. According to NeighborhoodScout, 12% of these work in Support jobs. About 9% work in Sales, while 8% work in management-related roles.
Philadelphia has a strong economy that has a serious connection with the Food, Education, and Healthcare industries. Throw in its rich historical landmarks and locations and you also have not only a popular migration destination but also a great tourist attraction for many Americans.
For real estate investors, the versatility of the Philadelphia real estate market makes it a worthy destination. It attracts different demographics, including students from different parts of the country. Evidence is in the number of colleges and universities in the city, such as the University of Pennsylvania, Indiana University of Pennsylvania, Temple, Vilanova, and so on.
Read More: How to Find High Cash on Cash Return Philadelphia Real Estate for Sale
Philadelphia Housing Market Trends 2021
Generally, the Philadelphia real estate market trends speak that this is a good place to invest money right now. But we know that the pandemic has changed many things and while cities are mostly recovering, it’s happening at different paces, depending on the market and other economic factors.
Based on Mashvisor’s real estate data for the Philadelphia housing market, these are the average numbers for investments city-wide:
- Average Property Price: $405,639
- Price per Square Foot: $267
- Traditional Rental Income: $1,545
- Traditional Cash on Cash Return: 3.1%
- Airbnb Rental Income: $2,268
- Airbnb Cash on Cash Return: 3.2%
- Airbnb Daily Rate: $126
- Airbnb Occupancy Rate: 57%
However, while property prices in Philadelphia may be a bit higher than the national average of $281,370 according to Zillow, you can always find good financing options. You can check out the best real estate investment loans in 2021 in the US housing market.
Alternatively, you can take a look at current Philadelphia foreclosures and see the ones that fit into your budget. Generally, foreclosures make for profitable – yet affordable – investment options, especially for beginner real estate investors.
While preparing our Philly forecast, here are some of the real estate market trends we’ve noticed so far in 2021 to make your decision a lot easier:
More Multifamily Permits Are Getting Issued
While 2020 was a challenging year for many, the Philadelphia housing market managed to see 58% more residential permits than the previous year. Meanwhile, multifamily permits have been getting issued at an even faster pace recently. They’re at their highest figures since 2016.
Read More: Why Investing in Multifamily Homes Is a Must in 2021
This is great news for real estate investors interested in buying rental property as it means an increase in houses for sale in Philadelphia, PA to match the rental demand.
Philadelphia’s Rental Market Remains Active
The traditional rental market in Philadelphia is an investor’s dream. According to NeighborhoodScout, 48.6% of the population are renting homes rather than buying them. For context, about 46% of housing units on the Philadelphia real estate market are available for rent, which is higher than the national average.
The Philadelphia market for rental properties is active for a couple of reasons, including the abundance of schools that are in the city, since it is a large city. Students from surrounding universities and colleges make up a large percentage of the renting population. As a result, there are always young people looking for houses for rent in Philadelphia. And for real estate investors, this demographic can be a factor in deciding whether to invest in a location and what property type to go for.
Read More: 8 Reasons to Invest in College Town Properties
Coronavirus and Remote Work Is Inspiring More Relocations From New York
As the coronavirus cases began to rise in 2020, more companies adopted remote work, allowing their employees to work from home. Some organizations are even hiring from outside the state as a result. For New Yorkers in this situation, this was the perfect opportunity to move out of the city. People can save huge amounts of money – including rent – by relocating to Philadelphia. According to Mashvisor’s data, the average rent in Philadelphia is $1,545, compared to the $2,666 average in New York, or 42% lower.
Moreover, this NYC-Philadelphia migration didn’t just start today. It’s only got heated during the pandemic. The movement is currently 35% higher than it’s been since 2014, according to Ave. And Philadelphia real estate investors are reaping the rewards.
Philadelphia Will Keep Being a Seller’s Market
Everything happening in the Philadelphia real estate market points to it remaining a hot seller’s market in 2021. The gap between housing supply and demand is huge and will lead to a favorable price appreciation for investors. For instance, the average price of single-family homes in Greater Philadelphia is up 14.5% from last year, peaking at $315,000, which makes Philly rental properties one of the best real estate investments in 2021.
Generally, home sales are moving faster than they did last winter. As a real estate investor, you may want to take advantage of Philadelphia’s low interest rates, stiff supply, and increasing buyer demand, all of which will keep the market hot for the rest of the year.
Philadelphia Is Lifting COVID-19 Restrictions
More people are now getting vaccinated, and, as a result, more people will be confident to go to tourist attractions like Philadelphia. Also, the state of Pennsylvania has recently announced it will be relaxing safety measures related to COVID-19, for both businesses and public spaces. Meanwhile, cities within the state like Philadelphia can lift the protocols whenever they want to.
As a real estate investor, this means you can aggressively start looking at Philadelphia rental properties to rent out on a daily basis in time for when summer starts. The idea is that there will be a spike in Airbnb business as more people will be looking to visit Philadelphia’s tourist attractions, and more vacation rentals will be needed to cater to the arrivals.
Want to estimate the earning potential of an Airbnb property in Philadelphia? Use our Airbnb calculator.
Best Neighborhoods for Traditional Rentals in Philadelphia in 2021
Now that you know why you should be thinking about investing in Philadelphia houses to rent out traditionally or on Airbnb, let’s take a look at the top areas for real estate investing in the local market.
According to Mashvisor’s Philadelphia real estate data analysis, which is based on the performance of actual rental comps in the area, here are some of the best locations for traditional Philadelphia investment properties this year:
Harrowgate
- Median Property Price: $127,963
- Price per Square Foot: $109
- Price to Rent Ratio: 10
- Monthly Traditional Rental Income: $1,040
- Traditional Cash on Cash Return: 6.88%
Upper Kensington
- Median Property Price: $98,643
- Price per Square Foot: $102
- Price to Rent Ratio: 11
- Monthly Traditional Rental Income: $770
- Traditional Cash on Cash Return: 5.82%
West Passyunk
- Median Property Price: $265,048
- Price per Square Foot: $214
- Price to Rent Ratio: 15
- Monthly Traditional Rental Income: $1,488
- Traditional Cash on Cash Return: 4.88%
Point Breeze
- Median Property Price: $388,007
- Price per Square Foot: $252
- Price to Rent Ratio: 19
- Monthly Traditional Rental Income: $1,748
- Traditional Cash on Cash Return: 3.52%
West Oak Lane
- Median Property Price: $197,109
- Price per Square Foot: $157
- Price to Rent Ratio: 14
- Monthly Traditional Rental Income: $1,160
- Traditional Cash on Cash Return: 3.06%
Best Philadelphia Neighborhoods for Airbnb Rentals in 2021
If you’re looking to invest in short-term rentals like Airbnb in the Philadelphia real estate market, we’ve also done our Philadelphia real estate market analysis and taken a broad look at Airbnb cap rates by city and current rental comps to curate the most profitable neighborhoods for Airbnb investment:
Cobbs Creek
- Median Property Price: $191,216
- Price per Square Foot: $140
- Monthly Airbnb Rental Income: $2,847
- Airbnb Cash on Cash Return: 8.18%
- Airbnb Daily Rate: $105
- Airbnb Occupancy Rate: 50%
Grays Ferry
- Median Property Price: $261,659
- Price per Square Foot: $190
- Monthly Airbnb Rental Income: $2,329
- Airbnb Cash on Cash Return: 5.07%
- Airbnb Daily Rate: $142
- Airbnb Occupancy Rate: 54%
Harrowgate
- Median Property Price: $261,659
- Price per Square Foot: $190
- Monthly Airbnb Rental Income: $2,329
- Airbnb Cash on Cash Return: 5.07%
- Airbnb Daily Rate: $142
- Airbnb Occupancy Rate: 54%
Upper Kensington
- Median Property Price: $127,963
- Price per Square Foot: $109
- Monthly Airbnb Rental Income: $1,210
- Airbnb Cash on Cash Return: 5.05%
- Airbnb Daily Rate: $64
- Airbnb Occupancy Rate: 63%
Lower Moyamensing
- Median Property Price: $250,466
- Price per Square Foot: $236
- Monthly Airbnb Rental Income: $1,995
- Airbnb Cash on Cash Return: 4.13%
- Airbnb Daily Rate: $146
- Airbnb Occupancy Rate: 51%
At the end of the day, Airbnb rental properties are the most profitable investments in the Philadelphia housing market. And while the Airbnb occupancy rate in 2021 still generally dangles around the 50% average, it’s expected to go even higher as more COVID-19 protocols are relaxed. So, as a real estate investor, you’ll be getting more value for money investing in short-term rentals overall.
Read More: How to Find Profitable Investment Properties for Sale in 4 Steps
Is Airbnb Legal in Philadelphia, PA?
Speaking of vacation rentals like Airbnb, the Philadelphia housing market is one of the most favorable places to invest money. The city realizes the importance of short-term rentals to tourists, as well as a means for homeowners to earn more income. However, there are rules and regulations around being a host in the city.
As an Airbnb host, you can rent out your property for a maximum of 30 days at once, and 180 days total during the year. However, you are not allowed to put lodging signages outside your rental property. You are also required to pay an 8.5% tax on all profits made on the property.
Importantly, legislation in the Philadelphia real estate market allows non-resident landlords to rent out properties on Airbnb. All you have to do is apply for a visitor accommodations variance. Paperwork is also required for renting out certain kinds of properties like multifamily houses for Airbnb Philadelphia.
Start Investing in Philadelphia Income Properties
Now that you know what to expect in the Philly market for an investment property in 2021, what’s ‘next? The simple answer is: Finding real estate investment tools to help you get the most profitable homes for sale in Philadelphia in the best locations within the city. This is what you get when you use Mashvisor to do your analysis for both traditional rentals and Airbnb rentals. You can read this Mashvisor review to understand how we help you make lucrative investment decisions with a few clicks of a button.
To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.