December 01, 2019 at 1:28pm | Krislyn Wilkie
If you are aspiring to become a successful real estate investor in 2020, now’s the time to decide on the location of your first rental property. How about Philadelphia?The Philadelphia housing market has been one of the best places to invest in real estate – for both traditional rentals and Airbnb rental properties – so it’s worth considering it. If you are new to the exciting world of real estate investing and have no idea where to start, let’s have a look at the Philadelphia real estate market trends 2020. This article will give you a good idea of whether you should explore the options of buying an investment property in Philly or look somewhere else.

What’s Affecting the Philadelphia Housing Market in 2020?

Before diving into a detailed Philadelphia real estate market analysis for 2020, it’s important to understand the factors which shape it up.

Large and Growing Population

The demographic factors are some of the most significant determinants of the state and perspectives for any US housing market. With a population of more than 1.58 million people, Philly is the 6th most populous US real estate market, after New York, Los Angeles, Chicago, Houston, and Phoenix. Moreover, the population is growing at a rate exceeding the natural average due to the strong economy and the expanding labor market. Regarding the makeup of this demographic, Philadelphia is home to the 3rdlargest student population on the East Coast, which means that the majority of the population is comprised of young people, recent graduates, and young professionals with positive employment opportunities.
Any real estate investor – new or experienced – knows that these factors combine to produce a very positive Philadelphia real estate market outlook for 2020 and beyond. The high population growth will drive demand for long term rentals.

Diverse and Expanding Economy

The state of the local economy is another major indicator for any housing market predictions for the next 5 years or so. Once again, everything is looking good for Philly in this regard. Philadelphia’s economy is well diversified with some of the most important sectors being education, research, biotechnology, financial services, telecommunications, manufacturing, oil refining, and tourism. From the perspective of real estate investors, this economic diversification means that even if one industry goes down, employees will quickly be absorbed in other sectors, minimizing any negative effect on the Philadelphia real estate market in 2020 and beyond. Moreover, all the above-listed economic sectors pay wages above the average national level, which means that the residents of Philly will make for reliable, good tenants of traditional rental properties.

Numerous Domestic and Foreign Tourists

Being one of the most important historical sites across the entire US, Philadelphia attracts over 45 million visitors per year. This number includes both leisure tourists and business travelers, coming from the US and abroad. This places the Philadelphia housing market as one of the most visited in all of the US and makes it one of the top locations for an Airbnb rental business. This large number of annual tourists guarantees a high Philadelphia Airbnb occupancy rate, which is one of the prerequisites for a good return on investment for short term rental properties.

How’s Philadelphia Doing for Real Estate Investing in 2019?

Now we know that all necessary factors are in place to drive positive Philadelphia real estate market predictions for 2020. But how is this area doing at the moment? Is Philly one of the  best places to invest in real estate in 2019? Let’s take a look at the current conditions prevailing in the Philadelphia, Pennsylvania housing market before we see where it’s expected to go in 2020.

The numbers below are based on reliable rental comps as well as detailed real estate market analysis performed by Mashvisor’s investment property calculator:

Philadelphia Real Estate Market 2019 Figures
  • Median Property Price: $321,200
  • Real Estate Listings: 2,650
  • Days on Market: 87
  • Price to Rent Ratio: 19
  • Traditional Rental Income: $1,440
  • Traditional Cap Rate: 2.5%
  • Airbnb Rental Income: $2,200
  • Airbnb Occupancy Rate: 52.4%
  • Airbnb Cap Rate: 4.1%
The most important trends which emerge from this Philadelphia real estate market analysis 2019 are the affordable prices of Philadelphia homes for sale, the moderate price to rent ratio, the good Airbnb occupancy rate, and the high rate of return for both traditional Philadelphia rental properties and Airbnb Philadelphia investment properties.
Will these positive trends continue in 2020? Let’s figure it out!

What Are the Major Philadelphia Real Estate Market Trends in 2020?

1. Affordable Real Estate Prices

Beginner real estate investors are usually constrained by a limited budget, which forces them to look for affordable real estate markets. Lucky for them, Philadelphia houses for sale will be relatively cheap in 2020, compared to real estate prices in other top locations for property investments. Although the median property price in the capital of Pennsylvania exceeds the national level (as estimated by Zillow) by 40%, it is still well below home values in other hot real estate markets such as New York, Boston, San Diego, San Francisco, and others. This trend is expected to continue into 2020 and beyond.

Philadelphia Real Estate Market Trends 2020: Best Neighborhoods for Affordable Listing PriceMashvisor’s Heatmap Analysis: Most Affordable Neighborhoods in the Philadelphia Real Estate Market 2020Above you can find Mashvisor’s  heatmap analysis of the best neighborhoods in Philadelphia based on property listing prices. The most affordable areas are colored in red.

2. Above Average Real Estate Appreciation

Natural appreciation in the Philadelphia real estate market has been well above the national level in the past two decades or so as well as above the Pennsylvania real estate market average. Indeed, Philly real estate appreciation reached 147% since 2000, according to data from NeighborhoodScout. Experts on the local housing market expect this trend to continue due to the strong population growth. However, property prices will not grow at a rate that could cause an affordability crisis or a housing bubble in Philadelphia, which might be one of the predictions for the overall US housing market in 2020.

3. Transition into a Buyer’s Market

The Philadelphia real estate market started 2019 as a strong seller’s market. However, the forces driving this market are pushing for a shift towards a buyer’s market. All in all, Philly is predicted to be a buyer’s market in 2020. This is great news for all real estate investors considering buying a rental property there, whether to rent out on long term or short term basis. It means that property buyers will have a large inventory to choose from, will not face much competition from other investors and homebuyers, will benefit from reasonable prices, and will not have to engage in bidding wars. This is particularly important for new real estate investors who still don’t have enough experience in buying investment properties in hot markets.

4. Large Inventory of Townhouses for Sale

Unlike the vast majority of the best real estate markets for investing in the US, the Philadelphia housing market 2020 will be dominated by townhouses, not single family homes. Currently, townhouses for sale in Philadelphia constitute nearly two thirds of all real estate listings there, and this trend is expected to continue in 2020. Actually, this is really good news for any real estate investor looking at this market due to the fact that this property type offers the highest return on investment for both traditional Philadelphia investment properties and Airbnb Philadelphia rentals. According to Mashvisor’s rental property calculator, the traditional cap rate for townhouses is 2.7%, while the Airbnb cap rate is 4.3%, above the city average.

5. Strong Rental Demand for Both Strategies

One of the dominating Philadelphia real estate market trends in 2020 will be the strong demand for both traditional and Airbnb rentals. Demand for long term rental properties will be driven by the ever-increasing population and the fact that nearly half (49%) of Philly residents rent rather than own a home, based on data from NeighborhoodScout. The moderate price to rent ratio, calculated by Mashvisor’s real estate investment tool, is also supporting this prediction as it means that the majority of people will prefer to remain renters rather than to become homeowners.

Meanwhile, Philadelphia Airbnb rentals will also benefit from high Airbnb occupancy rate due to demand. The number of tourists visiting Philly is expected to increase further in 2020, leading to positive real estate market predictions for those interested in buying a vacation home.

6. Legal Airbnb Rentals

Since we mentioned Airbnb Philadelphia properties, we have to consider the legal and regulatory framework for short term rentals in the local housing market. Many top US tourist destinations such as New York, Chicago, and Los Angeles have imposed draconic measures on vacation rentals, effectively prohibiting non-owner occupied Airbnb rental properties. This is not the case in the Philadelphia housing market although non-owner occupied short term rentals there face more requirements in terms of permits and licenses than owner-occupied ones. Nevertheless, the fact that Airbnb is expected to remain fully legal in Philly is one of the major Philadelphia real estate market 2020 predictions.

7. High Return on Investment

Investors buy rental properties – whether traditional and Airbnb ones – in order to make money in real estate. Will buying a property in the Philadelphia housing market be a profitable real estate investment strategy in 2020?
The predictions of Mashvisor’s investment property calculator say definitely YES. Indeed, continuing the current Philadelphia real estate market trends, cap rate and cash on cash return are expected to be one of the best nationwide on the city level. While experienced investors might consider a good cap rate to be above 8%, they should take into consideration that the numbers above are just city-wide averages, while individual Philadelphia homes for sale available on Mashvisor’s platform generate a much higher return on investment.

Where Should You Invest in Rental Properties in Philly in 2020?

Now that we know what the Philadelphia real estate market predictions 2020 look like, and everything seems positive there, we’d like to further help beginner real estate investors start a successful rental business in 2020. Knowing that buying a Philadelphia investment property could bring good profitability is not enough. Knowing where exactly to buy this property is just as important. Thus, we’ve run some neighborhood analysis on Mashvisor’s real estate investment tools to highlight the top neighborhoods in Philadelphia for investing in rental properties.

Best Philadelphia Neighborhoods for Long Term Rentals

1. Eastwick
  • Median Property Price: $157,500
  • Average Monthly Traditional Rental Income: $1,360
  • Average Traditional Cap Rate: 8.3%
2.  Fairhill
  • Median Property Price: $69,600
  • Average Monthly Traditional Rental Income: $1,010
  • Average Cap Rate: 6.6%
3. Mill Creek
  • Median Property Price: $98,500
  • Average Monthly Traditional Rental Income: $1,060
  • Average Cap Rate: 6.6%

Best Philadelphia Neighborhoods for Short Term 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%
2.  Dunlap
  • Median Property Price: $138,900
  • Average Monthly Airbnb Rental Income: $2,410
  • Average Airbnb Cap Rate: 14.9%
  • Average Airbnb Occupancy Rate: 54.2%
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%
Our Philadelphia real estate market trends 2020, based on a review of experts’ predictions and our own real estate data and real estate analysis, point out to the potential for very profitable real estate investments in Philly in 2020. Both traditional Philadelphia rental properties and Airbnb Philadelphia investments can generate high return in terms of cap rate and cash on cash return. Moreover, you already know which neighborhoods to focus your property search on.

Post Originally by: DANIELA ANDREEVSKA for mashadvisor.com
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