As everyone knows West Philadelphia is one of the most competitive markets in the city. With investors having only hours to make decisions when properties come out, going over ask, and selling generally under 30 DOM. Over the last 5 years, the average home price has increased from 90-190k. Specifically, in the last 1 1/2 years, I've seen the purchase prices for flip/rental properties rise from 85-110k to 110-135k while in conjunction, ARV values have also increased in that same timeframe from 200-220k to 220-250k (obviously depending on the block).
Given the data and the rapid increase in appreciation on top of now houses are starting to steadily sell around the 250 mark, I think we'll see a 275k house around the 57th-55th block within the next 1 1/2 years. What are everyone's thoughts??
Following. Have been shocked by such increases especially in SW Philly in the last 6 months alone.
@Dan Powers This is interesting. What factors do you think are driving this?
I think there are multiple factors driving the appreciation of the area. First, just the price point and inventory that the area offers compared to any other area of Philly. Given the price point (110-135k), it's a unique market in Philly because you have multiple exit strategies. It makes sense for flips because you can still find deals in that 72-75% of ARV range and make 40-60k all said and done. For rentals, you can find properties that need a simple cosmetic job that'll refi for 190-200k and bring in 1200-1300 in rent.
On top of that is inventory, obviously, inventory is scarce everywhere, on average my team and I will clear just under 60 properties a month, and the largest majority of that comes from west + southwest. There's really no other pocket around Philly, where you can find such a large inventory of deals still at a good percentage. You can also consider the proximity to University City and the money pushing westward out of that.
That makes a lot of sense @Dan Powers . Seems like this area will get saturated if it hasn't already. What would be the area that you'd consider to be the next path of progress?
@Franky Aikens I would say right now you're seeing West Philly blow up in front of our eyes, and I believe it will continue to appreciate for another year - 1 1/2 years before leveling out. I definitely think we'll see a 275k house within that timeframe, but 300k is a hard border to push past. Due to all this appreciation, the runoff from this is in southwest Philly and north of route 3 but south of Arch St. You see the prices of cobbs creek from a year ago before the spike (85-110k) are identical to what you are seeing now in those pockets.
Now I will say it all depends on what you're looking to get into, the blocks surrounding American Ave. in between Olde Kensington and Norris Square are some of the hottest in the city for new builds, full guts, and addition plays as people are flocking there due to the runoff from Nolibs and Fishtown.
@Dan Powers Thanks for the info. Really helpful for a newbie like me. I am currently looking in west Philly for a buy and hold (BRRRR preferred). What is your take on the rents in the area? Are the rents keeping pace with the housing price increases?
@Charles H. Rents in west philly typically range between 11-1300 depending on the specific block and the condition of course. They have been on a slow increase over the last year or so, but at the rate of which houses are selling for right now it could outpase rent at this rate. If homes start selling at the 275k mark in 1 1/2 yrs like I said earlier then we might start to see prices outpacing rents, but right now its a fantastic market to get into.
@Dan Powers you mentioned that its a fantastic market to get into, this makes sense to me in terms of selling and flipping. But for your buy and hold investor it seems that the numbers don't pencil out anymore. Even if the west Phili market stagnates in a bit more than a year as you mentioned, it will take a while for rents to catch up to where they need to be for buy and hold.
I'm curious where rents go to with the inflation that we're seeing.
@Eddie Shumulinskiy thanks for the added info. Where do you see the best value in Philly for a buy and hold?
@Charles H. , I was looking in Phili last year, not anymore though. So I'm not as familiar anymore. But I would take a harder look into strawberry mansion. There are parts that are getting better for REI, and if you're willing to work a little harder and hold a little longer there could be great opportunity for buy and hold there. You can even get %1 there. Especially as other areas like W. Phili start to peak it might be a good bet. But again, I haven't been focusing there so @Dan Powers would have a much better idea.
@Charles H. @Eddie Shumulinskiy I agree that North Philly is likely the best area for rentals right now, especially with price increases throughout West Philly. Strawberry Mansion and even Allegheny West provide low cost inventory with solid market and section 8 rent rates in relation to the ARVs. That being said, I still see certain pockets of West Philly as solid for rentals with the available prices, especially for off market deals. Cobb's Creek and the northern areas of Kingsessing are seeing the majority of the value increases past U City. I see Mill Creek, Haddington, Carroll Park and Elmwood Park as likely the next best areas to start picking up rentals with the current prices though some deals in Cobb's Creek still do make sense as rentals depending on the block.
@Charles H. @Eddie Shumulinskiy The rental numbers for true Cobbs Creek are becoming tighter and tighter due to the rapidly increasing prices, thats very known. Right now I see the best buy/hold areas as Southwest Philly (Kingsessing, Elmwood Park), Haddington, Belmont, Allegheny West, and some other parts of North philly. Southwest has seen the most apprecation as runoff from the blowup of Cobbs is trickling down into that market. A year ago you would see prices around 55-70k, and today your seeing 80-110k for homes, exactly the same numbers Cobbs was at a year ago.
Section 8 rent is a very lucrative sector to get into with 19143 (west+southwest) + 19132 (strawberry) pulling the same numbers in group 1. At the end of the day it comes down to your comfortability, strawberry is a little rougher then southwest but inturn cheaper so better margins, again it's up to what your comfortable dealing with.