Philadelphia is no Las Vegas, highly publicized for its home-flipping activity, but when it comes to real estate investing, the City of Brotherly Love is giving Sin City a run for its money.
“The investor market has just been incredibly hot in Philadelphia,” said Vince D’Agostino, shareholder at Foundation Title, which has 14 offices throughout Pennsylvania and New Jersey. D’Agostino said teardowns are common as neighborhoods gentrify. “(In) some up-and-coming neighborhoods you have some impressive condos (being built).”
Reality TV crews may not be swarming the city yet, but exclusive data from RealtyTrac shows investor worker bees are clearly busy in this blue-collar area situated on the train line about onethird of the way from New York to Washington, D.C.
Second-quarter data from Realty-Trac showed 833 flipped properties (single family homes and condos) in the Philadelphia area, representing 5.4 percent of total sales. The average gross ROI was 53 percent, based on average purchase price of $143,479 and flipped |price of $220,160—for a $76,681 average gross profit.
MORE INVESTORS THAN PROPERTIES
“I have a list of investors. Finding the properties is the problem,” said Bob MacHarrie, a real estate agent with RE/MAX Access covering the core neighborhoods in the city of Philadelphia. MacHarrie said real estate investors are moving further out of the Center City neighborhood at the epicenter of Philadelphia and into adjacent neighborhoods that still have upside potential for flipping and other investment strategies. “For single-family homes, there is almost nothing in Center City, so they have to go into the secondary ones. And in reality they are really pushing those boundaries.”
Investors are pushing those boundaries out as far as Cherry Hill, N.J., located just across the Delaware River from Philadelphia, according to Gary DeGree Sr., owner of 1st DeGree Realty with Mercer, Burlington, Gloucester and Salem counties in New Jersey.
“What I’m seeing personally is more investor sales than anything else—buyand-flips and things like that— because they’re getting these properties from the banks at a discount and fixing them up,” said DeGree, who said he has been involved in real estate for about 30 years and owned his own company for about two years. “The all-cash investors, they are going to make out with the better deals.”
CASH BUYERS ON THE UPSWING
RealtyTrac data showed an uptick in cash buyers in the second quarter of the year in the Philadelphia metro area, which also includes Burlington, Camden, Gloucester and Salem counties in New Jersey. All-cash buyers purchased 5,740 single-family homes and condos, representing 36 percent of all sales in the metro area during the second quarter. The number was up from the previous quarter as well as the same quarter last year.
“For investors, the strengths of the Philadelphia market can be found in its apparent weaknesses: home prices there are less expensive than many other northeastern markets, giving investors a lower cost basis going in; the long tail of foreclosures from the last housing crisis gives investors more opportunity to find bargains; and the presence of many transitional neighborhoods with properties in poor shape provides more fodder for flippers to add value to homes through rehab and therefore reap bigger flipping profits,” said RealtyTrac Vice President Daren Blomquist.
D’Agostino said many of the cash buyers with whom his title company works are investors buying foreclosures at the sheriff ’s sale—which requires cash and comes without the safety net of title insurance.
“We know those investors directly because they will look to us to research those properties ahead of time,” he said, explaining that his company can run an extensive title search for the investor in this situation.
MacHarrie also identified cash buyers as an important and emerging trend in the Philadelphia market.
“On the competitive properties there are a lot of cash buyers,” he said, noting that not all the cash buyers are big investment companies or older buyers coming in with equity from a previous sale. “Some of those are young buyers.”
WHERE TO INVEST
MacHarrie, the Philadelphia real estate agent, said Point Breeze is one of the emerging neighborhoods adjacent to the core Center City neighborhood that investors are targeting because of the stronger upside potential.
While the Center City neighborhood— nestled between the Delaware and Schuylkill rivers on the east and west, and bordered on the north and south by Vine and South streets—is Philadelphia’s “most expensive and popular area,” according to MacHarrie, adjacent neighborhoods such as the Brewerytown neighborhood to the north of Vine Street and the Point Breeze and Graduate Hospital neighborhoods to the south of South street are more affordable and have more opportunities for investors.
According to Blomquist, “Areas that are best bets for investors are those adjacent to those markets that have already gentrified as well as those with convenient access to the train line to New York, as more people are willing to commute from Philadelphia to New York given that home prices and rents are so much more affordable in Philadelphia then New York.”