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Takeaways:
- Investors are working in blue-collar towns on the train line between Washington, D.C., and New York City.
- Single-family flips in Philadelphia were up in the first quarter, even compared to Las Vegas.
- The biggest challenge to investors is finding worthy properties in a limited-inventory market.
Philadelphia is no Las Vegas, 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, a shareholder at Foundation Title, which has 14 offices throughout Pennsylvania and New Jersey.
D’Agostino said teardowns are common as neighborhoods gentrify. “Some up-and-coming neighborhoods you have some impressive condos (being built).”
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Reality TV crews might not be swarming the city yet, but exclusive data from RealtyTrac shows investor worker bees are clearly busy in this blue-collar town situated on the train line about one-third of the way from New York to Washington, D.C.
In the first quarter of 2015, 820 single-family homes and condos were flipped in Philadelphia, an increase of 25 percent from a year ago. By comparison, there were 891 flips — defined as any property sold for the second time within a 12-month period — in Las Vegas in the first quarter, down 7 percent from a year ago.
[Tweet “In 1Q, 820 single-family homes and condos were flipped in Philly, up 25% from a year ago.”]
How profitable are flips in Philly?
Have investors, want 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.
[Tweet “I have a list of investors. Finding the properties is the problem,” said agent Bob MacHarrie.”]
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,” MacHarrie said.
Investors are pushing those boundaries out as far as Cherry Hill, New Jersey, which is located just across the Delaware River from Philadelphia, according to Gary DeGree Sr.
DeGree is the owner of 1st DEGREE Realty, which covers Camden County (where Cherry Hill is located) along with Mercer, Burlington, Gloucester and Salem counties in New Jersey.
“What I’m seeing personally is more investor sales than anything else. Buy-and-flips, and things like that because they’re getting these properties from the banks at a discount and fixing them up,” DeGree said.
DeGree said he has been involved in real estate for about 30 years and owned his company for about two years. “The all-cash investors, they are going to make out with the better deals.”
All-cash buyers purchased 5,220 single-family homes and condos representing 41 percent of all sales in the Philadelphia metro area during the first quarter.
That 41 percent share was up from a 33 percent share of all sales in the previous quarter and incidentally was also above the 40 percent share of cash sales in Las Vegas during the first quarter.
Home sales and foreclosure trends in Philadelphia.
Philly investor case study
The Chatham Bay Group is one of the investors flooding the Philadelphia housing market with capital, according to Patrick Duffy.
Duffy is the founder and CEO of the privately held real estate investment, development and management company located in Wilmington, Delaware — about 30 miles south of the city of Philadelphia.
“Over the past three years we have invested over $50 million into the single-family rental space,” Duffy wrote in an email. He also said the company invests in multiple asset classes across the Middle Atlantic and Northeast regions of the country.
“We love the SFR space because of the asymmetric return profile — lots of opportunity to earn superior risk-adjusted without incurring much in the way of risk,” Duffy said.
According to Duffy, one of the biggest challenges for Chatham is finding good inventory to buy given the competitive market with a shortage of inventory that meets the company’s investing criteria in Philadelphia and other markets.
“The most challenging part for us is the sheer amount of time and work it takes to assemble a decent-sized portfolio of single-family homes in mature markets like the Mid-Atlantic that didn’t suffer the massive downturn that California, Nevada, Arizona and Florida experienced,” he wrote.
“To illustrate, we convert on only 8.6 percent of the houses we analyze. So if our goal is to acquire $200M worth of houses, that means we need to analyze $2.3B, or about 12,250 houses, in order to achieve our goal,” Duffy wrote.
[Tweet “We only convert 8.6 percent of the houses we analyze, wrote investor Patrick Duffy. “]
Despite the challenge of finding inventory, Duffy said the opportunity in the single-family rental market remains strong.
“I think the most important trend remains a seemingly insatiable demand for well-located houses, which are professionally managed,” he said.
More on Chatham’s investing strategy in Philadelphia and other markets.
Daren Blomquist is the vice president of RealtyTrac.