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One of the biggest draws to investing in real estate is to create passive cash flow by renting out the property. BiggerPockets recently looked at all of the real estate markets in the United States to find out where you have the strongest potential for cash flow and Philadelphia landed in the top 10.
The Data
The study used a metric called rent-to-price ratio (RTP) to estimate cash flow potential. The higher the RTP, the stronger the potential is for cash flow. You get that number by dividing the median monthly rent by the median sales price in an area.
BiggerPockets pulled U.S. Census data to get these numbers. What they found is that RTP has been declining since 2012, which means cash flow is harder to find.
The data showed that RTP dropped significantly in 2008 during the recession and then steadily increased until 2012. That’s likely because home prices dropped dramatically, but rent prices didn’t fall as much and the demand for rentals remained strong.
Since 2012, home values started growing faster than rent, which caused the RTP to decrease and making cash flow tough to find again. However, there are certain markets where it is easier to find than others.
Out of the Top 15 Most Populous Cities in the U.S., Philly is the Only One that Made the List
Philadelphia is the only Northeast city that made the list of the top ten markets for cash flow in 2022. Not only is it the 6th most populous city in the entire country, it’s the only one of the top 15 most populous cities in the country to make the list. That means it’s a rare opportunity for cash flow in a large city!
The other cities that made the list are mostly in the Midwest or the Southeast. There are no cities further West than Louisiana that made the list.
In 2022, Philadelphia’s median home price is $233,983, which is up 8% from 2021. The median rent is $1,795, which is up 8.79% from the previous year. That makes the rent-to-price ratio in Philly 0.77%.
The other cities that made the list (in order from 1 to 10) are:
Detroit, MI
Shreveport, LA
Cleveland, OH
Orland Park, IL
Macon, GA
Akron, OH
Memphis, TN
Indianapolis, IN
Philadelphia, PA
Milwaukee, WI
The following data is from the BiggerPockets study:
Conclusion
If you are looking for a real estate investment opportunity with cash flow potential in a large Northeastern city, Philadelphia is the place to look. You can find affordable homes for sale and there is high rental demand. We have a team of real estate professionals who would be happy to help you with your home search and tell you more about income opportunities through real estate. Reach out to us today if you’re interested in starting the conversation.