Hi, there! Joe White here from Grow Property Management, your trusted property management company in Philadelphia.
As someone who runs a property management company in Philadelphia, I’ve started noticing a pattern among a certain group of properties we manage – especially concentrated on a few specific blocks. I was recently doing a move-out inspection for a tenant and realized that we manage several properties on this one block alone. That kind of concentration is unusual for us since our portfolio is generally spread out across the entire city. But on certain blocks, there’s a trend. Many of these homes were originally purchased by single individuals, and after living in them for a few years, these owners move on to new homes but keep the old ones as rental properties.
It got me thinking – why is this dynamic so common in this specific pocket of the city? I don’t know the exact financial situation of each homeowner, but what stands out is that these people bought within their means. They weren’t stretching their budgets to buy the biggest house possible. Instead, they made smart, realistic choices, purchasing homes that they could truly afford. And because of that, when they’re ready to move into a new place, they’re often in a strong enough financial position to keep the first property and convert it into a rental rather than selling it.
What’s really interesting is that five-year mark. Many of these owners are turning their properties into rentals right around five years after purchasing. Why five years? Because that’s typically the point where enough equity has built up to make a real difference. Even in volatile markets, property values have a tendency to rise steadily over time in a linear fashion. Yes, market prices can fluctuate depending on demand or what someone is willing to pay at the time, but overall, real estate appreciates over the long term. So even if someone bought at the peak of the market and maybe even overpaid, by the time five years have passed, they’ve likely built up enough equity to make that investment worthwhile.
Equity isn’t just about having a valuable asset – it’s about creating options. When that equity builds up, not only can you convert the property into a rental and generate cash flow, but you may also be able to refinance or pull out a home equity line of credit (HELOC). A HELOC is a powerful tool for investors because it’s essentially borrowing against your own asset at a relatively low cost. That extra capital can then be used for other investments or improvements.
One of the other reasons this strategy works so well is due to inflation. While rising prices aren’t great when you’re at the grocery store, they’re actually beneficial if you owe money. Over time, the real value of your debt goes down while your property (and hopefully your income) increases in value. So as long as your rent is covering your mortgage and expenses, you’re in a good spot. And if you’re cash flowing on top of that, even better.
The strategy I’m describing isn’t exactly “house hacking,” but it shares some similarities. House hacking typically involves renting out part of your primary residence while you live there. What I’m talking about is more like a slow-build real estate investment approach – live in a home, let the equity grow over time, then turn it into a rental property when you move on to your next home. Rinse and repeat.
What’s great about this approach is that you’re always living in the properties you buy, so you’re buying decent homes – ones you’d want to live in. This isn’t a strategy built on acquiring distressed or borderline unlivable rentals just to build a big portfolio fast. It’s a patient method, and if you start young – say in your mid-20s – you could easily acquire several properties over the course of your career. And each time you move, you’re likely upgrading your living situation while holding on to a strong rental asset behind you.
I’m not saying this is the strategy for everyone or that it will make you rich overnight. But if you’re smart with your purchases, avoid overpaying, and manage your properties well, it’s a highly effective way to build long-term wealth through real estate. And these properties that started as homes? They tend to be better rentals too – nicer homes attract better tenants, and that leads to smoother management overall.
Anyway, that’s just something I’ve been thinking about lately. Just a regular day in the life of a Philadelphia property manager, reflecting on the trends I see in the field. I hope this gives you something to think about too if you’re considering getting into real estate investing.
Happy investing!
