Philadelphia Eviction Rate 15%

Hi, Kevin Moyer with The Rowe Report here, and we're going to talk today about the eviction rate in Philadelphia. I did a deep dive. As, as you know, I'm a Philadelphia property manager and attorney. I did a deep dive into my own data that I've been a part of in my experience with eviction rates in Philadelphia, and then citywide data, and everything confirms what I've experienced on ground. So let me cut right to the chase. In Philadelphia, For licensed rental properties, there's about a 15% chance that a tenant placed in a rental property will have an eviction filing before the end of their tenancy. A 15% chance. I came to that number when I ran our internal numbers from tenants that we have placed at Otter Property Management, the property management company that I'm affiliated with, and I was disappointed to see an 8% overall eviction rate. We weren't really proud of this number. It wasn't something that I use on sales calls or in marketing materials that 8% of tenants that we place ultimately get an eviction filing. Now, that doesn't mean they're locked out. Oftentimes, tenants recover after an eviction filing. They go on living happily ever after. But an eviction filing nonetheless typically means that something went wrong with this tenant or the placement. So I was not happy with 8%, but when I dug into the city data, it is in fact worse citywide in Philadelphia. So let's talk about how we got there. You can't escape this 15%. I'll talk about what that means at the end of the day. But residential eviction filings for 100 tenancies, you're going to see 15% with a filing at some point. Now you may see some numbers that say Philadelphia has a 4% eviction rate, but that's measuring something different. That means 4% of all households, of all rental households in a given year will be evicted. But I'm talking about the length of an entire tenancy. So if you are a property owner and you are placing a tenant to live in your property, you have to understand Understand there's a 15% chance on average, and we'll talk about the variables that change that. There's a 15% chance on average that tenant is going to require you to file in court to evict, and we'll talk about how you can mitigate that risk and how you can't fully mitigate it. So again, 8%, 15% are filed with Otter Property Management. We've drilled that number down to 8%, and it's, I think, because of our industry-leading screening, our experience, our internal data. Tricks of the trade that we have learned to properly match up qualified occupants with rental units in Philadelphia. Where does it come from? Well, you have 260,000 rental units based on a 5% vacancy. This is how many are occupied. And based on an average tenancy length of about 4 years, that means you're— about a quarter of your units are moving in every year. So 63,000 over the course of a year are moving in. And you have essentially 11,000 being evicted. So in a year you have 63,000 starts, 11,000 evictions. That gives you a rate of about 15%. Now it's— we can't nail it down specifically because there's some PHA units that don't require rental licenses that aren't showing up in this top number, but that are on the eviction side. So based on a deep dive with my LLM of choice, we were able to get a safe working range of 12% to 17%. with a 15% suggested estimate from AI. So we feel good about these numbers that they truly represent. I will say that it coincides with the general feel that I have. Our inherited tenants that we take on have about a 20% delinquency rate, significant delinquency rate. Now these are tenants that we did not place, but that we take on for owner clients in my property management company, and it's about 20%. So it kind of makes sense that 15% are facing eviction filing at some point. Here's some of the data on how we got there, as I mentioned at the bottom. And here's what So one of the takeaways that we need to discuss, occupied does not equal paid. So why does this matter? Why are we talking about this? Investors need good information to make good investment decisions. And some of the information that you need to accept and put in your pro forma is that just as you will put in your market rent and your vacancy rate, so right, sometimes people say an industry standard of 10% vacancy rate. So you're plugging your numbers to find a deal in Philadelphia, $1,500 a month in rent. Okay. 10% vacancy, you have to calculate the, the percent chances and expenses associated with eviction, with, with an eviction filing. So remember, it's not just non-occupancy that you're worried about, it's non-payment as well, and everything that comes with that, from the lost rent to the legal fees. You have to build these numbers into your pro forma in order to accurately assess investment opportunities in Philadelphia, and some owners aren't. And it's not a great recipe for long-term success. If you look on paper and you say, oh, here's a property, my mortgage is going to be $1,100, the rent is $1,300, I'm going to be able to clear $200 a month. It will not work like that over the long term if you're accurately assessing risk. Now, how can it? You can get lucky. So really, there are 3 ways to dodge this truth of the 15%. You'll find that none are truly escaping it. But first and foremost is Have a good property in a good location. That is the number one screening metric I can tell you is that it's location, location, location, and quality of your property. If you can give me an A-class condo in Rittenhouse Square, then I can lower that, I can lower that 15% dramatically. So just by the nature of giving a good asset that is really taken care of, you're going to expose yourself to a tenant pool that's far less likely to default, and you can drop that 15% down to 1%. In those areas. Now, by that same token, if you have some units are contributing, some units are dragging this average down, you have to accept that other units are dragging this average up as well. So if you have a property that's not well maintained, say in West Philadelphia and North Philadelphia, realistically, you have to accept that that property could be subject to a natural eviction rate of 30% or even 40% of tenants that you're gonna place in properties like that. and it's just natural by the quality of the asset in Philadelphia. Um, at a— with a market rate tenant, you're looking at significant delinquency rates in the 30 to 40%. So that's back to that pro forma I was talking about. $1,300 doesn't look as good if you have to build in a 35% chance that a tenant that you're going to place will be significantly delinquent and you will have to take on the expense accordingly. So a good property in a good place is another way to do it. Obviously screening helps. You need thorough screening. You need to check rental history thorough. You need to do national criminal and credit history search. Abide by the local laws of the Renter Access Act or get a property manager who will do that on your behalf to make sure that you are fully compliant there. But thorough screening is going to help you. And the last one is just get lucky. So if I'm talking to some people that are tuning in and listening to this and go, well, I've had 3 properties in West Philadelphia and I haven't had an eviction in 10 years. If the average tenancy rate is 4 years, you've gone through a couple cycles now, you've had a couple data points, but it's not nearly enough. And I do strongly think that over enough iterations, you will find that there is no screening that you can do, there's no firm handshake that you have that's unlocking this secret way to avoid the reality of delinquency that is inherent in Philadelphia and specifically in certain neighborhoods. So I say all of this to make sure that your numbers are tight, understand them, before you're investing in Philadelphia to make sure you truly understand what's going to make the numbers work before you inject capital into this city. And understand that you can't fully escape the 15%, but you can certainly work to mitigate it.