by Rachel Mercik

Created on: January 09, 2009

In this downtrodden housing market, Philadelphia offers good investment opportunities for those willing to weather the storm. While values and sales have faltered on the upper end of the housing spectrum in posh Center City and suburban neighborhoods, sales and values of homes in many overlooked areas on the lower end of the spectrum are increasing signififcantly.

As a rule, cycles of gentrification play a major role in home values throughout the city. Some neighborhoods have been solidly upscale for many decades. These neighborhoods include Center City and Chestnut Hill. Most desirable Philadelphia neighborhoods were generally less than desirable and even dangerous a decade ago. They were hit by a wave of gentrification in the 1990s. Old City, University City, Fitler Square, Art Museum, Fairmount, Powelton Village and Manayunk are examples of this. Home values in these neighborhoods soared many hundreds of a percent in the 1990s up until the current housing slump. While values here may have sank slightly in the current market, they were profitable for the long term investor.

Investment 101 states "buy low, sell high". The goal is to have the value of your investment explode exponentially for maximum return. It is generally too late to buy into these highly valued neighborhoods because they are past their prime with regards to value explosion. The buyer is paying a premium price for a top notch neighborhood. The next place to look would be just outside of these areas. These areas such as Graduate Hospital, Devil's Pocket, Mount Airy, East Falls, Queen Village/Society Hill, Bella Vista, Roxborough, Fishtown and West Powelton among others. Second-wave gentrification has already reached these neighborhoods, so for investment potential, it would behoove the savvy buyer to look to the "fringe" areas just beyond.

Fringe areas, or third wave growth, are those next to second wave growth. Median home prices in these areas are still somewhat affordable, from $150-200K. These areas include Mantua, Point Breeze, Grays Ferry, East Mount Airy, Germantown and East South Philly. To get the best value, buy as close to higher valued areas as possible. For example, Rittenhouse Square and Graduate Hospital might be out of your price range, but home values drop by half just by crossing Washington Avenue. You may buy a house several blocks south of Washington to take advantage of the growth wave creeping outward from Center City. It is possible to own of house that is a mile from Rittenhouse

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