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Kansas City vs Philadelphia: Rental Investing Stats
Last updated: February 5, 2025
Rental Market Stats
| City comparison | Kansas City, MO | Philadelphia |
|---|---|---|
| Median home price | $232,000 | $218,500 |
| Median home price growth (10-Yr) | 96.61% | 68.73% |
| Single family market rent | $1,550 | $1,850 |
| Single family market rent growth (10-Yr) | 29.17% | 28.47% |
| Rent yield | 8.02% | 10.16% |
| Population | 510,704 | 1,550,542 |
| Population growth (10-Yr) | 7.43% | -1.38% |
| Unemployment rate | 3.3% | 4.4% |
| Property tax rate | 1.52% | 1.3998% |
| Public school rating (out of 10) | 3 | 3 |
| Median household income | $67,449 | $60,302 |
| Income to rent | 3.63 | 2.72 |
| Median household income growth (10-Yr) | 48.64% | 46.33% |
| Poverty rate (%) | 14.60% | 20.30% |
| Civilian labor force | 68.70% | 63.40% |
| High school grad or higher | 92.50% | 88.00% |
| Bachelors degree or higher | 40.30% | 35.70% |
| Median age | 36.5 | 3560.00% |
| Foreign born | 9.1% | 15.1% |
| Housing units | 250,082 | 760,242 |
| Housing units per capita | 0.49 | 0.49 |
| Occupancy | 91% | 91% |
| Renter occupancy | 44% | 48% |
| Housing unit turnover | 13.2% | 14.4% |
| Insurance Premium | $1,740 | $1,639 |
| DSCR at 80% LTV (7.49% interest rate) | 0.89 | 1.15 |
Data compiled from the following sources:
- U.S. Census Bureau
- U.S. Bureau of Labor Statistics
- Zillow
- Neighborhood Scout
- PropStream
Rental Market Fundamentals
The analysis of the Kansas City and Philadelphia rental markets reveals distinct strengths and challenges for investors focused on 1-4 unit residential properties, particularly when considering financing strategies such as DSCR loans, the protection provided by landlord insurance, and the opportunity to source off market properties.
At a glance, Kansas City and Philadelphia present similar median home prices—Kansas City at approximately $232,000 and Philadelphia slightly lower at $218,500—but diverge significantly in other key metrics. Kansas City has experienced nearly 97% median home price growth over the past decade compared to Philadelphia’s roughly 69%, signaling a robust appreciation trend. However, Philadelphia’s rental market offers a higher rent yield of 10.16% versus Kansas City’s 8.02%, and although single-family rental growth rates are nearly identical (around 29%), the higher yield in Philadelphia may be attractive for investors seeking stronger income relative to property value.
DSCR Loan Financing
One critical aspect of financing these investments is the DSCR loan. DSCR (Debt Service Coverage Ratio) loans require a DSCR of at least 1.0 to qualify, but a ratio of 1.1 or higher is preferred to ensure a monthly cash flow buffer. Here, the differences become pronounced:
In Kansas City, the DSCR stands at 0.89 under an 80% LTV scenario with a 7.49% interest rate, falling short of the minimum threshold. This means that, without improvements in operating income or a reduction in expenses, properties in this market may not support the debt load under DSCR financing without additional measures or concessions.
Philadelphia, by contrast, has a DSCR of 1.15, which exceeds the minimum and preferred thresholds of 1.0 and 1.1 respectively. This higher ratio suggests that Philadelphia properties are more likely to generate sufficient income to comfortably cover debt service, potentially allowing investors to secure the desired LTV on DSCR loans.
Managing Risk with Landlord Insurance
Regardless of whether your rental property is owned free and clear or financed, landlord insurance is essential to your asset protection and risk management strategy. It safeguards against property damage, provides liability protection, and ensures that rental income is protected in case of unexpected events, all of which are vital for maintaining a strong financial position—especially when leveraging DSCR loans in your investment portfolio.
Landlord insurance is a specialized type of property insurance designed specifically for rental property owners. Unlike standard homeowners insurance—which is tailored for owner-occupied residences—landlord insurance provides coverage that addresses the unique risks associated with renting out a property. Here’s a breakdown of what it typically covers and why it’s important:
- Property Coverage: This component covers physical damage to the building caused by covered perils such as fire, storm damage, vandalism, or other unexpected events. Since the property is an investment asset, ensuring its structural integrity is paramount.
- Liability Coverage: Landlord insurance generally includes liability protection that covers legal expenses and medical costs if a tenant or visitor is injured on the property. This protection is crucial for safeguarding the investor’s personal assets in the event of lawsuits.
- Loss of Rental Income: Also known as “loss of rent” coverage, this feature helps compensate the landlord for lost rental income if the property becomes uninhabitable due to a covered loss (like a fire). This can be particularly important for maintaining cash flow, especially when using financing strategies such as DSCR loans.
- Additional Coverages: Some policies might also offer optional coverages, such as protection for furnishings (if the property is rented furnished), legal expenses, or even equipment breakdown coverage, depending on the insurer and the specific needs of the landlord.
Given that DSCR lenders mandate landlord insurance as part of the loan underwriting process, ensuring that the investment property is properly insured is non-negotiable. Both markets show comparable insurance premiums—with Kansas City around $1,740 and Philadelphia at about $1,639—which play a critical role in mitigating risks related to property damage, liability, and rental income loss. Landlord insurance, therefore, is not just a regulatory requirement but also an essential risk management tool that helps maintain the investment’s stability and appeal to lenders.
Sourcing Off Market Properties
Another key component to a successful investment strategy in either market is sourcing off market properties. Off market deals can provide significant advantages, such as less competition and the possibility of acquiring properties below market value. Investors have several avenues to locate these opportunities:
Investment property marketplaces focused on off market deal flow such as OfferMarket and data and marketing platforms such as PropStream can offer extensive property data and analysis, allowing investors to identify potential deals that are not publicly listed. Direct marketing to property owners can uncover incredibly profitable investment opportunities but they require a significant investment in marketing spend, networking, information systems, and ongoing, consistent outreach and follow-ups.
Networking with wholesalers, real estate agents, and title company representatives can also yield valuable leads on off market properties.
In Kansas City, where population growth is positive (7.43% over the past decade) and median household income is higher at approximately $67,449 compared to Philadelphia’s $60,302, off market sourcing could unearth hidden gems that, with some operational improvements, might be repositioned to meet or exceed the necessary DSCR threshold. In Philadelphia, despite a slight decline in population over the last ten years, the market benefits from higher rental yields and a DSCR that already satisfies lender requirements. Here, off market sourcing can provide the edge in a competitive market, allowing investors to capture properties with strong income potential and favorable financing conditions.
Conclusion: A Winner for Long-Term Investors
Ultimately, both markets require a holistic approach to investment. In Kansas City, while the growth in home prices and favorable economic fundamentals (such as lower unemployment and higher educational attainment) are promising, investors need to be mindful of the current DSCR shortfall and may need to implement strategies to boost rental income or lower operating expenses. Philadelphia, with its robust DSCR and attractive rent yields, offers a potentially smoother path to leveraging DSCR loans for an 80% LTV financing structure, provided that investors can secure properties—ideally off market—to capitalize on these benefits.
By integrating smart financing through DSCR loans (ensuring a DSCR of at least 1.1 for a safe cash flow buffer), maintaining the required landlord insurance to protect the asset and satisfy lender conditions, and actively sourcing off market properties using modern digital platforms and strategic networking, investors can position themselves to build a resilient rental portfolio in either market. Each element—from financing to risk management to property acquisition—is interconnected, and excelling in these areas is key to navigating the dynamic landscape of residential property investing.
For long-term investors, Philadelphia emerges as the winner primarily because:
- Its rental income dynamics and higher DSCR ensure that properties are cash flow positive right from the start—a crucial factor when using DSCR loans.
- The higher rent yield not only supports the debt service but also creates a buffer for any unforeseen expenses or market downturns.
- Off market sourcing strategies in Philadelphia can uncover properties that further bolster these financing advantages, allowing investors to secure assets that meet both immediate and long-term performance goals.
While Kansas City’s strong historical price appreciation and solid economic fundamentals make it an attractive market for capital gains, the immediate financing and cash flow benefits—crucial for a long-term strategy reliant on DSCR loans and risk mitigation through landlord insurance—tip the scales in favor of Philadelphia for investors looking to build a resilient, income-generating rental portfolio.
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