A Philadelphia Short-Term Rental Guide: This Guide Compares Owning a Traditional Rental Vs. Owning a Philadelphia Short-Term Rental, Like an Airbnb.
What is more profitable? Owning an AirBnB Short-Term Rental or a Traditional Rental?
The question, we answer in this article is which is the better investment option for real estate investors between owning a traditional rental property and Airbnb? Which is more profitable? In this article, we have done all the necessary research you’ll need to help you make the best investment decision for your needs. We’ve been able to analyze the three most essential factors to consider when making this decision: Time, Location, and Profit.
Also Read What licenses do I need to own a rental property in Philadelphia?
Location
Location is one of the factors to be considered when trying to choose between AirBnB® and the traditional rental property method. The location of the property (distance from the city and other attractions) has a huge effect on how much you can charge.
There are cities and states that prohibit short-term rentals like AirBnB®, so you need to check out the position of your state laws before considering AirBnB®. (Check out our article on the state laws that permit AirBnB®). If your property is located in a place that is not appropriate for AirBnB® like a suburb that is far from popular tourist attractions or if short-term renting is prohibited by your state, you might want to reconsider using AirBnB®.
However, if your property happens to be in a great location for AirBnB®, then you can go ahead and crunch the numbers to determine how profitable it will be.
PROFIT
Once you’re able to ascertain that the location of your property is desirable for AirBnB® and you’re sure that AirBnB® is permitted by your state and city laws, the next step is to crunch the numbers to determine how profitable AirBnB® will be for you. Calculating AirBnB® profit is not as straightforward as you might think which is why we’re here to provide you with the necessary guidance.
The first step is to analyze your property size and the number of guests it can accommodate in other to know the amount of profit to expect. Secondly, determine the number of nights you’ll need to fill every month to attain the amount that’ll bring you adequate gain from long-term renting.
Thirdly, you should consider the number of nights you can realistically fill in a month. And finally, determine how much profit to expect after deducting the cost of cleaning and tax.
The number of rooms contained in your property and the number of guests it can take, are some of the factors you need to consider to determine the amount of money to charge your guests per night; more rooms, equals more money. For example, the average revenue for a one-room AirBnB® in Philadelphia for April was $2, 405.
If you have two available bedrooms, then you’re looking at $2,941. The average revenue in April for 3-4 guests was $2,112 which becomes $,933 with 5-6 guests.
After determining the amount of money to expect based on your property size, the next step is to determine the number of occupied nights you would need, to make bigger profits with AirBnB® as compared to traditional renting. To this end, we decided to pick three major locations within Philadelphia to demonstrate this theory.
Waterfront/OldCity
Estimated rent: $1,675 monthly
Nightly cost of AirBnB®: $145 per night
Number of nights per month required to meet the price of traditional renting: 12 nights
Rittenhouse Square Area
Estimated rent: $2,350 monthly
Nightly cost of AirBnB®: $85-$95 per night
Number of nights per month required to meet the price of traditional renting: 25 nights
Fishtown
Estimated rent: $1,175 monthly
Nightly cost of AirBnB®: $105 per night
The number of nights per month required to meet the price of traditional renting: is 12 nights Airdna® reported that Philadelphia’s AirBnB® Median Occupancy Rate is 48%. The implication of this is that the average AirBnB® in Philadelphia is occupied almost half the time when available for rent.
You should also note that you’ll need at least one day to clean your property after renting it out. And more rentals equals more cleaning days. You can check out the occupancy rate for the area where your property is located by looking at similar AirBnBs® around.
Note that, your monthly total will be affected by taxes and cleaning fees. You can spend up to $80 monthly to clean a property. You’ll have to pay 8.5% as hotel tax each time you rent your property in Philadelphia. Applying this to the Fishtown example, if you’re able to rent out your property for 13 nights in a month, it will amount to $1,365 in rent.
This amount is a bit lower than what you would have gotten if you had gone with the traditional renting method. Then deduct $80 for cleaning services and 8.5 as tax. After deducting the monthly cleaning fee and hotel tax, your new total will be $1,169. After making those deductions, the new total shows that you’ll be making less than what is obtainable from traditional renting.
Also, your property must be furnished if you want to use it for AirBnb®. Those guests who only want to stay a few nights will expect to have access to basic amenities when they arrive. You’ll spend between $1,000 and $3,000 (could be more) on furnishing and keeping the property fresh. This can cause a huge financial cost even before you start renting.
It is not advisable to rent through AirBnB® if you know you won’t be able to rent out the property for the number of nights you need to equal the amount you would ordinarily make with traditional renting, or if your per night rate would not be high enough.
Time Expended
After determining that you can actually make more money monthly from AirBnB®, the next step is to decide if it is actually worth your time. Renting AirBnB® can be quite time-consuming. You’ll have to spend time communicating with guests, running smooth checkouts and check-ins, and most importantly, making sure the rooms, bathrooms, kitchens, couches, etc. are clean at all times.
Your property must be furnished. Apart from the money spent, you’ll also have to spend time ensuring that your property has the appeal required to attract guests. However, traditional renting is not as stressful because after getting your tenant, you don’t have to worry about finding a new one for a couple of months, at least.
With AirBnB®, you have to start looking for new guests as soon as one departs to enjoy maximum profit. If you don’t have the time to dedicate to running an AirBnB®, then you might need to avoid it and stick to traditional renting.
Best Time to Use AIRBNB®
You can make a lot of money from AirBnB® by renting out one room in your home. You can even rent out the entire house whenever you’re not occupying it!
Renting out your house eliminates most of those factors you need to consider. Even if you decide to rent out only a room for a weekend every month, it is still money added to your income. AirBnB® is the best renting option for people planning to rent their homes.
The Equation
After you have analyzed all the factors involved in renting a property through AirBnB®, you can go ahead to make your decision.
Let’s explain it with a little mathematical equation. Location+ Profit+ Time = AirBnB®.
If your location is desirable, profit is the next thing to consider. There are a few factors to put into consideration with regard to profit, they include; property size, the number of people it can contain, and the number of nights it can be filled.
If after all the analysis you feel you’ll make more profit than if you went with the traditional renting method, the next step is to analyze the time expendable. If you think you have the time to dedicate to making your AirBnB® profitable, then it is probably the way to go.
However, if you’re missing any variable from the above equation, my advice is for you to stick to the traditional method of renting. We hope this article provides you with all the information you need to make the best real estate decision!
