Buying a rental in Philadelphia for airbnb rental good idea?

5 Replies

Hello,

So from my research, i see that many airbnb operators in Philadelphia buy a nice townhome in a b class area and market them for airbnb.

The avrg income is 2200 per month or 29.5k per year plus other income.

Townhomes are around 300k to 350k.

I have 100k for this to work out.

Im assuming it's 20% down and 4% on a 350k will be

$70,000

$12,000 closing cost

$5,000 furniture and etc to get it ready

$5,000 reserves

Total $92,000

Am i missing something?

Ok, so the first thing we need to do here is to figure out how much revenue this makes as a long-term rental. If the property cash flows as a long-term rental then we can look at the short-term rental numbers. The short-term rental space is volatile when it comes to lawmaking so you have to be cautious on the buying side. What size townhome is this? $5000 seems a bit low for furnishing if you're looking to make top dollar on it as a short-term rental. Most townhomes come with HOA's so you might want to make sure STR's are even allowed in the bylaws as well.


Honestly, as a short-term rental from the numbers you posted, I wouldn't invest in this deal unless I'm making 6 figures a year as a short-term rental but this is strictly my opinion. 100K could get you up to 10+ short-term rentals bringing you about 240K/yr.  The above information is what you should look at if you're looking to hop into the short-term rental space.

@Mario Gonzalez Other problem above what @Myka Artis said is that I have a hard time believing you can find a nice townhouse for $300k in a B area in Philly. You also need to make sure there is enough of a draw to that neighborhood to get STR demand.

If you want to test your theory, you could try an arbitrage model in one of the neighborhoods you're looking to invest in. Go to a long term rental listing and offer them $100/month more than their advertised price if they let you sublet to STR's. BE UPFRONT ABOUT THIS! Nobody wants to deal with a shady character. Don't hide this from the owner. It benefits everyone if you position it correctly. Owner gets $100/month extra, and a tenant that is getting the place professionally cleaned multiple times a week, and you get less exposure to lawmakers deciding they don't want STR's (BTW, Philly just passed an ordinance requiring operators to pay extra taxes and get a permit, which requires a business license and so on).

Once you get a place leased, you can furnish it and start renting it out. If the rent is $1600/month and your furniture really does only cost $5,000, you are only on the hook for $24,200 if you get 0 renters for the whole year, which is unlikely. If it goes gangbusters, you go buy in that neighborhood. If it doesn't work out, you lick your wounds and move on to another neighborhood or strategy. 


@Rich O'Neill thank you for your comment, what typical price range would you assume it would cost to buy a townhome in a B class area?

i want to invest in a rental and recently saw a good list of a breakdown in class types in the Philly area.

Looking for an agent who is also an investor now to try to help me see if my goals are reallsitc. Trying to get either a town home for an Airbnb investment or a duplex. Have around 100k to use and aiming for 8% cocr.

have you seen good results in the Philly market for cash flow?

@Mario Gonzalez I'm echoing what @Rich O'Neill has said. The ones making a killing in the STR market in Philly are using the arbitrage model. Investors who use the STR model usually fine tune the properties for this specific use but cut the property up in a way that LTR is still an option if the short-term market is disrupted.

It may be worth also doing some field research to see how these guys are operating. Most are using automated processes which is an additional expense.

@Mario Gonzalez are you referring to @Jimmy O'Connor 's post? It is fantastic. Really well done. 

I would expect to pay closer to $400-500k for a turn key 3-4 bed property in my definition of a B area. I consider B areas Manayunk, Point Breeze (eastern part of the neighborhood), South Philly (East of Broad), and the like. They are not Center City, Olde City, or Fishtown, but they are still pretty nice. 

There are several RE Agents on here that should be able to help. @Jimmy O'Connor gets some great off market deals but in my experience they aren't usually turn key. I think @John Knisely does work in the city but I have worked with him a fair amount in Delaware County. 

That's a tough question to answer as far as "Philly for cash flow". As you can see by Jimmy's market overview, that question changes dramatically neighborhood by neighborhood. Short answer, yes it absolutely exists in Philly, but you have to decide how much cash flow you are looking for and how much crap you are willing to deal with. 

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