Renting Rooms/Airbnb or Vacation Rentals in Philadelphia

22 Replies

Hey All! I'm new to Bigger Pockets. I have been successful using Airbnb, HomeAway, and TripAdvisor to rent the one-bedroom apartment I have in my two-family home in Brooklyn, NY. I'm a 5-star hosts on all of those platforms and I'm making nearly 3x what I would make in rent after expenses. I'm now starting to look around for opportunities to acquire more properties in popular tourist areas. Philadelphia caught my eye because properties are still relatively affordable, at least by Brooklyn standards. I'm taking a look at 3 or 4 bedroom properties where I can rent out individual rooms and potentially use one room as an Airbnb private room rental. 

Has anyone had success doing room rentals in the Philly market?

If my research is correct, I can purchase a remodeled 3 or 4 bedroom SFH for anywhere between $100k to $150k depending on the neighborhood - my max budget is $150k. On the high end, it looks like the mortgage would be $800 per month. It looks like single room rentals usually go between $500 and $800 per month from my research. It looks like two room rentals can cover the mortgage plus expenses (utilities, insurance, taxes, internet, cleaning/maintenance, etc) leaving the two extra rooms for a profit. I looked quickly through Airbnb and it looks like room rentals are going from $25 to $75 per night during peak season.

I'm guessing that cash flow could look something like

Monthly Cashflow

Room Rental ($500 per month * 3 rooms ) + Airbnb Room Rental ($50 per day * 20 days [subtracting days for flip days]) - Expenses ($1k) = $1500 + $1000 - $1000 = $1500

Net Annual Cashflow

Room Rental ($500 per month * 3 rooms *12 months) + Airbnb Room Rental ($50 per day * 180 days per year[6 month per year]) - (8.5% hotel tax + 1 sales tax) - $125 annual regisitration fee for home sharing + Using the Airbnb room as regular room rental for remainder of the year ($500 per month * 6 months) - Expenses ($1k * 12 months) = $18000 + $9000 - $855 - $125 + $3000 - $12k = $17020

Start-Up Costs

  • Furnishing common areas and Airbnb room plus purchasing pots, pans, utensils, garbage cans, etc - $5000
  • Acquiring property with traditional financing - $30k or so
  • I will kick the tires with lease optioning as a potential way of bringing down financing costs

Breaking Even on Start-Up Costs

$5000 to $35k initial start-up costs

Assuming $500 per month lease option = ($5000 + 500)/1500 per month profit = 3.66 rounding up to 4 months to break even

Traditional financing = $35k/1500 = 23.33 months rounding up to 24 months or two years to break even

Assumptions

  • Philly has a law that you can only rent on Airbnb for 6 months per year
  • I went with the higher purchase amount $150k but with the lower room rental range and middle Airbnb daily rate
  • I'm assuming that the property will have 4 bedrooms

If my assumptions and numbers work than Philly definitely looks interesting as a vacation rental market. I would love your thoughts and insights. 

Thanks!

Hi Od,

I live and invest in Philly. I'm not sure what neighborhoods you are looking to invest so the numbers might change. 

Let me share with you my experience. The areas I currently invest the purchase price of a full gut house is $200k minimum and rehab goes from $100k to $200k depending on finishes.

I hope it helps.

Andresa

Od

I develop in "upcoming" and established areas in Philly including South Philly. I do rehabs and new construction. 

Re: rentals

I do short term rental / Airbnb in SF and MF in great areas such as Art Museum and Passyunk. 

@Od Ntuk while there may be areas of Philly where you can buy a rehabbed house for 150k, I do not believe you would have short-term rental success in these areas. These would be C- (at best) or D neighborhoods that many potential guests would not find desirable - especially when there are really great, fairly priced short-term rentals in good A and B neighborhoods.

@Od Ntuk

To me, upcoming areas are those are are under "development". Areas where you can see a mix of older houses and a rehabs/new construction projects in progress. I recommend that you get in contact with a local realtor who knows the "investor's world" and can show you around so you can make a decision about where to invest (based on your own goals).

@Jeremy Fisher completely agree.

I think if I go too much above $150k that my numbers will no longer work for how much I want to earn with STR.

From my experience as a vacation rental host guests want a place that is convenient to transportation to get to tourist attractions. They also want a place that is in a safe neighborhood. That does not necessarily negate off the cuff neighborhoods. Reasonable guests are looking to save money so they know they may not be staying in a hot neighborhood otherwise they would go ahead and pay more for a hotel. In regards to regular room rentals I am keying on properties near universities in Philly as I suspect there may be opportunities with students.

I agreed, 150k in Point Breeze will get you a place that needs to rehabbed.  If you are willing to spend that much on the purchase price and maybe an additional 50k for a partial rehab you could find something a little further south then point breeze in the zip code 19145.  I'd stick between 17th and 22nd street if you're going to go further south.  Please feel fee to message me with any other questions. 

@Andresa Guidelli Just curious your number and strategy for the areas you flip or constructed.

If 200k for deal need full gut rehab and 100~200 for quality rehab , what is the ARV looks like and what is your strategy other than sell them? In my research if ARV greater than 600k, it is really hard to cash flow, thanks.

Hey All. Thank you for the helpful feedback. I have done additional research and recalibrated my strategy. It appears that areas like Germantown and Port Richmond are still affordable and still have good commute times to the tourist attractions. Does anyone in the know have feedback on these neighborhoods? I also took a look at Carrol Park and Overbrook. They had nice looking street views but the commute times seem too long to be ideal for vacation rentals. I took a look at a property that looked nice in the Mantua area, but the neighborhood had a rough looking street view. I know street views can be outdated, but Mantua looks interesting because of the commute and being close to Drexel and U Penn.

Germantown and Port Richmond are definitely "up and coming" depending on what area of each neighborhood you're looking at. Both are very geographically large neighborhoods (Germantown especially so) and so I personally would spend time understanding what pockets within those neighborhoods are trending up. Speaking about G-Town specifically, parts of it are still affordable, but I'm not sure your original numbers you posted would be reality. NW Philly is hot right now, as are many other parts of the city, so $150k would still be a rehab project requiring the amount of rehab @Andresa Guidelli mentioned earlier. If you're not familiar with the block by block nature of Philly neighborhoods and targeting a vacation rental market in G-Town, I'd say generally stay west of Germantown Avenue and north of Queen Lane. 

@Od Ntuk @Jared Burns is right on about Phillly being a block by block market. I would advise that before you make any investment decisions, come down to Philly and check out every neighborhood you mentioned. In my opinion, the Airbnb market would be a tough sell in those neighborhoods as safety could be an issue with most of them. Although you could definitely cash flow in those same neighborhoods with long term tenants. Best of luck.

@Joseph ODonovan I’m starting to rethink using properties as vacation rentals especially with the new law. It seems too burdensome. Renting rooms would also be work with having to furnish common areas. I looked at Philly housing vouchers as an option and it would cashflow my numbers and be a lot less work. Everyone that I know that accepts vouchers seems happy because the payments are regular. I was just advised to screen tenants as I would normally do. Now that I have areas to target in my price point I will come down and have a look. Thanks for your suggestions.

@Scott Morris Are you a Philly host? Can you confirm that Airbnb is not sharing the days stayed with city government? Also, I looked through the law and they do inspections so it may not be that easy to host past the 180 days and get away with it. Beyond that, you need to get registered which will put the local housing authorities on your radar.

I am not currently a Philly host although I am looking to get into it.  I would suggest contacting them directly to confirm.  Search through the forums on AirBnB and maybe reach out to other active hosts to get their advice.   Figured I'd share what I found through a cursory search on the web.

If you wish to rent your home for stays of 30 days or less but for more than 180 days per calendar year, or the property is not your primary residence, you must obtain a use registration permit for a “Visitor Accommodations” use.

https://business.phila.gov/limited-lodging-regulations/