Transitioning my single family long term rental into an airbnb

Rental Property Investor · York Pa · Member since 2023 · 18 posts · 14 votes

I currently have my SFR under long term rental and am debating switching it to STR/Airbnb for cost seg reasons. Is this a wise choice? I understand this is a broad question but just looking for a few ideas.

The current tenants have been paying rent consistently ever since I bought it 5 years ago so it would be hard to tell them to leave although I’ve been studying this cost segregation idea and it seems to be a pretty cool tax saving strategy. I appreciate the feedback!

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Stuart UdisPro Member

Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes

11mo

@Elmer Wayne Fisher Since you tagged Philadelphia, I assume that's where the property is located. Philadelphia adopted very strict anti STR regulations a few years ago. Very few properties possess the zoning necessary to obtain a rental license for limited lodging which would be required in your case to legally operate STR's and list the rental on Airbnb's website.

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Jaycee GreenePro Member
Real Estate Consultant · St. Louis MSA · Member since 2024 · 3k+ posts · 727 votes
11mo
Quote from @Elmer Wayne Fisher:

I currently have my SFR under long term rental and am debating switching it to STR/Airbnb for cost seg reasons. Is this a wise choice? I understand this is a broad question but just looking for a few ideas.
The current tenants have been paying rent consistently ever since I bought it 5 years ago so it would be hard to tell them to leave although I’ve been studying this cost segregation idea and it seems to be a pretty cool tax saving strategy. I appreciate the feedback!

@Elmer Wayne Fisher How much rent does your current tenant pay? And if you were to switch to an STR, what do you expect the ADR and Monthly Occupancy Rate to be?
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Stuart UdisPro Member
Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
11mo
@Elmer Wayne Fisher Since you tagged Philadelphia, I assume that's where the property is located. Philadelphia adopted very strict anti STR regulations a few years ago. Very few properties possess the zoning necessary to obtain a rental license for limited lodging which would be required in your case to legally operate STR's and list the rental on Airbnb's website.
[email protected]
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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
11mo
@Elmer Wayne Fisher,
Switching from a long term rental to an STR can make sense for tax reasons, but you want to look at the full picture before making that move.

From a tax standpoint, the benefit is real. A short term rental lets you use cost segregation and bonus depreciation against your W2 income if you materially participate. You do not need Real Estate Professional status. You only need to meet one of the STR material participation tests. That is why a lot of investors make the switch.

But the tradeoff is stability. If you have long term tenants who pay on time and the property is hands off, you are giving that up. STR income can be higher, but it is also more work and more seasonal. You also have to consider the legal side. Some areas have STR limits, permits, or restrictions.

If the tax savings are big enough and you are willing to run the property as a true business, STR can be worth it. If you value stability more or cannot commit real hours, it may not be the right move.

Also, look at unadjusted basis of the property to run number if the cost seg actually make sense.

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