Guide To: Short-Term Renting: AirBnb® vs. Traditional Renting in Philadelphia

Are you a real estate investor? What is the better option, AirBnb® or traditional renting?  Well we have done the research for you so you can make the best decision for your investing needs. We have taken the three most important factors you should consider: Location, Profit, and Time. Let’s dive in! 

LOCATION

Location is important when deciding if you are going to rent using AirBnB® or if you are going to use the traditional method of longer leases.  The amount you can charge per night is mainly affected by how desirable the location where your property is located (i.e. the distance from center city, the distance from the stadiums and other attractions, or the presence of a festive nightlife). Some states and cities do not allow short-term rentals such as AirBnB® so before you consider AirBnB® as an option, you need to check your state laws. (Look at our article on where AirBnB® is allowed by State Law. If your property is in a location that would not be appropriate for AirBnB® such as a property in the suburbs away from any tourist hotspots or if your state does not allow short term renting, you should not use AirBnb®.) If your property is in a prime location for AirBnB® your next step is to do the math and determine if it will be profitable.

PROFIT

Once you have determined that your property is in a desirable location to use AirBnB® and you know that your state and city (and sometimes condo bylaws) allow AirBnb®, you need to do the calculations and find out if AirBnB® is the most profitable option. There are a lot of moving parts when it comes to calculating the profits of AirBnb® rentals so we are here to guide you through the process.  

First, it is important to incorporate the size of your property and how many guests you can accommodate to determine how much profit you will make. Second, you must determine how many nights need to be filled each month to reach the amount you would gain by long-term renting. Third, you need to consider how many nights you could realistically fill within one month. Lastly, you will need to determine how much profit you will make after tax deductions and cost for cleaning the property.

The number of rooms your property has and how many guests you can have are important factors to determine how much money you can charge per night to your guests; the more rooms the more money you can make. For instance, in the month of April the average monthly revenue for a one room apartment in Philadelphia on AirBnB® was $2,405. That number jumps up to $2,941 when you have two available bedrooms.  The average revenue for allowing 3-4 guests in April is $2,112 and then jumps substantially jumps up to $2,933 when you allow 5-6 guests. 

Now that you have determined how much money you can make based on the size of your property, you must now determine how many occupied nights it would take to reach higher profits with AirBnB® than traditional renting. We have pulled three major locations in the Philadelphia area and crunched some numbers to give as an example.  

WATERFRONT/OLD CITY

ZEstimate rent: $1,675 per month

AirBnB® cost per night: $145 per night

Nights per month to meet traditional renting amount: 12 nights

RITTENHOUSE SQUARE AREA

ZEstimate rent: $2,350 per month

AirBnB® cost per night: $85-$95 per night

Nights per month to meet traditional renting amount: 25 nights

FISHTOWN

ZEstimate rent: $1,175 per month

AirBnB® cost per night: $105 per night

Nights per month to meet traditional renting amount: 12 nights

Airdna® reports that the Median Occupancy Rate for AirBnB® rentals in Philadelphia is 48%.  That means that in the city of Philadelphia, the average AirBnB® rental is occupied almost half of the time it is available for rent.  It is important to remember that you may need at least a day after you rent your property out for it to be cleaned. The more rentals you have, the more cleaning days you will need.  You can find out the occupancy rate around your property by looking at other AirBnB® rentals near you that are similar in size to your property.  

 It is important to remember that cleaning fees and taxes will reduce your monthly total. It can cost up to $80 per month to maintain a clean property. In Philadelphia, there is an 8.5% hotel tax that you will need to pay each time you rent out your property.  Let’s apply these numbers to the Fishtown example. Let’s say you rent your property out for 13 nights in one month.  That will equate to $1,365 in rent. That rent is slightly more than the amount you would have made if you rented out your property the traditional way. Now lets subtract the $80 for cleaning and the 8.5% tax. With the deductions of the hotel tax and the monthly cleaning, the new total will come out to be $1,169 in rent.  After the deductions, you are now below the total you would have made if you used the traditional method of renting. 

It is also important to remember if you want to rent your property using AirBnb®, you must have a furnished place. Guests who are only visiting for a few nights expect to have all amenities taken care of when they arrive. Furnishing a property and keeping your place “fresh” will cost anywhere from $1,000 to $3,000 (or more) dollars. This can put you in a hole before you even start renting.

If you cannot rent out your property for the amount of nights required to meet the amount you would make per month with traditional renting or you cannot charge the per night rate high enough, you should not rent through AirBnB®.

TIME EXPENDED

Once you have determined that you can make more money per month using AirBnB®, you must decide if it is worth your time. AirBnb® rentals can take a lot of time. Near real-time communications with guests, clear and transparent communication with guests, running smooth check ins and check outs, and most importantly, clean and neat rooms, bathrooms, couches, beds, kitchens, etc., are all part of the maintenance when dealing with AirBnB®.   

Having a furnished property is a must. Besides spending money, you will also be spending time making sure your place has the appeal it needs to attract guests. Traditional renting is less work because once you find a tenant; you won’t need to find a new one for at least a few months. With AirBnB®, once the guest leaves you need to find new guests as soon as possible to obtain max profit. AirBnB® is definitely more hands-on than traditional renting. If you feel that you will not have the time to keep your AirBnB® running like a well-oiled machine, you should not rent through AirBnB®.

WHEN TO USE AIRBNB®

AirBnB® can be very profitable and can put extra money in your pocket if you rent out a single room in your home or even your whole house when you aren’t occupying it!  

Renting out a room in your home or your whole home eliminates most of the factors you will need to consider. Since you will not be renting your home using the traditional renting method, you won’t have to make that decision. Even if you only rent out a room for one weekend a month, that is money added to your overall income.  AirBnB® is the way to go if you want to rent out your own home.

THE EQUATION

Once you have thought your way through all of the factors that go into renting your property through AirBnB® you can make your decision. It can be thought of as a math equation. Location+ Profit+ Time = AirBnB®.

 If you have a desirable location, you can then go to profit. Profit has a few factors to consider; the size of the property, the amount of people it can hold and the amount of nights you can fill your property. If you feel that you can make a profit that is greater than what you could make from traditional renting the last step is the amount of time expended. If you have the time to expend to make your AirBnB® the most profitable it can be then AirBnB® is most likely the way to go. However, if any of the variables in the equation are missing, you should stick to using traditional renting.  We hope that our article helps you make the best decision for your real estate endeavors. Good luck!