Owning an AirBnB with a friend

[Tracey563]

I inherited a house that would be a great AirBnB. It needs some work.  I don't have enough money to do it all.  My dear friend has offered to invest her money in order to complete the work. We would then use a management company to run it.  How do we make this work so it is fair for both of us.  I assume we would each get a percentage but I don't know how much. I would like to have some knowledge before we discuss it. We would have a written contract.  Also, at some point I may decide to live there but that would be years away.  Any input is much appreciated.

[Mike-And-Jane0]

@Tracey563 A few thoughts:

Perhaps the income, post management fees, should be split along value lines. So if the property is worth $100,000 today and will be worth $150,000 after your friends investment then she should take 33% of the revenues from the Airbnb and maintain a notional ownership of 33% at the end of the venture.

An alternative would be that if she invests $10,000 then this should be repaid to her from a proportion of the Airbnb  profits with say a 10% 'interest' accumulating each year on the outstanding balance. 

Yr 1:

10,000 outstanding, 50% of Airbnb profits = $4000 therefore 

Yr2

6000 outstanding Plus 1000 interest from previous year. 50% of Airbnb profits = 5000

Yr 3

2000 outstanding plus 600 interest 

etc etc

[Tracey563]

Thanks for your ideas. It helps me see things a little clearer. At this point we haven't talked about the numbers yet. So this information will be really helpful when we do. 

Really appreciate your time.

[Helen3]

@Tracey563 If you own the property it would be better to remortgage to pay for improvements. 

make sure you do your market research on demand and supply for comparable STRs before investing 

[Tracey563]

Thanks, I will look into it. I've done the market research and I'm pretty excited about it.

[Fariza2]

@Tracey563 Is the property mortgage free? Why not get a HELOC for repair and do it yourself if this is the case. If you know how much the repair costs. I would check all options to do it on my own at this stage.

[Tracey563]

Thanks @Fariza2 , I'll look into this idea. I was hoping to avoid a loan due to rising interest rates. 

[Frances3408]

@Tracey563. You need to be fair to your dear friend.

Consider the long term implications and downside risks if she does give you the money but it fails to make any real profits for several years. What security does she get for her investment? If none, then unsecured loans in the market place can achieve double or triple normal loan interest rates.

I am not a lawyer but maybe a loan agreement with security over your property until it is repaid or sold. You can use your profits to repay the loan. Being a private loan you have more flexibility over the terms but you should offer to pay some interest.

Just watch for tax and social security implications as well ie get professional advice.

[Tracey563]

@Frances3408 Thanks for your thoughts. That is my biggest concern. I want to be fair and have her make some money. All profits that I get would repay her.  I agree that I should pay interest, as well. If not, I don’t see how she would benefit.