Started partnership with a friend who had the capital and I am the co-host HELP! What is my value?

Kelly422
Level 2
Corona, CA

Started partnership with a friend who had the capital and I am the co-host HELP! What is my value?

HELP!!!!!  I went into what was presented to me as a 50/50 partnership with a lifelong friend who suggested this opportunity to me.  He lives in Arizona and our Airbnb is in California about 53 miles from my primary residence.  Because he had the capital, he agreed to front the start up and I would do the "sweat equity" which we now understand is called the co-hosting.  Eventually he will recoup his initial 12k investment (that number includes a deposit on our place, 8k in furnishings, tv/other home items (at $600) , and a partial month's rent of $2800. I put in about $2000.   He is now requesting that I give him $6000 so that I have paid half of the cost, yet I am still doing 100% of the work.  I feel like just giving it to him because he is absolutely not understanding the cost and value of co-hosting this venture and our friendship is starting to become damaged.  The problem with this is that I DO NOT HAVE $6000.  We are in month 1 of our biz and luckily our place gave us the first month and a half free so there is 6k there.  Do I just give it to him and continue to do the work by myself perpetually.  We can use the furniture for 2 more years but I would still be doing all of the work!!!  Besides, wouldn't my $2000 make my obligation to him now only $4000?    This seems so unfair and not at all 50/50.  I need someone's help.  I initially thought he suggested us going into biz with him fronting the money and me earning and working my value.  I am so distraught and saddened over this I can't even describe it.  My husband is so upset with me because it has financially burdened our household.  My cell phone was turned off, my rent on my real home is late, my cable got shut off.....this does not seem fair.  I offered him the option of giving him $500 more than I make per month until the end of the lease which would total $6000.  He did not like that.   I tried to tell him that we don't even fully understand the biz model.  He should be flexible and allow for the learning curve because we did not understand just how expensive the management of this was.   I am so screwed!

10 Replies 10
Willow3
Level 10
Coupeville, WA

What does your contract say?  If you don't have a contract, you need to hammer one out - ASAP. 

Sounds like your property is a rental, which you are in turn renting.  Whose name is on the lease?  Because honestly, I would eat the $2k and run away from this as fast as humanly possible.  Even just the travel between your home and the property is going to get REALLY old, really fast. 

 

I'm in a similar sounding relationship.  He only sees value in actual money, not labor or sweat equity.  It doesn't get better, they don't change their views, and the math NEVER is right.  

No contract Willow.  We simply just went for it and it happened really quickly because he has liquid cash.  We are both on the lease.  I found the place, moved everything in and set all of it up, did all of the shopping, i replenish, I manage the site, I book, market, clean, etc.  Everything that we all understand running an Airbnb entails.  Yes, unfortunately Willow, I think you may be 100% correct in your suggestion to me.  Thank you.

@Kelly422 whose bank account does the money from the AirBnB go to in your arrangement?

 

It goes into mine Matthew.

 

@Kelly422 I know you are good friends with the investor, which I am sure is part of what makes this confusion so painful.

 

I am just looking at it from the outside, and I am mainly worried about you, so if what I say seems mean to your friend... well, I don't know your friend.

 

If I understand a few things correctly, these things are true:

  1. You have no real contract with your friend
  2. Your name is on the lease
  3. You have control of the account the money goes into
  4. You do all the work of hosting.

As I see it, *you* really have all the power in this setup.

 

Your friend, being in Arizona, is physically incapable of doing the hosting.

Additionally, even if he were present, you are the one with all the experience so far.

 

It sounds like *you* are the critical person in this setup. I know this all would not have started without your friend's investment, but that has already happened. It is water under the bridge. As it stands now, *you* are the critical person. Plus, you control the money.

 

Honestly, if you were a selfish person, you could just stop answering your friends calls, send him whatever you felt like he deserved, and go about your day. I have seen deals go exactly like that in setups similar to this. Your friend is really lucky you are an honest and thoughtful person.

But both you and your friend should not lose sight of who the more important person is now that your have started.

 

I know you are going to treat your friend fairly; the way you write and think seems to indicate that you are willing to sacrifice your own well being due to you sense of fairness and obligation.

 

But don't. Don't devalue yourself. You are doing all the hosting. All of it. Your friends is doing nothing. Zero.

Your friend has no clue what it takes. They have no sense of the value you are providing.

For him to ask you to repay half the original investment AND keep sending him half the money means that

  1. He would have invested no more money that you
  2. You would be working for free... forever.

He has no right to tell you what your work is worth. And he is the person least qualified to decide what your hosting is worth. Even a random host who doesn't even know your listing would be better qualified to say what your share should be. (That would describe us on this board.)

 

You take what money you need to feed your family. You take what money you need to pay for your labor. You take what money you need to keep your listing running smoothly and to keep the money flowing in. Doing anything else would be a waste of the money you have both invested in this project.

 

And to be completely clear: your friend has no right to ask you to return his original investment AND to keep receiving a share of the income. He can have one or the other.

Here is an analogy: If I use the stock market to buy shares of the Coca-Cola Corporation, I will receive income for owning those shares. If I want the money back, I have to sell the shares of stock. But when I sell the shares, they stop sending me money for owning those shares.

 

Your friend "bought" a share of this AirBnB project. He gets income for "owning" that share. If your friend wants his original money back, then he is essentially selling his share.

His $12,000 bought half the project, so he gets 50% of the income. If he wants $6,000 back, then he only gets 25% of the income.

 

By the way, his $12,000 actually should get him 50% of the *profit*, not the total revenue. Expenses come out first... and your salary as a host is an expense that is supposed to come out first. (But that is another matter.)

 

But do not send him $6,000 unless he agrees that his share of the profit will be halved.

 

 

Matthew, thank you so much for this.  I am sorry that I responded so late.  I was meeting with a potential co-host that I arranged to interview to see if he would like the option of me bowing out and having someone else take over.  She sat here all day in this LA rain and essentially said the same thing you said.  She said no one is going to work for free, care about his furniture, nor his rent.  The best deal he was going to get was what was originally understood by me.  

 

I literally sat here and cried after reading what you wrote.  Thank you for your kindness and the time it took to explain this to me.  I really had no idea what I signed up for and as you can tell the finance and business side is blurry for me when dealing with a friend.  I appreciate your input and it certainly helps a lot!

@Kelly422

I hope you find a good solution that makes you both happy!

But if you can't find a solution that makes you both happy, find a solution that at least makes *you* happy.

Please always remember: you are in the driver's seat. You don't have to agree to something just because your friend really wants you to.

As an outside observer, a fair deal would be this:

  1. Income arrives
  2. Pay expenses for the listing
  3. Pay you for your time at a rate that makes you glad to do the work.
  4. Whatever is left after, you can split evenly with your friend.

I know this is different from what you arranged with your friend. That's because that original deal was terrible for you. The original deal was unfair.

Hopefully you should be making enough from #3 and #4 together to eventually pay your friend back his investment and have the listing all to yourself.

In the meantime, he would have made a nice return on his money and should be happy for you.

 

 

Willow3
Level 10
Coupeville, WA

Sigh, with your name on the lease, I fear you are stuck unless you can afford and want to - break the lease.  You are about to discover just how much work opperating a STR is, and he will never appreciate it.  I would begin (if you haven't already) keeping DETAILED records of time/money spent on this venture.  You will be doing all the work, and yet he is going to expect half the monies.  You are over a barrel I fear.  

Helen3
Level 10
Bristol, United Kingdom

Oh dear this is a real mess @Kelly422

 

Going into business with friends is a nightmare in most cases. On top of that neither of you had experience of the business you both dived into. Why has he suddenly decided he wants his investment back?

 

Your situation is made is even worse, because neither of you bothered to hammer out the details of what you were both contributing and the value. Nor had a properly drawn up contract.

 

On top of that you have got yourself into a lease which has financial implications. Does your lease allow you to do STR?

 

Why did you decide to rent somewhere miles from where you live if you are going to be the co-host?

 

You need to take control.

 

Sit down and work out what you do and how many hours a week you spend.

 

Work out an hourly rate for your time.

 

Most co-hosts do this based on their experience and knowledge of hosting.

 

What you both seem to have misunderstood is that whatever price you agree for your services comes out of your Airbnb business as a cost, just as cleaning does, supplies does, utilities and taxes do.

 

Only after you have taken out these costs do you split your profits 50/50 unless your 50% is meant to be paying you for your services.

 

You can't just walk away from the lease you jointly signed. If you don't want to do Airbnb any more then agree with your partner what you will do with the lease.

 

Sarah977
Level 10
Sayulita, Mexico

This is not how "life-long friends" behave in my world.