Purchasing Airbnb rental property with friends

[chieftain]

We live and rent in an urban HCOLA, and several months ago considered purchasing a home in a nearby, more rural, but still HCOLA vacation-friendly area. I posted about this here (https://forum.mrmoneymustache.com/real-estate-and-landlording/advice-on-second-home-before-a-first-home/), and the consensus was that this wouldn't be a good financial decision.

We've now returned to the idea, with the differences that:

1) We'd primarily use it for Airbnb rentals, and
2) We'd go in on it with friends.

About us:

-Married with one child
-40ish
-Total investments and cash: $1.05m (down heavily from a few months ago due to stock market plunge)
-Current distribution: 89% index funds, 4% bonds, 7% cash
-Yearly household income: $90k

Most properties we've looked at don't approach fulfilling the 1% rule. A model we're using calls for having Airbnb renters 50% of the time and is looking at a 10-year investment horizon.

My main question is:

Being so heavily invested in the stock market, with the stock market so low, with housing costs high, and interest rates high, does it (generally) make sense to invest in real estate for Airbnb rentals now?

Anything I should be thinking about?

[uniwelder]

I read through the responses from your previous posting about this, and I'm surprised you're still considering it, particularly with friends.  Sounds like a terrible idea.  Some things to consider----

- How many people are buying in and does everyone pay in equally?
- What happens if someone doesn't agree with decisions about the property?  Repairs to be made, keep or sell 3 years down the line, who is in charge of calling contractors and getting quotes, someone thinks the cleaning or management isn't doing a good job or charges too much, etc
- one of friends wants to use it for vacation during the busy money making season, other friends don't use it at all or only during off season
- someone gets divorced and they need to sell their share
- agreeing on how to price or market the property for Airbnb, get top dollar with fewer renters or lower price with more days filled
- I'm sure there are plenty of other considerations. 

[chieftain]

Thanks for the reply. Three couples would be involved, everyone would invest equally, and all the terms/responsibilities would be in an operating agreement that we'd each agree to and sign prior to purchase.

The distinctions from the previous idea (to purchase singly and to rent it out part of the time) are, as I see it:

- lower risk due to more investors
- fewer responsibilities, as these would be spread across more people
- treatment as investment first and foremost, with primary goal to rent it out as much as possible, and secondarily (and only when not rented) as a vacation home

[JGS1980]

You could do it, but I would only do it with play money (5-10%) of total assets. I would also only do this with CASH. So, so many ways things could go wrong. BUT, if all three couples are into it, and consider it more of an adventure or experiment instead of a get rich quick scheme, than it might be fun to try out.

Lots of non-responses, I think, because there are much easier ways to make money. That being said, it might be fun (i.e. don't expect huge returns!) to give it a whirl.

[Villanelle]

Would you self-manage, or pay a property manager.  How will you handle disagreements on how much to charge, when/if to sell (and for what price), how much to spend on furnishings and when to replace them, and all the dozens of other decisions like that.

If you would self-manage, how will you divide up the actual work? Who goes in and refills shampoo bottles and scrubs toilets?  Who is on call 24/7 if there is a problem?

Have you looked at nearby Airbnbs comparable to what you want, to see how much they charge?  Can you get a sense for whether you 50% occupancy is a conservative estimate, or a wild overreach?  Is the home you are looking at in an area with an HOA and do they have rules on vacation rentals?  Is there any chance of the city restricting short term rentals?  In the area where I currently live, more and more places are forbidding short-term rentals.  Anyone who bought for that purpose is now out of luck. 

[uniwelder]

Three couples would be involved, everyone would invest equally, and all the terms/responsibilities would be in an operating agreement that we'd each agree to and sign prior to purchase.

This sounds a bit optimistic with 6 people involved.  Do either of your friends have rental properties? 

Signing an agreement ahead of time is a bit different than when a decision needs to be made, regardless of what it says on paper.  If you're all friends now, go in thinking that you might not be friends anymore after some time has passed.    I can't imagine a situation where you go into this business and everyone is still speaking to each other after a few years.

[uniwelder]

...primary goal to rent it out as much as possible, and secondarily (and only when not rented) as a vacation home...

I'm curious how this would get handled in practice.  When is an Airbnb considered to be not rented and available for personal use?  One week before the part owner couple decides they want to use it for their vacation or one day? If you're planning on 50% occupancy, it doesn't sound like there's going to many opportunities to actually use the place, unless you all tend to be very spontaneous people and can take off from work at a moments notice.

[Dancin'Dog]

I have a friend that recently purchased a condo in a big SEC college town as an Airbnb rental.  He used some kind of data source to analyze that market to decide what made sense to purchase.  He's in the real estate business already, but this is a side investment.


It think he said that during the big game weekends he could rent the 3 br unit for $1500 per night.  He's hired a management company which charges 20%.  That's a steep fee, but he lives out of town and that's the going rate.


You should look into using a data source, like he did, to see how the numbers look for the location you're considering.

[uniwelder]

You should look into using a data source, like he did, to see how the numbers look for the location you're considering.

There is one called Airdna.com that someone told me about. I’ve looked at it, but not deeply. You can use the free version or pay a fee for additional info or analysis.

[Dancin'Dog]

You should look into using a data source, like he did, to see how the numbers look for the location you're considering.

There is one called Airdna.com that someone told me about. I’ve looked at it, but not deeply. You can use the free version or pay a fee for additional info or analysis.

I believe that was it.  He just paid for that particular area.  I think he said it cost about $50, and that the entire US cost about $600. 

[lucenzo11]

Have you ever used AirBnb/VRBO before? Make sure you know exactly how much you can list it for and know what the fees are that are coming out from AirBnb, I've never used it before but I know fees can be significant depending on local regulations. Also, check the news and any town meetings to see if there has been any push to prohibit or make AirBnb stays more annoying. It's becoming a problem for AirBnb in some areas as local areas are trying to prevent residential areas from becoming all rentals.

And I'll add in my vote for this does not seem like a good idea on paper for splitting this up with friends. Obviously you know your friends better than anyone on here, so we are all taking the average to worst perspective. Make sure you have a lawyer look over anything before you sign.

[PMJL34]

No. Just no.

[Metalcat]

Lol, I love that you think that bringing on a bunch of partners in a venture actually lowers the risk!!!!

Funniest fucking thing I've read in a very long time. Thanks for that.

[ender]

I don't really understand why you are insistent on this.

This idea has so many bad idea/red flags it's crazy.

[Plina]

Lol, I love that you think that bringing on a bunch of partners in a venture actually lowers the risk!!!!

Funniest fucking thing I've read in a very long time. Thanks for that.

I was thinking the same thing.

[Sibley]

Another vote for no.

[Midwest_Handlebar]

Another aspect to think about is the growing probability that we are heading into a recession. Airlines, rental car companies, other discretionary industries typically perform terribly during a recession, why would airbnb be any different? Add in the fact that interest rates have already risen, the housing market is already softening and you're buying this with other people. This is a terrible idea. If you want to get into real estate look for a distressed seller in your immediate area in 6-12 months and make it your primary residence.

[iris lily]

Lol, I love that you think that bringing on a bunch of partners in a venture actually lowers the risk!!!!

Funniest fucking thing I've read in a very long time. Thanks for that.

I was thinking the same thing.

Ummm, yeppers.

kinda reminds me of that old joke. “ How does a new restaurant owner end up with $1 million?”

Answer: “He starts out a year prior with $3 million.”

So, how does our OP friend end up with 4 friends After owning  an Airbnb with a bunch of friends?

Answer: he starts out two years prior with 8  friends, involving 4 of them in the Airbnb.

[Dicey]

I was in the "No" club on the previous thread. This time I think I might run for president of the club.

[chieftain]

Thanks for the reality check, everyone.

It's helpful to have a sense of the data, and the cautions about the potential perils of this idea are well taken!

[Adventine]

One risk that hasn't been mentioned yet: what if one (or more) of the couples gets divorced? So you could end up in a situation where all six friends have a financial stake in a messy divorce drama.

[Dicey]

One risk that hasn't been mentioned yet: what if one (or more) of the couples gets divorced? So you could end up in a situation where all six friends have a financial stake in a messy divorce drama.

What? You didn't see my answer. I think "No" pretty much covers everything.

[iris lily]

One risk that hasn't been mentioned yet: what if one (or more) of the couples gets divorced? So you could end up in a situation where all six friends have a financial stake in a messy divorce drama.

What? You didn't see my answer. I think "No" pretty much covers everything.

OK, you convinced me. I’m voting for you for president of the club. Your platform of “no “is really all that’s necessary.

[ysette9]

As others have said, this sounds like a big headache waiting to happen. But I don't need to beat that dead horse.

I've been casually throwing the idea about of doing an Airbnb of my basement apartment at some vague point in the future. Not at the moment since we need to move down there for a kitchen remodel. But eventually. I have been listening to some Airbnb host podcasts in the meantime which have been interesting going through various aspects I wouldn't have known to consider. I haven't tried out too many different ones yet, but I binged-listened to the initial episodes of Vacation Rental Insiders podcast. They are bro-y but the first dozen or so episodes are pretty concise and cover a lot of specific topics with good recommendations to consider. If you haven't already, I'd suggest doing homework and start writing notes for yourself on what to do, not do, how to decorate, what supplies you'll need, what the management plan would be, etc. Ditto on the Airdna data. I think the podcast mentioned one other similar company that will sell you market research data. There are also FB groups you can join to get a feel for how local Airbnb hosts are doing.

In my case my basement would otherwise sit empty except for guests, so the numbers aren't that important. If you are investing money in this then you should crack open a spreadsheet and work some estimates to see what is realistic. If you aren't going to be doing the work yourself then the costs add up quickly with cleaning and supplies and maintenance. Just keep in mind that it is a part-time job in the hospitality industry, not real estate investing. 

[Dicey]

As others have said, this sounds like a big headache waiting to happen. But I don't need to beat that dead horse.

I've been casually throwing the idea about of doing an Airbnb of my basement apartment at some vague point in the future. Not at the moment since we need to move down there for a kitchen remodel. But eventually. I have been listening to some Airbnb host podcasts in the meantime which have been interesting going through various aspects I wouldn't have known to consider. I haven't tried out too many different ones yet, but I binged-listened to the initial episodes of Vacation Rental Insiders podcast. They are bro-y but the first dozen or so episodes are pretty concise and cover a lot of specific topics with good recommendations to consider. If you haven't already, I'd suggest doing homework and start writing notes for yourself on what to do, not do, how to decorate, what supplies you'll need, what the management plan would be, etc. Ditto on the Airdna data. I think the podcast mentioned one other similar company that will sell you market research data. There are also FB groups you can join to get a feel for how local Airbnb hosts are doing.

In my case my basement would otherwise sit empty except for guests, so the numbers aren't that important. If you are investing money in this then you should crack open a spreadsheet and work some estimates to see what is realistic. If you aren't going to be doing the work yourself then the costs add up quickly with cleaning and supplies and maintenance. Just keep in mind that it is a part-time job in the hospitality industry, not real estate investing.

Paula Pant at Afford Anything has also covered this topic extensively.

[ysette9]

As others have said, this sounds like a big headache waiting to happen. But I don't need to beat that dead horse.

I've been casually throwing the idea about of doing an Airbnb of my basement apartment at some vague point in the future. Not at the moment since we need to move down there for a kitchen remodel. But eventually. I have been listening to some Airbnb host podcasts in the meantime which have been interesting going through various aspects I wouldn't have known to consider. I haven't tried out too many different ones yet, but I binged-listened to the initial episodes of Vacation Rental Insiders podcast. They are bro-y but the first dozen or so episodes are pretty concise and cover a lot of specific topics with good recommendations to consider. If you haven't already, I'd suggest doing homework and start writing notes for yourself on what to do, not do, how to decorate, what supplies you'll need, what the management plan would be, etc. Ditto on the Airdna data. I think the podcast mentioned one other similar company that will sell you market research data. There are also FB groups you can join to get a feel for how local Airbnb hosts are doing.

In my case my basement would otherwise sit empty except for guests, so the numbers aren't that important. If you are investing money in this then you should crack open a spreadsheet and work some estimates to see what is realistic. If you aren't going to be doing the work yourself then the costs add up quickly with cleaning and supplies and maintenance. Just keep in mind that it is a part-time job in the hospitality industry, not real estate investing.

Paula Pant at Afford Anything has also covered this topic extensively.

Of course she would have done that. I didn't think of her since I'm not into the RE thing, but now I'll have to go seek out her content. She is more pleasant to listen to than a bunch of dudes. :)

[Adventine]

One risk that hasn't been mentioned yet: what if one (or more) of the couples gets divorced? So you could end up in a situation where all six friends have a financial stake in a messy divorce drama.

What? You didn't see my answer. I think "No" pretty much covers everything.

Sorry, Mrs. President! :P

[Dicey]

One risk that hasn't been mentioned yet: what if one (or more) of the couples gets divorced? So you could end up in a situation where all six friends have a financial stake in a messy divorce drama.

What? You didn't see my answer. I think "No" pretty much covers everything.

Sorry, Mrs. President! :P

Laughing.

[Metalcat]

One risk that hasn't been mentioned yet: what if one (or more) of the couples gets divorced? So you could end up in a situation where all six friends have a financial stake in a messy divorce drama.

What? You didn't see my answer. I think "No" pretty much covers everything.

Exactly.

None of us got into the reasons why we said "no" because there are just so many that it's ridiculous to even start unless OP specifically asks for examples or asks clarifying questions.

We would have to write veritable novels on the subject.

It's not just divorce, it's literally *any* dynamic where there could be some disagreement between any parties involved. What happens if one party dies? If one party goes bankrupt? Hell, even if just one party wants to sell, that means literally EVERYONE involved has to agree on a sale value and terms of sale.

And that's just issues around everyone agreeing on a property value. Now extend that to everyone having to agree, every single time, about every single decision, expense, repair, upgrade, etc.

The levels of shit storm that this could cause???

Financial conflicts and renovations are two of the MOST contentious issues in marriages, and that's just *two* people. Throw in a bunch more people, a bunch more marriage dynamics, and a whole slew of unknowns about these peoples specific financial attitudes and ideologies and you have a cluster fuck of epic proportions.

If people think office politics are tricky, partnership dynamics are like marriage on steroids but without the fun sex part. Having a business partner basically ruins the best part of having a business: the autonomy. And the more partners you have, the more autonomy you relinquish.

It's hard enough to get a group of adults to agree on a date, time, and restaurant for a dinner, it's a whole other level of hell trying to get them to all agree, under pressure on how much insurance you should purchase, what tiles you should use for the bathroom remodel, whether or not the bathroom needs remodeling in the first place, which contractor should be used to repair the roof, whether permits should be pulled for the work, etc, etc.

And that's just shared ownership of a property. Throw in the business aspects of running a vacation property and you add a whole new layer of agreements that have to be settled on. Is is worth it to hire a professional photographer? Should pets be accepted? Can family get a discounted rate? Who counts exactly as as "family?" What supplies should be included? How much damage is acceptable before trying to recoup costs from guests? How much of an operating fund should be maintained? When should profits be distributed? What is the plan if it fails to produce a profit?

None of that even scratches the surface of what happens if/when something goes wrong? What if one person fails to pay the insurance? What if there's a lawsuit?

I just bought a vacation home that I'm contemplating using as an AirBnB when we're not using it, and there are TONS of questions and things to decide and anticipate, it's not without its stresses, and I can't fathom requiring consensus from a group on every single one of them.

Hell, even if my spouse had a particularly strong opinion, I would probably be irritated by having to account for that. Thankfully, he considers this my domain alone and only gives input when asked.

Like seriously, if I had to get consensus about how much to spend on a toilet paper holder and what kind, I would lose my effing mind. But those decisions *very much* matter when running a rental business.

I've had business partners in several types of business, but real estate is not one I would ever consider engaging in a partnership.

Ever.
No way.
No how.
Never.

ESPECIALLY not with a big group of novice real estate investors!!!!

It's such a profoundly BAD idea that that's why most of us didn't even bother giving it the consideration of explaining why.

See? I just wrote a novel and barely scratched the surface of explaining just how bad this could turn out.

[iris lily]

For our next lesson we will discuss the pitfalls of leaving family real estate assets to a group of people.

I will take the first module of teaching. Your syllabus includes “ the family lake house” thread here on this forum. 

[Adventine]

@Malcat  some people actually do benefit from reading about risks in detail, even if the risks seem obvious to outsiders like us. So hopefully we don't see a third thread from OP about this same topic!


@iris lily  how many real estate horror stories can we fit into the first hour, I wonder...

[PDXTabs]

It's not just divorce, it's literally *any* dynamic where there could be some disagreement between any parties involved. What happens if one party dies? If one party goes bankrupt? Hell, even if just one party wants to sell, that means literally EVERYONE involved has to agree on a sale value and terms of sale.

So, people do do this. It isn't unheard of to go into an investment property six ways (or any other business). It also isn't all that rare to end up in court over it. I have a friend that does this exact litigation. I would never go into an investment like that with a friend, personally.

[Metalcat]

It's not just divorce, it's literally *any* dynamic where there could be some disagreement between any parties involved. What happens if one party dies? If one party goes bankrupt? Hell, even if just one party wants to sell, that means literally EVERYONE involved has to agree on a sale value and terms of sale.

So, people do do this. It isn't unheard of to go into an investment property six ways (or any other business). It also isn't all that rare to end up in court over it. I have a friend that does this exact litigation. I would never go into an investment like that with a friend, personally.

Yeah...a lot of people do dumb shit they regret, lol

[cchrissyy]

I'll skip writing the novel on how it can go wrong and jump ahead to the last 2 chapter titles

- there are so many ways to make money without all this risk and having to split the profit

- there are so many ways to take a vacation without commiting to years of stress and effort

[uniwelder]

One risk that hasn't been mentioned yet: what if one (or more) of the couples gets divorced? So you could end up in a situation where all six friends have a financial stake in a messy divorce drama.

I'm feeling a little neglected here....

I read through the responses from your previous posting about this, and I'm surprised you're still considering it, particularly with friends.  Sounds like a terrible idea.  Some things to consider----

- How many people are buying in and does everyone pay in equally?
- What happens if someone doesn't agree with decisions about the property?  Repairs to be made, keep or sell 3 years down the line, who is in charge of calling contractors and getting quotes, someone thinks the cleaning or management isn't doing a good job or charges too much, etc
- one of friends wants to use it for vacation during the busy money making season, other friends don't use it at all or only during off season
- someone gets divorced and they need to sell their share
- agreeing on how to price or market the property for Airbnb, get top dollar with fewer renters or lower price with more days filled
- I'm sure there are plenty of other considerations.

[Adventine]

@uniwelder I am such a bad student today!

[clarkfan1979]

One risk that hasn't been mentioned yet: what if one (or more) of the couples gets divorced? So you could end up in a situation where all six friends have a financial stake in a messy divorce drama.

What? You didn't see my answer. I think "No" pretty much covers everything.

Exactly.

None of us got into the reasons why we said "no" because there are just so many that it's ridiculous to even start unless OP specifically asks for examples or asks clarifying questions.

We would have to write veritable novels on the subject.

It's not just divorce, it's literally *any* dynamic where there could be some disagreement between any parties involved. What happens if one party dies? If one party goes bankrupt? Hell, even if just one party wants to sell, that means literally EVERYONE involved has to agree on a sale value and terms of sale.

And that's just issues around everyone agreeing on a property value. Now extend that to everyone having to agree, every single time, about every single decision, expense, repair, upgrade, etc.

The levels of shit storm that this could cause???

Financial conflicts and renovations are two of the MOST contentious issues in marriages, and that's just *two* people. Throw in a bunch more people, a bunch more marriage dynamics, and a whole slew of unknowns about these peoples specific financial attitudes and ideologies and you have a cluster fuck of epic proportions.

If people think office politics are tricky, partnership dynamics are like marriage on steroids but without the fun sex part. Having a business partner basically ruins the best part of having a business: the autonomy. And the more partners you have, the more autonomy you relinquish.

It's hard enough to get a group of adults to agree on a date, time, and restaurant for a dinner, it's a whole other level of hell trying to get them to all agree, under pressure on how much insurance you should purchase, what tiles you should use for the bathroom remodel, whether or not the bathroom needs remodeling in the first place, which contractor should be used to repair the roof, whether permits should be pulled for the work, etc, etc.

And that's just shared ownership of a property. Throw in the business aspects of running a vacation property and you add a whole new layer of agreements that have to be settled on. Is is worth it to hire a professional photographer? Should pets be accepted? Can family get a discounted rate? Who counts exactly as as "family?" What supplies should be included? How much damage is acceptable before trying to recoup costs from guests? How much of an operating fund should be maintained? When should profits be distributed? What is the plan if it fails to produce a profit?

None of that even scratches the surface of what happens if/when something goes wrong? What if one person fails to pay the insurance? What if there's a lawsuit?

I just bought a vacation home that I'm contemplating using as an AirBnB when we're not using it, and there are TONS of questions and things to decide and anticipate, it's not without its stresses, and I can't fathom requiring consensus from a group on every single one of them.

Hell, even if my spouse had a particularly strong opinion, I would probably be irritated by having to account for that. Thankfully, he considers this my domain alone and only gives input when asked.

Like seriously, if I had to get consensus about how much to spend on a toilet paper holder and what kind, I would lose my effing mind. But those decisions *very much* matter when running a rental business.

I've had business partners in several types of business, but real estate is not one I would ever consider engaging in a partnership.

Ever.
No way.
No how.
Never.

ESPECIALLY not with a big group of novice real estate investors!!!!

It's such a profoundly BAD idea that that's why most of us didn't even bother giving it the consideration of explaining why.

See? I just wrote a novel and barely scratched the surface of explaining just how bad this could turn out.

The fact that it's a group of notice real estate investors is relevant. However, all the comments about divorce, death, etc.. is irrelevant because the poster said that a lawyer would draw up an agreement in advance.

People who purchase apartment complexes do this all the time. All you have to do is follow the procedure. Lawyers that have expertise in this area know what they are doing. It's their fucking job.

[Metalcat]

The fact that it's a group of notice real estate investors is relevant. However, all the comments about divorce, death, etc.. is irrelevant because the poster said that a lawyer would draw up an agreement in advance.

People who purchase apartment complexes do this all the time. All you have to do is follow the procedure. Lawyers that have expertise in this area know what they are doing. It's their fucking job.

A lawyer can't account for every possibility, and when the investors are novices, they don't have the wisdom to know what should and shouldn't be included in the contract for their particular circumstances.

I've had several partnership and profit-sharing contracts, usually drawn up by the other person's lawyer because I've always avoided being the majority partner.

I can't tell you how many times I've come back with a giant pile of modifications for the OTHER PERSON'S benefit that their lawyer didn't include.

I have exactly zero faith in the ability of a lawyer to compensate for a clueless client.

The really, really exceptionally good and experienced ones can anticipate many of the potential needs of a client who has no idea what their own needs are, but the more parties involved and the more clueless they are, the less the lawyer can possibly cover everything they need covered when they don't even know themselves.

Also, you dismissed all of what I said as being covered by a contract, but how on earth would a lawyer draw up a contract that covers every single possible decision conflict?

Unless the group is entirely comfortable with one person making unilateral decisions about the property, then there would need to be a legal clause for every possible scenario.

Who decides how much insurance to buy? Who decides what gets claimed to insurance and what gets paid out of pocket. Of a lawsuit ensues with the insurance company or a claimant against the property, who makes settlement amount decisions?

And that's just off the top of my head thinking about insurance.

Then there's the fact that contracts can and often are challenged legally, so even if you did draw up a 100 page agreement that covered every possible source of partner conflict, any given clause could be challenged in court, depending on how tenacious the disagreer is.


And if that happened, who would be the decider in terms of settling or litigating that case?

Anyone who has been in a legal conflict over a contract would look at this situation and think "fucking kill me now."

The fact that all of the participants are naive is why. I'm going to be much more comfortable entering into this kind of business with seasoned professionals who all know what they need from a contract in order to proceed, and who all have a good understanding of what is worth litigating and what isn't, and are able to attach reasonable monetary figures to that understanding.

[Villanelle]

One risk that hasn't been mentioned yet: what if one (or more) of the couples gets divorced? So you could end up in a situation where all six friends have a financial stake in a messy divorce drama.

What? You didn't see my answer. I think "No" pretty much covers everything.

Exactly.

None of us got into the reasons why we said "no" because there are just so many that it's ridiculous to even start unless OP specifically asks for examples or asks clarifying questions.

We would have to write veritable novels on the subject.

It's not just divorce, it's literally *any* dynamic where there could be some disagreement between any parties involved. What happens if one party dies? If one party goes bankrupt? Hell, even if just one party wants to sell, that means literally EVERYONE involved has to agree on a sale value and terms of sale.

And that's just issues around everyone agreeing on a property value. Now extend that to everyone having to agree, every single time, about every single decision, expense, repair, upgrade, etc.

The levels of shit storm that this could cause???

Financial conflicts and renovations are two of the MOST contentious issues in marriages, and that's just *two* people. Throw in a bunch more people, a bunch more marriage dynamics, and a whole slew of unknowns about these peoples specific financial attitudes and ideologies and you have a cluster fuck of epic proportions.

If people think office politics are tricky, partnership dynamics are like marriage on steroids but without the fun sex part. Having a business partner basically ruins the best part of having a business: the autonomy. And the more partners you have, the more autonomy you relinquish.

It's hard enough to get a group of adults to agree on a date, time, and restaurant for a dinner, it's a whole other level of hell trying to get them to all agree, under pressure on how much insurance you should purchase, what tiles you should use for the bathroom remodel, whether or not the bathroom needs remodeling in the first place, which contractor should be used to repair the roof, whether permits should be pulled for the work, etc, etc.

And that's just shared ownership of a property. Throw in the business aspects of running a vacation property and you add a whole new layer of agreements that have to be settled on. Is is worth it to hire a professional photographer? Should pets be accepted? Can family get a discounted rate? Who counts exactly as as "family?" What supplies should be included? How much damage is acceptable before trying to recoup costs from guests? How much of an operating fund should be maintained? When should profits be distributed? What is the plan if it fails to produce a profit?

None of that even scratches the surface of what happens if/when something goes wrong? What if one person fails to pay the insurance? What if there's a lawsuit?

I just bought a vacation home that I'm contemplating using as an AirBnB when we're not using it, and there are TONS of questions and things to decide and anticipate, it's not without its stresses, and I can't fathom requiring consensus from a group on every single one of them.

Hell, even if my spouse had a particularly strong opinion, I would probably be irritated by having to account for that. Thankfully, he considers this my domain alone and only gives input when asked.

Like seriously, if I had to get consensus about how much to spend on a toilet paper holder and what kind, I would lose my effing mind. But those decisions *very much* matter when running a rental business.

I've had business partners in several types of business, but real estate is not one I would ever consider engaging in a partnership.

Ever.
No way.
No how.
Never.

ESPECIALLY not with a big group of novice real estate investors!!!!

It's such a profoundly BAD idea that that's why most of us didn't even bother giving it the consideration of explaining why.

See? I just wrote a novel and barely scratched the surface of explaining just how bad this could turn out.

The fact that it's a group of notice real estate investors is relevant. However, all the comments about divorce, death, etc.. is irrelevant because the poster said that a lawyer would draw up an agreement in advance.

People who purchase apartment complexes do this all the time. All you have to do is follow the procedure. Lawyers that have expertise in this area know what they are doing. It's their fucking job.

I think this is incredibly naive and optimistic.  So the lawyer draws up paperwork saying 3/4 parties must agree on all expenses.  Cool.  And when the sofa gets destroyed and one party wants a $100 slip cover, on want to just put a throw pillow on it, one wants a new $2500 sofa with a sleeper in it so you can actually increase occupancy, and the other wants to find one on Marketplace for $500 or less, what then? 

If a renter does major damage, who has final say on whether you hire a lawyer to try to get all your expenses back, or just walk away?  (And when you walk away, who decides what to replace and at what level?)

Shampoo needs to be restocked.  How much do you spend?  Do you offer a simple coffee pot, or a fancy Keurig? Your management firm increases prices.  Do you look elsewhere or stick with them?  Every single one of these decisions need to be decided by a committee.

[Freedomin5]

My main question is:

Being so heavily invested in the stock market, with the stock market so low, with housing costs high, and interest rates high, does it (generally) make sense to invest in real estate for Airbnb rentals now?

Anything I should be thinking about?

@chieftain If your primary goal is to diversity away from the stock market and into the real estate market, why not just purchase a REIT? You get to invest in real estate without all the headache of actually owning real estate. I'm not saying it's a fantastic idea -- if it were me, and stock prices are this low, I'd be loading up on equity index funds.

Another thought is that if housing costs in your area are currently high, why would you want to buy now (i.e., buy high)? I'd think you would want to wait until the housing market cools or even crashes before buying.

[406MtnFire]

If you're all experienced real estate investors and only use it for business (only renting), I'd consider it. Too many cooks in the kitchen don't reduce the risk of a burnt meal. 3 back seat drivers don't reduce the risk of a traffic violation. They increase the stress of everyone.

[Archipelago]

We live and rent in an urban HCOLA, and several months ago considered purchasing a home in a nearby, more rural, but still HCOLA vacation-friendly area. I posted about this here (https://forum.mrmoneymustache.com/real-estate-and-landlording/advice-on-second-home-before-a-first-home/), and the consensus was that this wouldn't be a good financial decision.

We've now returned to the idea, with the differences that:

1) We'd primarily use it for Airbnb rentals, and
2) We'd go in on it with friends.

There was enough info here to stop reading. I wouldn't touch this deal with a 10 ft pole.

[jxn0051]

I'm on the solid no camp here. My wife and purchased a property for Airbnb/vacation and it was difficult even between the two of us on agreeing on numerous things such as repairs, decorations, finishes and amenities. I imagine this would be multiplied by the more eyeballs/brains you have involved in the project. That's just on the repairs and decoration, then imagine the conversation you will have when it comes to marketing, photo shoots, and division of work related to operating the property.

[Papa bear]

One risk that hasn't been mentioned yet: what if one (or more) of the couples gets divorced? So you could end up in a situation where all six friends have a financial stake in a messy divorce drama.

What? You didn't see my answer. I think "No" pretty much covers everything.

Exactly.

None of us got into the reasons why we said "no" because there are just so many that it's ridiculous to even start unless OP specifically asks for examples or asks clarifying questions.

We would have to write veritable novels on the subject.

It's not just divorce, it's literally *any* dynamic where there could be some disagreement between any parties involved. What happens if one party dies? If one party goes bankrupt? Hell, even if just one party wants to sell, that means literally EVERYONE involved has to agree on a sale value and terms of sale.

And that's just issues around everyone agreeing on a property value. Now extend that to everyone having to agree, every single time, about every single decision, expense, repair, upgrade, etc.

The levels of shit storm that this could cause???

Financial conflicts and renovations are two of the MOST contentious issues in marriages, and that's just *two* people. Throw in a bunch more people, a bunch more marriage dynamics, and a whole slew of unknowns about these peoples specific financial attitudes and ideologies and you have a cluster fuck of epic proportions.

If people think office politics are tricky, partnership dynamics are like marriage on steroids but without the fun sex part. Having a business partner basically ruins the best part of having a business: the autonomy. And the more partners you have, the more autonomy you relinquish.

It's hard enough to get a group of adults to agree on a date, time, and restaurant for a dinner, it's a whole other level of hell trying to get them to all agree, under pressure on how much insurance you should purchase, what tiles you should use for the bathroom remodel, whether or not the bathroom needs remodeling in the first place, which contractor should be used to repair the roof, whether permits should be pulled for the work, etc, etc.

And that's just shared ownership of a property. Throw in the business aspects of running a vacation property and you add a whole new layer of agreements that have to be settled on. Is is worth it to hire a professional photographer? Should pets be accepted? Can family get a discounted rate? Who counts exactly as as "family?" What supplies should be included? How much damage is acceptable before trying to recoup costs from guests? How much of an operating fund should be maintained? When should profits be distributed? What is the plan if it fails to produce a profit?

None of that even scratches the surface of what happens if/when something goes wrong? What if one person fails to pay the insurance? What if there's a lawsuit?

I just bought a vacation home that I'm contemplating using as an AirBnB when we're not using it, and there are TONS of questions and things to decide and anticipate, it's not without its stresses, and I can't fathom requiring consensus from a group on every single one of them.

Hell, even if my spouse had a particularly strong opinion, I would probably be irritated by having to account for that. Thankfully, he considers this my domain alone and only gives input when asked.

Like seriously, if I had to get consensus about how much to spend on a toilet paper holder and what kind, I would lose my effing mind. But those decisions *very much* matter when running a rental business.

I've had business partners in several types of business, but real estate is not one I would ever consider engaging in a partnership.

Ever.
No way.
No how.
Never.

ESPECIALLY not with a big group of novice real estate investors!!!!

It's such a profoundly BAD idea that that's why most of us didn't even bother giving it the consideration of explaining why.

See? I just wrote a novel and barely scratched the surface of explaining just how bad this could turn out.

The fact that it's a group of notice real estate investors is relevant. However, all the comments about divorce, death, etc.. is irrelevant because the poster said that a lawyer would draw up an agreement in advance.

People who purchase apartment complexes do this all the time. All you have to do is follow the procedure. Lawyers that have expertise in this area know what they are doing. It's their fucking job.

This.

Partnerships in real estate are not uncommon.  They happen all the time.  Everything gets taken care of in the ownership agreement, and most day to day decisions are handled by a management company.  The group of investors gets mailed a check monthly or quarterly.  Wash, rinse, repeat. 

For this particular situation, it’s a group of novice investors.  That’s why this is a no.  They don’t know what is involved.  They also want personal use from the property.  Hard to mix investments with pleasure for a group.


Sent from my iPhone using Tapatalk

[Dee18]

Keep in mind that laws about short term rentals can change.  Where I am currently renting,  the city council, in June of 2022, passed an ordinance prohibiting short term rentals unless (1) they have multiple units for rent some of which are priced for low income housing or (2) the rental is just part of the owner's primary residence (i.e. you cannot rent out your whole house or condo).  This made 80% of the short term rental units illegal.  In the end the mayor vetoed the ordinance.  The city council is trying to find some way to provide affordable housing for residents and for new workers being recruited as many places that were formerly long term rentals are now being used for short term rentals.  There have been multiple stories about candidates for academic and medical positions who decline the jobs after realizing they can't buy a house or condo here.

[clarkfan1979]

One risk that hasn't been mentioned yet: what if one (or more) of the couples gets divorced? So you could end up in a situation where all six friends have a financial stake in a messy divorce drama.

What? You didn't see my answer. I think "No" pretty much covers everything.

Exactly.

None of us got into the reasons why we said "no" because there are just so many that it's ridiculous to even start unless OP specifically asks for examples or asks clarifying questions.

We would have to write veritable novels on the subject.

It's not just divorce, it's literally *any* dynamic where there could be some disagreement between any parties involved. What happens if one party dies? If one party goes bankrupt? Hell, even if just one party wants to sell, that means literally EVERYONE involved has to agree on a sale value and terms of sale.

And that's just issues around everyone agreeing on a property value. Now extend that to everyone having to agree, every single time, about every single decision, expense, repair, upgrade, etc.

The levels of shit storm that this could cause???

Financial conflicts and renovations are two of the MOST contentious issues in marriages, and that's just *two* people. Throw in a bunch more people, a bunch more marriage dynamics, and a whole slew of unknowns about these peoples specific financial attitudes and ideologies and you have a cluster fuck of epic proportions.

If people think office politics are tricky, partnership dynamics are like marriage on steroids but without the fun sex part. Having a business partner basically ruins the best part of having a business: the autonomy. And the more partners you have, the more autonomy you relinquish.

It's hard enough to get a group of adults to agree on a date, time, and restaurant for a dinner, it's a whole other level of hell trying to get them to all agree, under pressure on how much insurance you should purchase, what tiles you should use for the bathroom remodel, whether or not the bathroom needs remodeling in the first place, which contractor should be used to repair the roof, whether permits should be pulled for the work, etc, etc.

And that's just shared ownership of a property. Throw in the business aspects of running a vacation property and you add a whole new layer of agreements that have to be settled on. Is is worth it to hire a professional photographer? Should pets be accepted? Can family get a discounted rate? Who counts exactly as as "family?" What supplies should be included? How much damage is acceptable before trying to recoup costs from guests? How much of an operating fund should be maintained? When should profits be distributed? What is the plan if it fails to produce a profit?

None of that even scratches the surface of what happens if/when something goes wrong? What if one person fails to pay the insurance? What if there's a lawsuit?

I just bought a vacation home that I'm contemplating using as an AirBnB when we're not using it, and there are TONS of questions and things to decide and anticipate, it's not without its stresses, and I can't fathom requiring consensus from a group on every single one of them.

Hell, even if my spouse had a particularly strong opinion, I would probably be irritated by having to account for that. Thankfully, he considers this my domain alone and only gives input when asked.

Like seriously, if I had to get consensus about how much to spend on a toilet paper holder and what kind, I would lose my effing mind. But those decisions *very much* matter when running a rental business.

I've had business partners in several types of business, but real estate is not one I would ever consider engaging in a partnership.

Ever.
No way.
No how.
Never.

ESPECIALLY not with a big group of novice real estate investors!!!!

It's such a profoundly BAD idea that that's why most of us didn't even bother giving it the consideration of explaining why.

See? I just wrote a novel and barely scratched the surface of explaining just how bad this could turn out.

The fact that it's a group of notice real estate investors is relevant. However, all the comments about divorce, death, etc.. is irrelevant because the poster said that a lawyer would draw up an agreement in advance.

People who purchase apartment complexes do this all the time. All you have to do is follow the procedure. Lawyers that have expertise in this area know what they are doing. It's their fucking job.

This.

Partnerships in real estate are not uncommon.  They happen all the time.  Everything gets taken care of in the ownership agreement, and most day to day decisions are handled by a management company.  The group of investors gets mailed a check monthly or quarterly.  Wash, rinse, repeat. 

For this particular situation, it’s a group of novice investors.  That’s why this is a no.  They don’t know what is involved.  They also want personal use from the property.  Hard to mix investments with pleasure for a group.


Sent from my iPhone using Tapatalk

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