Not going to post the entire operating agreement here from the LLC but we have do have one, drawn up by actual attorneys to cover these hypothetical worst case scenarios everyone's assuming is a given. Apparently, some of you aren't aware of how that works or what one is.
Honestly, I'm glad I didn't post frequent developments here judging the responses. This is absolutely what everyone wanted. We can afford this without BIL if it came to it (just wouldn't be convenient), and FIL 'didn't get off a flying grenade' for fucks sake, he's recovering from a heart attack in his 80s and doesn't want to deal with the day-to-day business of working with a design firm.
From what I remember, I supported your original post based on the assumption that you get an operating agreement drafted by an attorney with experience in this space. You forgot to include that piece of information in your update. Because you didn't include it, posters assumed that you didn't do it.
I am considering doing something similar in the future. I would appreciate an update in a year after you are up and running. If you could include things that went well and things that didn't other people could use this information to make their vacation rental plans better.
UPDATE:
The house is built, nearly ready to move in. This has gone mostly smooth. My wife and I have leverage because we've paid way more in and there were some minor disagreements but nothing terrible or even bad. All money in from pre-construction engineering, to builder invoices, to insurances, LLC costs, solar company, etc, etc is tracked. BIL family agreed to pay a fixed amount monthly (what they can afford) into the LLC bank account, we cover the rest, which is way more but we track proportional equity.
One thing I would've done differently, knowing what I know now is - and this was in the LLC Operating Agreement - was to hold bi-weekly meetings and keep meeting minutes. Go over old business, new business, etc, your basic Robert's Rules and typical board room stuff. We do this now, but had we done it from the start it would've saved some time, prevent some things falling into the cracks, avoid misunderstanding, etc.
We will be doing short-term rentals to help pay for this. This could be a source of contention for people wanting to use the house on certain days, that is an agenda item to discuss (and mostly both households will be there at the same time anyway but still, getitng a defined process documented).
Regarding taxes: we havn't taken on rental income yet but will in 2024. Furniture isn't in yet either, so my accountant decided it was best to wait until next year. I will be getting all expenses into Quickbooks or similar so I can export data to them. They will calculate all the deductions on things retroactively and currently and provide a tax form (a schedule k I think?) for my BIL showing his share of tax credit/liability proportional to his equity that he can share with his tax preparer. So the tax part appears to be seamless.
One thing we did that wasn't really Mustachian is we engaged with an interior designer, a service from the rental management company, b/c we live a couple hours away and just don't have the bandwidth to be up there multiple times as the deliveries come in. Or store it ourselves and rent a truck. They take a decent % of the cost of overall furniture but manage all deliveries, do the installation and setup. They do pass on vendor discounts and we of course can compare to retail and also will have some things we can transport ourselves.
As a refresher, the land/crumbling (barely inhabitable) cottage was all owned outright, cottage removed, new and bigger house constructed. The bank appraised it at a couple hundred thousand dollars more than what I figured the best case scenario would be so that was a very pleasant surprise. This is a very popular tourist area so unless something cataclysmic happens, our safety net and golden parachute would be to sell the property and would make money on the whole deal after paying off the loan which is the absolute last ditch resort if somehow our nest egg runs out, multiple job losses, etc.
This has been a long and painful process. Not because of the multiple ownership stake and family, but the entire process in general of engaging and vetting a builder, looking for financing (and deciding how much of our capital do we put up), working with the overall design of the house, cabinet design/selection, appliance design/selection. Countertops, tile, flooring in multiple rooms, etc. Shower styles, vanities, lighting, Landscaping (man was this a chore), working with the septic vendor, solar company (that permit has been held up by the town for some reason I still need to get the solar company to tell me why), furniture selection, decor, etc.
I hope maybe this can help someone else in a similar situation. We really wanted to a have multi-generational family home in something new and nice to replace the absolute dump that was there before. Forming an LLC with an operating agreement, company meetings to define processes, set boundaries and establish agreements, but none of this would work if the two households don't love and trust each other. It only worked because of that and we're all fiscally responsible and don't have any bad habits or marital problems, or personality disorders, etc.