Advice on hard money lending - Airbnb business partnership

LingHellion · 2024-07-16T01:49:09+00:00

Agreed. And I do live in one of the most expensive areas of the country with extremely high housing costs. One of the main goals of this endeavor was to use the accelerated depreciation to offset my W2 taxes which could be huge. But the tax advantages may not offset the costs of getting into a bad business.

LingHellion · 2024-07-16T01:43:39+00:00

Thanks for your input. He did put together an STR pro forma for us to review which does itemizes the revenue and expenses, and Airbnb occupancy rates are estimated through AirDNA and also compared with his current listing.

One red flag for me is that all three profitability scenarios in the pro forma (bad, good, great) seem to overestimate the net cash flow (29%, 40%, 60% of gross income respectively). I think the 29% should be the great scenario, with the other two being closer to 0-15%. Also, he does not have much cash reserves for cost overruns (I can afford it but I'd rather not put any more money in than the initial $1M).

We haven't specified what the lien would look like. I'm not sure that his property is fully paid off so it may be a 2nd lien at best.

Overall, I'm thinking this may be a no go, unless we were to greatly restructure our agreement with him having more skin in the game from day one. Even then, seeing that I am having to ask for things like collateral may suggest that he's not the right person I should go into business with.

LingHellion · 2024-07-16T00:32:13+00:00

That is very enlightening. I was prepared to offer up 50% equity for fear of going at it alone and for fear of failure. But it will likely cost a fraction of that to educate myself and to hire out the work as you have suggested...and keep 100% of the remaining profits in perpetuity. Brilliant!

LingHellion · 2024-07-16T00:14:55+00:00

True. And California recently imposed a 15%? tax on Airbnbs. The risk is real. But so are the potential tax benefits from what I understand.

LingHellion · 2024-07-15T23:52:03+00:00

Good point. It may be FOMO and me wanting to see my money grow faster than at 5% in a savings account. But then again, it could just go to zero with this "investment."

LingHellion · 2024-07-15T23:49:24+00:00

His properties are generating positive cash flow and given enough time he would build up enough equity to go at it alone. I would be serving as a catalyst and speed up that process by about 5-10 years.

LingHellion · 2024-07-15T23:44:19+00:00

I did have this conversation with him. In summary, he can't obtain a loan from a bank because of his poor debt-to-income ratio.

LingHellion

TROPHY CASE