Passing rental expenses through to the landlord

[Robert Silvernagel]

Hi biggerpockets community! I come to you seeking sage advice yet again. 

So here's my situation. I'm currently handling all management of a friend's downtown Seattle condo via Airbnb while he's living abroad. Things have been going really well, and he's asked if I would help him convert a second unit into an Airbnb from a long-term lease. Since there is significant upside for both him and myself, I willingly obliged and am happy to help with minor repairs and spend the time and money to furnish the unit in preparation for our first guests.

My question for you is what is the best way to handle the expenses associated with all of the costs needed to get the unit ready for Airbnb? We are planning to put up a coat of new paint as well as oversee contractors to replace the worn out carpet (has to be done, it was destroyed by the last tenant). The owner is overseas and so he was hoping that we could take on these expenses ourselves, itemize all expenses associated with preparing the unit, and then deduct those from his future payouts. We are currently handling the airbnb payout directly, and then plan to pay him his 80% cut after our management fee (and all associated expenses) have been accounted for. Can we do this without being a LLC or other business entity? The thought was that we should be able to cut him a 1099 at the end of the year for the revenue he will be bringing in, but neither my wife (an accountant by trade) or myself (software developer) have had experience with this before and don't want to get stuck not being able to expense all of these costs.

Please advise, and thanks in advance!

Rob 

[Ned J.]

So you are basically acting as the PM for his rental business......and he wants YOU to front all the costs for the expenses to rehab a unit and make it another AirBNB.....and pay you back as HIS unit generates income?

No legit, professional PM company on the face of the earth would do that....NONE. So I'm not sure why you would want to do it, unless you are really a partner in the property..... i.e have some ownership or equity in the property

If you want to be the PM of your friends unit, then act like a pro PM would act...... the owner pays all the expenses and they pay you for your management. Don't treat this differently and screw around with how the $$ gets moved around just because you are friends....that's a recipe for disaster and an end to the friendship real quick.

If your friend wants you to front $$ for a unit rehab, then you need to make arrangements to be a bigger partner in this "business" and you need to work out those details. No way am I fronting $$ to rehab someone else's asset and then waiting to get paid back.... unless I'm now a partner and will be getting paid for my "loan" in some way, what's my upside? and I see a lot of downside for me..... no way.... what if it doesn't rent as well as we thought? am I cool with it taking many months or even a year to get paid back? You are floating your friend an interest free loan.... nope.....

If your friend just doesn't have the $$ to do the rehab, and you do then fine....lets partner to make it happen so we can both make more $$.....you need to get paid for your loan and the risk to your $$ involved.