Tell me why this is or isn't a good idea....
My friend and I currently own 11 single family homes, and we have great cashflow and equity in our portfolio. Our 'plan' is to purchase a short-term rental, and we are currently doing all of our research to identify the best market for us. If all goes well, we would love to continue down this route, as we would like to diversify our portfolio with properties that we could enjoy, that could potentially increase equity quicker than our existing properties, and provide new markets for us to explore.
That being said, we would also love to bring friends into the mix on the second, third, etc., short-term rental. The rationale is that we would be able to expand in ways that we couldn't as a pair, we could venture into more markets, and we want to provide an avenue for our friends to join us in the real estate world.
Not now, but down the road our idea is:
- Generate funds from a group of friends
- Establish a LLC (right?)
- Find a property that hits our expected numbers
- Establish partnerships with property management, cleaning crews, etc.
- Begin renting unit
The idea would be that we would split costs, profits, etc., based on percentages of the investment.
We would also run our numbers with the idea that each person would get $X,XXX per year that they could use to book just as anyone else would. If you didn't utilize the rental property, you would receive that money back from the LLC.
So, in short, someone could invest $10,000 on a $250,000 property (we put $50,000 down). They would be a 20% owner and receive 20% of the monthly revenue, as well as be responsible for 20% of the total associated costs. If we put an allowance of lets say $2,000 a year, each investor could get their initial investment back in five years (using the numbers above), either through vacation stays OR cash back at the end of the year.
This seems like it all adds up, and I can't see any downside. That being said, I know that I could be missing something. What is that something I haven't thought about?
