Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

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Topic Author
Perkunas
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Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by Perkunas »

[edit 8/14/20: I am NOT going to buy this house... no need for more comments :wink: ]


I've been mulling the idea of owning a 2nd home in the NC mountains (likely close to Beech/Banner Elk or Sugar Mountain) with the intent for it to be used by our (extended) family 6-10 weeks per year, and then possibly rent it out when we are not using it. My in-laws are also interested in this idea, and there is a chance we would buy a place together with them.

I'm trying to get some info on the financial side of things on what to expect from renting it as an Airbnb for part of the year, and other input on what we can "afford" to buy. In order to buy a place that would meet our expectations, the price would likely be > $400k and in reality probably closer to $500-600k.

Zillow shows the following for a $600k purchase:
$600k - $120k down pmt (down pmt would have to come from in-laws)
30-yr fixed at 3.5% (we just refi-d our primary at 2.875; I'm assuming the rate would be worse for a 2nd home?)
~$2500 annual property tax + $2500 insurance
= $2575/month all-in before utilities/prop mgmt fees

I think we would split the mortgage 50/50 with my in-laws and do the same with any proceeds from renting it out when we're not using it. They are ~72 yrs old retired with no debt with $2.5MM in IRAs and own their home ~$400-500k value. My wife and I are late-30s with a 1 year old; net worth ~$600-$650k. Our income is ~$180k and we max her 401k, my Simple IRA, my HSA, and my Roth IRA and contribute $200/mo to a 529.
  • What would a reasonable expectation be for annual airbnb income or occupancy be assuming it is available for rent 10 months per year?
It seems to me if we could rent it out for ~10 days per month, we should be able to net around $1500 after paying utilities and some prop mgmt fees.
  • Is this a horrible idea?
  • If our budget is $500-700/month for this 2nd mortgage, and in-laws contribute the same (therefore $1000-1500/mo combined from us as owners), is it reasonable to believe we could consistently earn the other $1100/mo from Airbnb?
  • How big of a pain in the butt is it to own an Airbnb that is hundreds of miles from where we reside?
  • What other questions should I be asking and what other sources should I look at for research?
I suppose we'd have to pay some sort of property management fee plus utilities which would likely tack another $200-500/month right there.
Last edited by Perkunas on Fri Aug 14, 2020 10:42 am, edited 1 time in total.
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alpenglow
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by alpenglow »

How far away is it? We own a "cabin" in VT that is 6 hours away. We have young kids too and we never use it. The drive with kids is a such drag. Plus, it just isn't reasonable for a weekend getaway. We're considering selling to buy something more practical within 3 hours.
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Perkunas
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by Perkunas »

alpenglow wrote: Mon Aug 03, 2020 1:46 pm How far away is it? We own a "cabin" in VT that is 6 hours away. We have young kids too and we never use it. The drive with kids is a such drag. Plus, it just isn't reasonable for a weekend getaway. We're considering selling to buy something more practical within 3 hours.
It is 6+ hours drive from the town where we live along with my in-laws. It is too far for a weekend, but possible for a long-weekend. My wife works 3 days/week but I have a normal M-F work week. In-laws are fully retired.

PS, I lived much of my adult life in VT. Mad River Valley followed by Burlington and Winooski. Met my wife up there!
tibbitts
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by tibbitts »

Perkunas wrote: Mon Aug 03, 2020 1:51 pm
alpenglow wrote: Mon Aug 03, 2020 1:46 pm How far away is it? We own a "cabin" in VT that is 6 hours away. We have young kids too and we never use it. The drive with kids is a such drag. Plus, it just isn't reasonable for a weekend getaway. We're considering selling to buy something more practical within 3 hours.
It is 6+ hours drive from the town where we live along with my in-laws. It is too far for a weekend, but possible for a long-weekend. My wife works 3 days/week but I have a normal M-F work week. In-laws are fully retired.

PS, I lived much of my adult life in VT. Mad River Valley followed by Burlington and Winooski. Met my wife up there!
It's too far away - you would need it to be less than half that at most. And remember you might have to deal with traffic, depending on time and location.
DarkHelmetII
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by DarkHelmetII »

Why not just rent what size you need, when you need it? 6+ hour drive away + splitting with in-laws sounds like, well, a disaster. Perhaps a little dramatized but for me, personally, just sounds like like layering in a lot of overhead.
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alpenglow
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by alpenglow »

My advice then would
Perkunas wrote: Mon Aug 03, 2020 1:51 pm
alpenglow wrote: Mon Aug 03, 2020 1:46 pm How far away is it? We own a "cabin" in VT that is 6 hours away. We have young kids too and we never use it. The drive with kids is a such drag. Plus, it just isn't reasonable for a weekend getaway. We're considering selling to buy something more practical within 3 hours.
It is 6+ hours drive from the town where we live along with my in-laws. It is too far for a weekend, but possible for a long-weekend. My wife works 3 days/week but I have a normal M-F work week. In-laws are fully retired.

PS, I lived much of my adult life in VT. Mad River Valley followed by Burlington and Winooski. Met my wife up there!
I am just one data point, but our needs changed and 6 hours away became highly impractical for us.

I love the Mad River Valley and the Burlington area. Love the whole state pretty much. Our cabin is in Orange County so it is very quiet out there. If it were closer I'd be there all of the time.
sailaway
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by sailaway »

Perkunas wrote: Mon Aug 03, 2020 1:51 pm
alpenglow wrote: Mon Aug 03, 2020 1:46 pm How far away is it? We own a "cabin" in VT that is 6 hours away. We have young kids too and we never use it. The drive with kids is a such drag. Plus, it just isn't reasonable for a weekend getaway. We're considering selling to buy something more practical within 3 hours.
It is 6+ hours drive from the town where we live along with my in-laws. It is too far for a weekend, but possible for a long-weekend. My wife works 3 days/week but I have a normal M-F work week. In-laws are fully retired.

PS, I lived much of my adult life in VT. Mad River Valley followed by Burlington and Winooski. Met my wife up there!
Do you currently drive that far for vacations several times a year?

For that area, $600k buys a lot of house, but they don't seem to have lots of bedrooms like I would expect for a vacation rental (ie, 3500 SQ ft with 3 bedrooms).

This seems like a huge investment given your current salary and net worth.

What would be the plan if your in laws pass?
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Perkunas
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by Perkunas »

DarkHelmetII wrote: Mon Aug 03, 2020 1:56 pm Why not just rent what size you need, when you need it? 6+ hour drive away + splitting with in-laws sounds like, well, a disaster. Perhaps a little dramatized but for me, personally, just sounds like like layering in a lot of overhead.
Part of our thought-process:

-Ownership would allow us to leave belongings in the mtns. With a small child, we could store a crib up there; we could baby-proof the house; we could store baby gates, etc. So when it is time to pack, all we have to do is put the child into the car and go.

-Owning with our in-laws: we get along great. We would buy a house that we could all fit into at the same time to allow us to travel together. We wouldn't necessarily put all of our names on the title, but we would share all of the expenses regardless of who technically owns it. They rarely travel by air but they enjoy road trips.
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Perkunas
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by Perkunas »

sailaway wrote: Mon Aug 03, 2020 2:02 pmDo you currently drive that far for vacations several times a year?

For that area, $600k buys a lot of house, but they don't seem to have lots of bedrooms like I would expect for a vacation rental (ie, 3500 SQ ft with 3 bedrooms).

This seems like a huge investment given your current salary and net worth.
Historically my family does 1 international trip per year and 1 big ski trip per year, along with several other shorter trips either by car or plane.

The $600k home I was looking at is a phenomenal location with mountain biking, hiking and skiing from the door. It is 3500sq ft.
sailaway wrote: Mon Aug 03, 2020 2:02 pm What would be the plan if your in laws pass?
That is a great question. I don't know. I assume we would inherit their half of the house and their half of the debt.
bogledogle
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by bogledogle »

Can you afford the property outright without the ability to rent it out if you had to?

You or your in-laws may want to spend weekends there just like most airbnb guests. If you rely on rental income to pay for the home, then you should set your expectations as if this is a business and run the numbers.

Do not forget to add furnishing costs and upkeep costs to make the home look pretty. If you are 100s of miles away or have full time jobs, you cannot manage the property. Look into AirBnB management companies and their costs:

http://rentingyourplace.com/airbnb-disr ... anagement/
https://www.airbnb.com/d/hosting-services
https://www.vacasa.com/property-management

If you are looking for pleasure, it might be worthwhile buying a cheaper place or renting.
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alpenglow
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by alpenglow »

Perkunas wrote: Mon Aug 03, 2020 2:09 pm That is a great question. I don't know. I assume we would inherit their half of the house and their half of the debt.
I guess your spouse is an only child and/or would be the only person inheriting all of the assets? If not, things could get very interesting.

Also, just another personal data point. I once got involved in some real estate with a family member. I thought there was a very strong, positive relationship there. Without exaggeration, it was the biggest (and most costly) mistake of my life.
jibantik
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by jibantik »

My opinions:

Buying a house to use 6 weeks a year - sounds awful.
600k vacation home - sounds awful.
Being 6+ hours away - sounds awful.
Buying a house with your in laws - sounds god awful.

This is like a timeshare on steroids. :D
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ResearchMed
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by ResearchMed »

Perkunas wrote: Mon Aug 03, 2020 2:04 pm
DarkHelmetII wrote: Mon Aug 03, 2020 1:56 pm Why not just rent what size you need, when you need it? 6+ hour drive away + splitting with in-laws sounds like, well, a disaster. Perhaps a little dramatized but for me, personally, just sounds like like layering in a lot of overhead.
Part of our thought-process:

-Ownership would allow us to leave belongings in the mtns. With a small child, we could store a crib up there; we could baby-proof the house; we could store baby gates, etc. So when it is time to pack, all we have to do is put the child into the car and go.

-Owning with our in-laws: we get along great. We would buy a house that we could all fit into at the same time to allow us to travel together. We wouldn't necessarily put all of our names on the title, but we would share all of the expenses regardless of who technically owns it. They rarely travel by air but they enjoy road trips.
I get it about leaving "stuff" there, especially with young children.

What about seeing if you could rent long term, perhaps even annually?
Travel is down now, even if domestic isn't as bad as international. But some owner might be delighted to receive a "lower than in the past" rate that is week after week/month after month, and without screening and other re-renting hassles? Also probably without the cleaning after each different rental person/group?

Or, ask... if you'd be there <some minimum number of weeks, etc.> perhaps there is a closet that you could "rent", and lock it for your own things (toys, packages of diapers and baby food, clothing, etc.).

RM
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galawdawg
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by galawdawg »

That "planned" six to ten weeks of use per year may drop very significantly. Six or more hours is too far for probably even a long weekend. I assume you have been to that area and know that the last fifty to sixty miles of your drive will be on two lane mountain roads and during winter precipitation, the roads do become hazardous. As your child grows older, their "activities" such as sports, clubs, friend's birthdays and such will interfere with your ability to get away as often as you might plan now. What happens in the years when your spouse tires of the mountains and wants to spend a week at the beach, or Disney World, or another part of the country, or anywhere but your vacation investment property? Your in-laws may enjoy traveling a distance to a mountain community now in their early seventies, but that may change within the next ten or so years. Will the "extended family" also pay to rent the vacation home? What if they want to stay there during the winter in prime ski season, where you make the majority of your rental income? Will you block off "prime" weeks from paying customers so that your extended family can stay for free?

As far as investment property, in a very good year the best you can probably hope for is to break even. And that assumes no major repairs or other large expenses. That also assumes average occupancy. In years such as this one, occupancy rates on vacation rentals have plummeted. Unlike a primary residence, when you sell, you'll pay significant taxes on any capital gains as well as depreciation recapture unless you do a 1031 exchange. So don't plan on the property "paying for itself" long-term.

If you assume that fifty percent of your annual expenses are not recouped, is it still a good "investment?" What if it is seventy-five percent? If you assume that twenty-five percent of your fixed costs (principal, interest, taxes, insurance, utilities, maintenance, HOA fees and the like) are not recouped each year, how many weeks of vacation rentals would that pay for each year for you and your family?

We live within a hundred miles or so from some very desirable resort areas in the mountains of Georgia, NC and TN and are now retired so could enjoy many weeks at a mountain vacation property each year if we wanted. Even for us, purchasing a mountain vacation property did not make financial sense.
wackerdr
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by wackerdr »

Perkunas wrote: Mon Aug 03, 2020 1:36 pm I've been mulling the idea of owning a 2nd home in the NC mountains (likely close to Beech/Banner Elk or Sugar Mountain) with the intent for it to be used by our (extended) family 6-10 weeks per year, and then possibly rent it out when we are not using it. My in-laws are also interested in this idea, and there is a chance we would buy a place together with them.

I'm trying to get some info on the financial side of things on what to expect from renting it as an Airbnb for part of the year, and other input on what we can "afford" to buy. In order to buy a place that would meet our expectations, the price would likely be > $400k and in reality probably closer to $500-600k.

Zillow shows the following for a $600k purchase:
$600k - $120k down pmt (down pmt would have to come from in-laws)
30-yr fixed at 3.5% (we just refi-d our primary at 2.875; I'm assuming the rate would be worse for a 2nd home?)
~$2500 annual property tax + $2500 insurance
= $2575/month all-in before utilities/prop mgmt fees

I think we would split the mortgage 50/50 with my in-laws and do the same with any proceeds from renting it out when we're not using it. They are ~72 yrs old retired with no debt with $2.5MM in IRAs and own their home ~$400-500k value. My wife and I are late-30s with a 1 year old; net worth ~$600-$650k. Our income is ~$180k and we max her 401k, my Simple IRA, my HSA, and my Roth IRA and contribute $200/mo to a 529.
  • What would a reasonable expectation be for annual airbnb income or occupancy be assuming it is available for rent 10 months per year?
It seems to me if we could rent it out for ~10 days per month, we should be able to net around $1500 after paying utilities and some prop mgmt fees.
  • Is this a horrible idea?
  • If our budget is $500-700/month for this 2nd mortgage, and in-laws contribute the same (therefore $1000-1500/mo combined from us as owners), is it reasonable to believe we could consistently earn the other $1100/mo from Airbnb?
  • How big of a pain in the butt is it to own an Airbnb that is hundreds of miles from where we reside?
  • What other questions should I be asking and what other sources should I look at for research?
I suppose we'd have to pay some sort of property management fee plus utilities which would likely tack another $200-500/month right there.
I don’t think it is a good idea. First of all, you will not get mortgage at the rates that primary residence owner will get. Your in laws don’t have recurring income, and your existing home means, the underwriter will look at this very closely.

The 6 hour away is real deal killer. Airbnb works best when you are on premises and setting aside a portion of house to Airbnb, basically getting more use of your existing asset. You are likely to lose a lot to the property manager, potentially changing Airbnb policies and fees. In the short term because of COVID this probably is a non starter. Once it gets going, expect a truck load of emotional stress with long distance property management, financial deal with in laws and troublesome vacationers.

If you still want to get into real estate as a means for diversification and somewhat passive income for retirement, do a multi-family, renter friendly unit in your town.
a_movable_life
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by a_movable_life »

So who is doing the repairs? Either swinging a hammer or being on the phone with the contractors, the property manager, the cleaning person, the realtor, or the Airbnb "Guest."

Who is going to drive up there if you need to "Put eyes on the situation." One person generally is the "point person" and more of that work falls on them.

Sometimes one half of the family gets more use of the property also.

Think of this like a business partnership. Think about what it takes to get in, and what it takes to get out of the deal. Things happen.
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by Jack FFR1846 »

If you're bringing that much stuff for a baby, maybe you need a smaller car, so you can limit yourself. Pack n play. diaper bag. Stroller. I'm done. Been there, done that lots of time with 2 kids, including on airplanes to Aruba many times.

And the idea? Silly at best.
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janezoey
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by janezoey »

So I had a young friend who bought a cabin in the woods about a three hour drive away. He hired a cleaner who would clean it between guests. He was a single guy without any dependents. So he could just drive up to check on it most weekends. It was a very modest income generating AirNBNB rental for one season. Well, what happened was that next year a bunch of frats boys trashed his cabin. He then filed a claim with AirBNB. I don't know the exact details from there, but somehow his property got to the bottom of AirBNB listings and his cabin went empty for months on end. So he was stuck paying for a mortgage and property taxes for an empty cabin.

That plan is relatively risky compared to the rest of your networth and income and sounds like gambling, but maybe worse because you can't walk out the casino if you lose. In fact, you might as well just dump your money into a hole in the woods. But oh, wait, if that hole trips someone in the woods, you totally could get sued. And what if you or your in-laws miss the second mortgage payments (perhaps a rather high chance in a global pandemic), and the bank comes and take your entire investment?

Believe me, I fantasize about a second home and escaping from the city and the virus. I have a higher networth than you and a higher household income and I don't see how you can afford a second home, even going splitsy with the in-laws. The cost of maintaining so many properties adds up overtime. I have had positive experiences as a AirBNB guest, but no way would I trust their platform to constantly deliver a stream of guests, especially during these uncertain times.
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by Sandtrap »

AirBnB VRBO
You will need someone to clean and restore/reset and inventory the unit after each rental which can be anywhere from 1 day to a week most often.

Rentals will be seasonal at variable rates with fees.
Have you calculated AirB and VRBO fees and cut?

The property should have long term tenant rental profitability and a good rental demand because it may end up that way.

In rentals, higher turnover = greater wear and tear, default, and vandalism.

Can the pipes freeze in winter?

Always have an exit plan.
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Retired1809
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by Retired1809 »

Another concern I have is whether you can get insurance on this property. And if so, what the cost would be. What is the rating for the nearest fire department? And if this is not an owner-occupied property, you'll likely pay through the roof for your policy even if you can get one. You might be limited to fire insurance as opposed to homeowner's insurance. I would consult an insurance company in the area; just be sure to disclose all the details of your plans to rent it out through AirBNB.

You're lucky you haven't already committed to this. Listen to the others here who are warning you. Please.
Wricha
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by Wricha »

Generally I am go for it type person. In your case what could go wrong? Just about everything.

1. Your in-laws become out-laws (your marriage breaks down, their marriage breaks down, one of them dies/health problems, other siblings, And of course you don’t agree on how things are maintained, managed, and used.

I was going to make a list of things make this a bad idea but dinner is on. This is a half baked idea, honestly. I own a fair amount of real estate with partners never with family. Good luck you will need it.
obgraham
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by obgraham »

Sandtrap wrote: Mon Aug 03, 2020 4:13 pm AirBnB VRBO
You will need someone to clean and restore/reset and inventory the unit after each rental which can be anywhere from 1 day to a week most often.

Rentals will be seasonal at variable rates with fees.
Have you calculated AirB and VRBO fees and cut?
Indeed. An acquaintance of mine has 3 VRBO's in a smallish town in Arizona. She tells me they are rented out virtually full time Oct-April, and even half time in the hot summer. (Go figure) However, taking care of them is a full time job for her, between cleaning and repairs.
If she paid a management company, her cash flow situation would be severely negative.
nigel_ht
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by nigel_ht »

Vacation rentals will net around 25% of gross...a lot lower than full time rentals.

Generally expect it to be a money loser and you may end up pleasantly surprised.

All that said, I just bought a mountain property 2 and a half hours away and will VRBO/AirBNB it when not using it. I was looking at property near ski resorts for a while and read enough dismal projections that I expect all the southern resorts (Massanutten, etc.) to be dead in a couple decades.
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Toons
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by Toons »

Perkunas wrote: Mon Aug 03, 2020 1:36 pm I've been mulling the idea of owning a 2nd home in the NC mountains (likely close to Beech/Banner Elk or Sugar Mountain) with the intent for it to be used by our (extended) family 6-10 weeks per year, and then possibly rent it out when we are not using it. My in-laws are also interested in this idea, and there is a chance we would buy a place together with them.

I'm trying to get some info on the financial side of things on what to expect from renting it as an Airbnb for part of the year, and other input on what we can "afford" to buy. In order to buy a place that would meet our expectations, the price would likely be > $400k and in reality probably closer to $500-600k.

Zillow shows the following for a $600k purchase:
$600k - $120k down pmt (down pmt would have to come from in-laws)
30-yr fixed at 3.5% (we just refi-d our primary at 2.875; I'm assuming the rate would be worse for a 2nd home?)
~$2500 annual property tax + $2500 insurance
= $2575/month all-in before utilities/prop mgmt fees

I think we would split the mortgage 50/50 with my in-laws and do the same with any proceeds from renting it out when we're not using it. They are ~72 yrs old retired with no debt with $2.5MM in IRAs and own their home ~$400-500k value. My wife and I are late-30s with a 1 year old; net worth ~$600-$650k. Our income is ~$180k and we max her 401k, my Simple IRA, my HSA, and my Roth IRA and contribute $200/mo to a 529.
  • What would a reasonable expectation be for annual airbnb income or occupancy be assuming it is available for rent 10 months per year?
It seems to me if we could rent it out for ~10 days per month, we should be able to net around $1500 after paying utilities and some prop mgmt fees.
  • Is this a horrible idea?
  • If our budget is $500-700/month for this 2nd mortgage, and in-laws contribute the same (therefore $1000-1500/mo combined from us as owners), is it reasonable to believe we could consistently earn the other $1100/mo from Airbnb?
  • How big of a pain in the butt is it to own an Airbnb that is hundreds of miles from where we reside?
  • What other questions should I be asking and what other sources should I look at for research?
I suppose we'd have to pay some sort of property management fee plus utilities which would likely tack another $200-500/month right there.

Personally
I think you are asking for a lot of headaches and aggravation.
I live not far from that area in Tennessee and go to Boone and Blowing Rock all during the summer,Beautiful.
You mention 8-10 weeks for your family,,,,,,,,,,,,the summer weather is nice and fall leaves are beautiful .
I Know I would not want to rent a location at those elevations in the Winter and Early Spring.
May-Oct.15th is prime
:happy
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Nate79
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by Nate79 »

I think this is a horrible idea, approaching max bad idea. I don't buy a place with family, and I don't buy a place I can't afford.

A lot of Airbnb owners are crying right now due to the global pandemic.
Onlineid3089
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by Onlineid3089 »

I wouldn't do it. Too far away, and buying with family in this situation sounds like conflict waiting to happen for a lot of reasons.

Back when I was a child my parents looked at lots of nice lake houses all over Minnesota. Ended up buying a place that wasn't all that nice on a lake that wasn't all that great at the time, but it was less than 15 miles from our farm in Iowa. As a 10 year old I thought it was crazy they didn't buy one of the really nice places we looked at. Looking back now it was an awesome decision. Not only did it get used every weekend as well as plenty of random weeknights in the summer, but they've also been able to make tons of improvements to it. They moved there permanently about 10 years ago while mom still has her same job and dad still farms.

And if your child is a boy he'll appreciate being able to bring girls over to the lake house when he's a teenager 8-)
illumination
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by illumination »

I just know people that have done Airbnb type investments and even though they like the returns, concede it can be a lot of work as you are constantly turning over tenants and it's like running a little hotel. Managing something like this 6 hours away sounds terrible to me. I could just see whole days off from work going down the toilet to address dumb things.
prairieman
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by prairieman »

Man, I get along great with my daughter and son-in-law, but I would not enter into an agreement like this with them or anyone. There is too much chance for a disagreement arising over this or that - and then one might want to sell and the other does not.
I know a brother and a sister who jointly bought a cabin and they no longer speak to each other, and it all started when one wanted to sell and the other did not. One agreed to buy out the other and then the price was disputed. Each got their own appraisals and they came to an uncomfortable agreement. Before that were fights over maintenance, adding on a deck and increasing electrical capacity. One paid far more than the other, but the other claimed they were unnecessary changes. That became an issue at the sale, too.
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Harry Livermore
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by Harry Livermore »

$600K sounds like a LOT of money for a vacation home. Our was less than 1/3 that, and earns a good return. AirbNb sounds scary. No on-site management sounds like a recipe for disaster. Involving the in-laws financially??? A nonstarter for me, personally.
We are up at our vacation rental this week enjoying some fine beach time. BUT...
small/ annoying damages we discovered upon our arrival:
Spaghetti sauce stains on sofa cushion
Burned (brand new) pot
Broken storage basket under coffee table
Insane amount of food/ wrappers in the pull-out bed
Missing laundry basket
Missing comforter/ throw from futon
Missing canvas back from director’s chair
That's with a scant 2 weeks' rental this season, and WITH on-site management... how do you think it will go when you hardly lay eyes on it between transient renters?
We live about 4 hours away from the property, so a similar position as you in terms of the property being far away, as a data point.
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Admiral
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by Admiral »

I would add that now is a terrible time to be relying on Airbnb for rental income. Many, many people have been burned due to COVID. Who knows how long the renter reluctance will last but it could be a while.

We have a cabin that is 4 hrs away. It's too far and we rarely use it. Our kids liked it when they were under 10 but as teens... forget it. They have zero interest in going.
fundseeker
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by fundseeker »

Perkunas wrote: Mon Aug 03, 2020 1:36 pm
  • Is this a horrible idea?
Yes! This sounds so complicated and risky, relationship-wise and financially! You have a one year old, maybe more coming, and there'll be so many reasons in your near future that you will not want to deal with such a legal and financial commitment, plus the obligation you will feel to drive six hours to use your other house. But then again, I wouldn't even own a second home because the one I have is enough for me to maintain. Keep your vacation options open and life simple - just rent as needed and where needed (which can definitely change over the years). :happy
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by hudson »

Perkunas wrote: Mon Aug 03, 2020 1:36 pm I've been mulling the idea of owning a 2nd home in the NC mountains (likely close to Beech/Banner Elk or Sugar Mountain)
I would personally never have a 2d home; it's too much work. I am in favor of other people having 2d homes. :) I love renting houses in the NC mountains! The VRBO/AIRBNB landlords are either nearby or have a trusted go-to person looking after the house.
bltn
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by bltn »

Second homes partially supported by rentals usually are more expensive to maintain than most people realize.
This is just one of several reasons, most of which have already been mentioned, why this sounds like a potential mess.
MikeZ
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by MikeZ »

Unlike others, there is real potential I see here. But I do see one big problem. As someone who literally lives full time in AirBnb's I think that a $600k home should command at least $300-$350/night. I am not sure you are giving indications that you are thinking the market can support that. I often rent homes that are around $250k and pay around $2,500ish a month with asking the host for a full month discount.

Also, remember a few things to think about:

1) Homes with a lot of beds (think bunk room) command a premium. Of course that means more people too. Are you okay with a bunk room?
2) You are a slave to your reviews. I mean it.
3) Your bookings are seasonal. Are you going to want to give up the cash of blocking off peak season or only go off season?
4) If you never went there, would you think of it as a good investment?
5) It will be a business. Things will happen to the stuff in it. Can you not take it personally?

Personally, I think that with more WFH people, there will be a real uptick in mountain vacation rentals.

That said I think there are two trains of thought:

1) I buy it because I can afford it and would enjoy it. I can make a little money on the side renting it out as a side-business. If I decide to stop doing that because of the hassle, I would still make the same choice to keep it.
2) I want to approach this as a business. Personally, I would do a lot of homework on AirBnB/Vacation rentals and have a real sense that this property is a solid investment. I have not heard this in your post. Don't think of it as spending $600k on a home. Think of it as spending $600k on investing in a business.
phxjcc
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by phxjcc »

Investment property 30 yr fixed is going to be 4.5% at best.

Insurance will be $3k per year; STVR is much higher than a SFH that leases for a year. Proper Insurance in Helena, MT is great—this their business.

For AirBNB it is all about the number of sleeping places. More/Smaller bedrooms with twins for the kids will yield higher rents.

Plan on 25% property management. They will tell you less, but that is the number.

Run the numbers with plans on replacing furniture every 5 years, and repainting in the same time span.

I do high end short term rentals, so YMMV.
MikeZ
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by MikeZ »

One thing to remember is that while the mortgage rate is higher, its fully deductible. Except personal usege.
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ResearchMed
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by ResearchMed »

MikeZ wrote: Mon Aug 03, 2020 10:47 pm One thing to remember is that while the mortgage rate is higher, its fully deductible. Except personal usege.
And be sure that you understand the tax rules about personal use.
Unless there has been a recent change (always possible, of course), once you exceed 14 nights/year of personal use, not counting certain maintenance time/etc., the deductibility can change dramatically, depending in part on how many un-rented nights there are.

Mostly, try very hard not to underestimate the various costs that you will, or might, encounter, including management costs if you aren't doing most of that yourself, and it seems you won't be able to.
Likewise, try not to be "too optimistic" about things like number of nights rented, and the average rate per night. If you don't have some type of very special property, rentals may not be easy, especially at first.
And as I mentioned in my post above, this may not be the best time to expect lots of people wanting to travel, even if not too far.

And then there are the potential complications of investing with family.
Make *sure* that you have a carefully and legal plan in case one party wants "out", or if there is other disagreement. Some legal fees up front for a proper and legal partnership agreement might save far more in legal fees later (not to mention possible animosity, which is likely in case of disagreement no matter what).
Just be realistic about possible outcomes of various sorts.

And have *good* insurance, including appropriate umbrella coverage. This will likely be of a separate business/commercial type, and not included in your homeowner's policy, although that may vary by state and insurer.

RM

ETA to correct typo
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novemberrain
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by novemberrain »

Perkunas wrote: Mon Aug 03, 2020 1:51 pm It is 6+ hours drive from the town where we live along with my in-laws. It is too far for a weekend, but possible for a long-weekend.
Sounds impractical.
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by jackholloway »

So take this advice for what you paid for it. Only you know all of your circumstances.

Go look at the cost of rental storage near where you would like to leave your stuff. I bet you could store all the cribs, baby gates, and other things for a grand or two a year, and could rent a place when you want to vacation.

Then, if you want to become a landlord, buy a place expressly for that. Don’t conflate the two goals, and you have a much better chance of getting what you want for both of them.

And don’t buy a place or go into business with in-laws if you can help it. Sometimes it works, but the risk is not usually compensated.
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by slalom »

The big 'unknown' to me is the location and how likely renters are to find the place desirable. I've spent some time at a house in the mountains near Brevard, NC near the Great Smoky Mountains. Very nice, however it didn't seem like an area too bustling with vacationers other than people driving through the national park, maybe on the way to somewhere else. Do you have some idea about rental vacancies and how hot the area is? What are the other rental prices like in your target area?

I will say one thing - it's not always bad to be far away from your rental. A coworker of mine bought a house in 2006 in SoCal and then everything tanked and he had to move to the Bay Area. They kept the place rather than walk away from the loan, had a management place take care of renting it and didn't visit it once for the next 10 years - had 3 long term renters over that time and only had to come down to fix it up to sell in 2016. I'm not sure what the 'typical' is but up here in my limited experience a management company taking 5% of the rental price is pretty common. Seems like a deal to me. Of course that was for houses up where I live which are $3500-5000-ish/mo for a family home. I imagine management for a vacation rental is more expensive due to the constant communication, maybe 10%?

If you don't want to lose more money having it cleaned, add a cleaning fee on top of the rental cost. Since it's not added nightly it's a nice deal for longer stays.
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by Valuethinker »

jackholloway wrote: Tue Aug 04, 2020 1:04 am So take this advice for what you paid for it. Only you know all of your circumstances.

Go look at the cost of rental storage near where you would like to leave your stuff. I bet you could store all the cribs, baby gates, and other things for a grand or two a year, and could rent a place when you want to vacation.

Then, if you want to become a landlord, buy a place expressly for that. Don’t conflate the two goals, and you have a much better chance of getting what you want for both of them.

And don’t buy a place or go into business with in-laws if you can help it. Sometimes it works, but the risk is not usually compensated.
I think this is very good advice - to separate out an investment motive & case, from a personal use case, from a personal storage case.

Then look at financial structure - and in particular the advice about in-laws is highly germane. People change, needs change. What if they need to release their equity in the future? What if you fall out with them - cognitive decline in old age can wreck even a happy relationship? What if there are other siblings besides your spouse who will inherit?

Given the uncertainty around Covid-19 this is not the moment to be making a big financial commitment, whose case is based upon AirBnB rentals. At the very least, the property will need a medically hygenic clean after each visitor. Who is going to do that and how much will it cost?
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by Valuethinker »

Perkunas wrote: Mon Aug 03, 2020 1:36 pm I've been mulling the idea of owning a 2nd home in the NC mountains (likely close to Beech/Banner Elk or Sugar Mountain) with the intent for it to be used by our (extended) family 6-10 weeks per year, and then possibly rent it out when we are not using it. My in-laws are also interested in this idea, and there is a chance we would buy a place together with them.

I'm trying to get some info on the financial side of things on what to expect from renting it as an Airbnb for part of the year, and other input on what we can "afford" to buy. In order to buy a place that would meet our expectations, the price would likely be > $400k and in reality probably closer to $500-600k.

Zillow shows the following for a $600k purchase:
$600k - $120k down pmt (down pmt would have to come from in-laws)
30-yr fixed at 3.5% (we just refi-d our primary at 2.875; I'm assuming the rate would be worse for a 2nd home?)
~$2500 annual property tax + $2500 insurance
= $2575/month all-in before utilities/prop mgmt fees

I think we would split the mortgage 50/50 with my in-laws and do the same with any proceeds from renting it out when we're not using it. They are ~72 yrs old retired with no debt with $2.5MM in IRAs and own their home ~$400-500k value. My wife and I are late-30s with a 1 year old; net worth ~$600-$650k. Our income is ~$180k and we max her 401k, my Simple IRA, my HSA, and my Roth IRA and contribute $200/mo to a 529.
  • What would a reasonable expectation be for annual airbnb income or occupancy be assuming it is available for rent 10 months per year?
It seems to me if we could rent it out for ~10 days per month, we should be able to net around $1500 after paying utilities and some prop mgmt fees.
  • Is this a horrible idea?
Yes because it exposes you to too much uncompensated financial risk and the case for you using it is weak (6 hours drive).

As per other posters, avoid financial arrangements with in-laws, if you can. When they get old, and when questions of estate etc rear their heads, it can get really messy. Even if you don't fall out about stupid, simple things.

My father never believed things cost what they cost (I think he had trouble in his mind adjusting for long term inflation). He liked doing things on the cheap. Sometimes that was wise, but sometimes it just left you with inferior quality possessions that were not fit for purpose or that you wound up throwing out. I learned never to go clothes shopping with Dad, for that reason.
  • If our budget is $500-700/month for this 2nd mortgage, and in-laws contribute the same (therefore $1000-1500/mo combined from us as owners), is it reasonable to believe we could consistently earn the other $1100/mo from Airbnb?
  • How big of a pain in the butt is it to own an Airbnb that is hundreds of miles from where we reside?
A crippling pain in the butt. In fact a non-starter.
  • What other questions should I be asking and what other sources should I look at for research?
I suppose we'd have to pay some sort of property management fee plus utilities which would likely tack another $200-500/month right there.
Besides Covid-19, what is the wildfire situation in this area? Are forest fires a significant hazard/ risk? Can you get insurance?
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Perkunas
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by Perkunas »

I appreciate all of the responses. I am not worried about the mixing of money and family, but I think the 6-hour drive is really the biggest obstacle.

It is too far away to get enough personal use, in which case it really becomes a business/investment decision. And it is a horrible decision purely from that standpoint as pretty much everyone pointed out! I got a little starry-eyed dreaming about a mountain house... now back to reality...
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by sailaway »

Perkunas wrote: Mon Aug 10, 2020 10:16 am I appreciate all of the responses. I am not worried about the mixing of money and family, but I think the 6-hour drive is really the biggest obstacle.

It is too far away to get enough personal use, in which case it really becomes a business/investment decision. And it is a horrible decision purely from that standpoint as pretty much everyone pointed out! I got a little starry-eyed dreaming about a mountain house... now back to reality...
Aren't there any mountains closer to home? Given where you were looking in NC, I have to believe that there are indeed mountains closer to home, since you have to drive through the mountains for at least a couple of hours to get there from pretty much any direction.
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Perkunas
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by Perkunas »

sailaway wrote: Mon Aug 10, 2020 10:19 amAren't there any mountains closer to home? Given where you were looking in NC, I have to believe that there are indeed mountains closer to home, since you have to drive through the mountains for at least a couple of hours to get there from pretty much any direction.
Ha, I wish.

We are on the NC coast.... 5.5 hours from Boone and 6.25 hours from Asheville. I wanted to be somewhere with access to Beech or Sugar so that I could ski in the winter.
allones
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by allones »

I am embarking on a similar scenario. My situation and numbers are a little different, but here's how I'm approaching it:

- The property is a stand-alone townhouse, so low maintenance. I've spent almost two years looking for the right place.
- It's an 8-hour drive away, but 2 hours door-to-door on a regional flight.
- Purchase price was ~$250k, which is a monthly payment I'm comfortable with totally on my own.
- It's in the town I grew up in - a mountain town that has always had strong tourism and is doing great right now because people want to get away from cities. I have a community there who will check in on the property when I'm not there.
- My job is fully remote, even pre-COVID, and I've spent about 30%+ of my time there in the past 18 months while staying in various rental situations. I anticipate spending more time there now that we have a place of our own.

I can definitely relate to wanting to have a place to keep your stuff. Schlepping things back-and-forth is a pain.

My back-up plan is to convert the property into a full-time vacation rental with professional property management if I were no longer able to afford the mortgage. I did a part-time AirBnB several years ago and I know that sharing my space with strangers and cleaning up after them is not what I want. For me, it's either a personal property or a business, but not a combination of the two.

Also - airdna.co is a good resource to find out the going rate and competition in your area. It's worth a 1 month subscription to see what demand you're really dealing with.
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by Sandtrap »

Joint ownership, responsibility, and upkeep. :?:
AirBnB , VRBO :?:

Vacation home fun with deep assets = great (if profitability is not a concern and ownership is for personal use)

R/E Investment = not so great.

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oldmotos
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by oldmotos »

We have owned a vacation rental house over 2000 miles away for 10 years with good results. However since VRBO was bought by Expedia they have made changes to benefit themselves to the detriment of the home owners. It has not affected us as much as it would a new owner as we have many repeat guests that book direct so we don't need VRBO as much anymore. You may want to check the "Say No to VRBO Service Fee" Facebook page to see the challenges facing owners. We don't use Airbnb but they use a similar business model as VRBO which prevents the owner from speaking to the guest before booking. Our property is treated as an investment so we get a good tax deduction including travel costs. We are able to use the house personally for 2 weeks a year plus usually another 2 weeks when we are doing maintenance and improvements. I manage the property myself which is usually only a couple of hours per week but we do not rent for less than a week. I do sometimes get a bunch of emailed questions that need a prompt answer. Good Luck!
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by goos_news »

I don't know you markets (but lived once in Burlington! right next to the church on Church St). I own a vacation short-term rental that is almost 6000 miles away. It is clearly only possible with a full-time, full service management company and the perspective that you are not in it for an investment, but a way to reduce holding costs between enjoying the property. And yet, pre-COVID, I still had a 4 to 5% ROE. The few times a year I go we stop by and stay a few days and do some long term maintenance and purchasing. But it is a condo in a year round rental market -- homes are a much bigger hassle. I also used to have an AirBnB 80 miles away in big tourist center, and mere blocks away from a convention center. At the peak, I was a 100K+ rental gross (and 20% ROE) until regulations kicked in and it was converted to a regular rental. The keys were getting good managers to handle the tough stuff, staying mid to high end, and when it was still possible, being careful and selective with the AirBnB crowd (with maximum occupancy).

In both situations, we would not have done either unless we knew we had plenty of cushion.
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Re: Thinking of buying a vacation home in NC mountains and doing Airbnb. Bad idea?

Post by Valuethinker »

Perkunas wrote: Mon Aug 10, 2020 10:16 am I appreciate all of the responses. I am not worried about the mixing of money and family, but I think the 6-hour drive is really the biggest obstacle.

It is too far away to get enough personal use, in which case it really becomes a business/investment decision. And it is a horrible decision purely from that standpoint as pretty much everyone pointed out! I got a little starry-eyed dreaming about a mountain house... now back to reality...
Having dealt w the problem of dementia, infirmity and just plain stubbornness of 90 somethings on both sides of the family I can tell you that just because it is "no worries" now does not mean it will always be so.

Don't have financial dealings w in laws. Just don't.
And if you do get a legal contract drawn up: "what happens if?" Is the important question the lawyers will keep asking you.


I cannot even begin to enumerate how financial dealings w in-laws can go wrong.
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