Short-Term Rental Nightmare (Losing $2,500 A Month)

Brought to you by the EveryDollar app. Start budgeting for free today. My wife and I purchased a short-term rental in October of 2024 at the advice of a tax strategist that we hired. And we're bleeding $2,500 to $3,000 a month in this short-term rental. And I own a business. My wife's a full-time nurse. And we get taxed heavily. Obviously, the business does. And that's why I enlisted with a tax strategist to understand options as far as building generational wealth and how to do that. And that's when we got into the short-term rental. And we got bonus appreciation. So that was nice. We were able to write off the federal taxes and stuff. But bleeding $2,500 to $3,000 a month doesn't leave a very good taste in my mouth. You might as well pay that to the government in taxes at that point. You're either giving it to a lender or to the IRS. Pick your poison. Correct. Correct. So my real main question is, you know, it's hard for me to trust people now because of how this leaves a sour taste in my mouth. And I just need really good direction. What do we do with our money to help build generational wealth, to find properties that cash flow? What should my next steps be? What is your business? You know, we want to do something this year, but I'm nervous. We own a print company. Okay. Where did the real estate come into play? Because these are two different goals. I want to build wealth, but also I want to be a real estate guru and leverage a bunch of debt. Correct. The real estate came into play because of the taxes we were getting. We're getting heavily taxed, obviously. Would you agree that getting into real estate just for tax purposes is not a good idea? My wife's right here. She said true. You're losing 36 grand a year because of the tax strategist saying, dude, you want to save on taxes? Just leverage an Airbnb. It'll be great. Well, I think you thought you were going to build wealth too. I think you thought you were going to use that as a wealth building vehicle as well. Not just a tax shelter. And that's the goal, obviously, is wealth building for generational wealth. What went south with the short term? Was it the location? Did you not get the rents you thought you were going to? What happened? Honestly, I think it's our property manager. So our realtor is also our property manager. And when I met with him, I'm pretty upfront. I said, listen, I just need to know what our worst case scenario might be with this property. He said, your worst case scenario is you're going to be out a thousand dollars a month. I said, good, let's go. We're good. That sold. So you knew that from the jump? Oh, yeah. And I was fine with a thousand. I knew it wasn't going to cash so well, but I also was using the benefits of how much we were going to save on taxes, and then also building generational wealth and making this kind of a yearly thing you want. So nothing was looking good. So what would this property sell for? Property management company, a million thirty-five. It's worth, according to Zillow, a million fifty-five. We also own a home, our personal residence. We bought that for eight-twenty. It's worth about nine-sixty-five. What's left on that mortgage? That one, six-seventeen. Okay. And what's the mortgage on the short-term rental? That's about eight-twenty. Okay. So you got, let's call it, a hundred-fifty grand in equity on the short-term rental you could get out? Correct. What other debt do you have? Again, obviously, I got to pay. We did do a loan where there's a prepayment penalty. So we got a five-year prepayment penalty, which goes down every year. So we'd have to eat that, obviously. What kind of loan is this? Something. It's called a DSCR loan. Okay. What other debt do you guys have outside of the two mortgages? Truly, my wife's got a car. It's about six hundred a month. Business pays my car. We have zero percent credit cards that aren't due until next year. It's a total of about thirty-seven between both of us. Thirty-seven K. You're a credit card company's dream. I'm sorry? You're a credit card company's dream. I know. Because guess what's going to happen when you can't pony up thirty-seven grand out of nowhere to pay the balance? Well, that's, let me give you the full picture. I have one-sixty sitting in the bank. And my wife has ten grand. Between both of us, one-seventy. I already know. I know it's going to pay off that zero percent credit. Okay. Well, great. What's the total amount of your wife's vehicle? Not the monthly payment, the total amount. Total amount. It's a lease. Oh, it's a lease. And what about you? My car's paid through the business. It's five-twenty-four a month. It's a Subaru Outback. How much is the debt, though? What's the total debt? I owe, it's paid, it'll be done at the end of this year, and then I either will lease another car. What's the total debt? Don't be scared. Oh, sorry. I apologize. Don't be scared. No. So what's five-twenty-four times? No, no, no, no, no. What's the amount that you owe on your car? How much do you owe? Yeah. We owe on my car is going to be three grand. That's it? That's all you have left? Yeah, because it's a lease. So it's three-thousand. Oh, yours is a lease, too. Okay. Goodness gracious. These are the nicest cars known to man. What are you guys driving? Six-hundred bucks a month for a lease? When's the lease up? When's the lease up? My lease is up at the end of the year. We're both at the end of the year. Okay. And are you planning on buying them out, or what are you thinking here? I don't know, to be totally honest. I haven't thought about it. Okay. So we're going to help you think through that. What I want you to take away right now, John, is you're kind of like a happy-go-lucky guy, and you're fun to talk to, but I'm concerned about your situation greatly. You've got a lot going on. And the good thing is, I think a couple of moves could get you on, just a couple of small tweaks could get you on really, really solid footing. But you'll have to agree with George and I that you're in a dire situation in order to actually do this. Because I feel like you kind of think it's not that bad. You guys have out-earned your stupidity for a long time, and you can continue doing that. I just think you vehemently disagree with everything we're going to throw at you, so I don't even want to waste the time. But I'll tell you what I would do. I would sell the short-term rental, walk away with whatever money you can get, take your 160, pay off all of your consumer debt, and then anything remaining becomes emergency fund, plus paying down the mortgage. Gotcha. But leveraging the debt game... I should make that my priority, paying down our primary mortgage. Paying down everything. Pay down all of the consumer debt first, get an emergency fund, focus on paying off your primary mortgage. Right now, you're just trying to accumulate stuff and assets and car leases, and we're trying to simplify your life to where you get to keep what you take home, regardless of how much you pay in taxes. I'd rather you pay what you owe in taxes and not have all the stress in your life and go, that sucks. I had to pay the IRS more than I thought. But it's a nothing burger if you had no debt. You figured me out perfectly, because my wife would tell you, I'd be stressed out a lot about it. I bet. It's not worth it. It's very stressful. It's stressful for me just to listen to it. So I can only imagine how you feel when you lay your head on your pillow at night. But think about what George just said. You got $170,000 cash. Okay, we pay off the credit cards. That leaves us with around $130,000 or so. You decide whether or not you're going to buy out these leases. Do you know what the buyout is for each of them? I don't. I think it's around $20,000, $25,000 maybe. For each? Since I'm speaking correctly. For each. Would you guys want to keep those cars? I'd have to convince my wife, but I don't care. Okay, let's say you did. If you want to keep your car, she doesn't care. Okay, so let's say you spend $40,000 and you buy out these leases. Now you're at $90,000. You've got $90,000 sitting there after you've gotten out of these leases, after you've paid off some credit card debt. Is there anything else that we need to know that needs to be paid off? No, I just gave you all the debt we have. Okay, so now you've got some actual cash. You sell the short-term rental because did I hear you say you bought it for $1.3 million and it's worth $1.6 million? No, no, no. $1.3 million and it's, according to Rizzolo, it's worth $1.6 million now. So you'll probably take a little loss on that, but you'll gain $3,000 back in your life from not bleeding. So that's where I'm going. This is worth it. Don't have the sunk cost fallacy. It sounded like you didn't want to sell this Airbnb though, this short-term rental. I mean, I'll be honest with you. I do love the house. I wish my wife and I would love to be in Florida one day. I'd love to be in the house. But if it's going to cause me stress every day, I'd rather do the smart thing than the future goal thing. Let's talk about the why behind it because I think you had... I like what you were thinking about, which is what are ways that I can build wealth for my family. I think that that's something that we all need to be doing as parents and as spouses. But the way to do that, we did the largest study of millionaires. The best way to do that is to have a debt-free lifestyle, a budgeted lifestyle, a lifestyle that values having the right insurances, saving for emergencies, right? And then investing in your 401k regularly. That's how millionaires are built. They invest in their 401k regularly.