My brother is starting a new business venture. If it pays off, he’ll be set with a decent passive income while he has time to work on the things he loves, like photography. I do my best to be supportive of my brother- he’s an amazing photographer. Don’t believe me, check out his site. At the same time, I think I am more nervous about the risks he’s taking than he is. But he’s going about this in a smart way, and in addition to being nervous, I’m excited for him.

First, some background. My brother is older than I am, and I’ve learned a lot from him over the years- both from his successes and mistakes. It’s kind of nice to have someone take the turns (right and wrong) in front of you. He left college before he got his degree, but went in to the military and got some very specialized training. Since getting out of the service, he has spent most of his time working for military contractors. His training and clearances make him one of a limited number of people who can do what he does. And he gets well paid for it.

For the last three years, he has been working in Australia. Being far from friends and family has been hard on him, but it’s been good for his savings. He’s been talking with a friend back here in the States about going in to business together for quite some time. They ran through a number of different business ideas and very recently settled on one- running a backpackers’ hostel.

At the end of March, my brother will be back in the States, settling in a lovely coastal town in California, with a new start up business under way, without him having to spend any of his money until he actually gets here.

The town they’re in already has one hostel, but all reviews say it’s dirty and not well kept up. He and his business partner figure if they can keep their place clean and nice looking, they’ll have the edge.

Here’s how it’s working. They have already leased a 5 bedroom house that has the correct zoning and is only a block away from public transportation. They need to buy 2 sets of bunk beds for every room and get some necessary work done on the bathrooms.

They’ve gotten the house without either of them putting up a single penny. Right now, there is a third, silent partner- a guy who runs a website where people book space in a hostel. They have a (non-exclusive) contract with him to be able to book the hostel, and for now have managed to lease the house on his credit and are operating under his business licenses.

When my brother bets here, he and his partner will form an S-Corp and then get all of their own licenses and transfer the hostel to those.

Now, when you’re starting out, just like with most businesses, a hostel is not passive income. Someone has to be there 24 hours a day to check people in or in case something goes wrong. Even they have a house curfew, toilets can clog at 3am.

But they have a plan for that, too. There’s a specific kind of visa that lasts for one year, and requires people to have a permanent address and a job. It’s apparently quite common to advertise for couples who want those kinds of visas and have them come work at the hostel for 6 months. The hostel provides the needed permanent address and the job, but they only have to work for 6 months and can travel for the other 6. Hostels look for couples because people in couples tend to be more responsible.

So there they have it- hire a couple of European’s on a yearlong visa to work the front desk, manage bookings in person and through the website (which gets a cut), and keep the place clean. The couple working for them will have some light cleaning duties and they’ll bring in a cleaning service on a regular basis for the bathrooms and deep cleaning.

They’ll have 5 bedrooms that sleep 4-6 each. Beds will cost a little over $25/night. They figure that if they can keep the place full for most of the year, after expenses, they can clear around $55,000 each.

And that’s with the plan of the only work they’re doing themselves being handling the booking. It’s not a great passive income, but considering it leaves them time to do other things, and they plan on sharing an apartment, it’s more than livable. Not bad at all for a mostly passive income.

And, to cut his risk even more, my brother is making sure to leave his current company on good terms. His clearances are good for another full year. So, if at any time during the next year, it looks like he won’t be able to make it on the business income, it won’t be hard for him to get a job back doing what he’s been doing. (And it pays considerably more than $55k/ year.)

So there we are. I feel like this should be a guest post over at Creating Passive Income, except that Derek is better about doing the actual research on these ideas, and I’m just quoting what I can remember of conversations with my brother.