Short-Term & Vacation Rental Discussions
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback
Creating LLC for Airbnb?
I've been researching and it seems that most sources are say yes to creating an LLC. Has anyone had any experience with creating an LLC for their Airbnb or regretted not creating one? The property is in PA and it seems like it is a smarter idea to create one since it will be a quicker turnaround of guests than a conventional lease. I also own another property so I think it might make sense to create the LLC?
Hi Michael. We have a STR in TN and one in NC. If I remember correctly we would have paid TN corp taxes of 6.5% if we used an LLC. Also financing was more favorable without.
- Rental Property Investor
- Tennessee Florida
- 5,673
- Votes |
- 4,227
- Posts
You need a lawyer for this one bud.
- Investor
- Greer, SC
- 14,168
- Votes |
- 11,892
- Posts
No if you have mortgages, and really no since you have so few.
Make sure you have the correct insurance.
If your losing sleep over this then add an umbrella policy and call it a day.
Once your assets are paid off and you have no incumbrances against the property then it would be time to consider it, but if you have an umbrella policy then still no need.
Once I got over 20 paid off properties, I started putting assets in LLC's.
I hesitated about posting since I have no experience with AirBnB... If you read my posts, I am in that "BP camp of anti-LLC" unless you really need it. As mentioned, there are many more upfront and "unseen" costs with having the LLC to achieve and maintain the liability protection. If you don't mind, I'll give my 2cents on the matter:
I realize that with the greater number of guests/tenants there is a possibility/perception of increased liability risk... Honestly, i don't know. I would think that if you kept up the properties the risk would be no greater than a long term rental. It might even be less since it may not be 100% occupied with people coming and going. Also, I heard from others that AirBnB actually provides some insurance or something for you / guests.
As with long term rentals, for what and who is really going to sue you? Most people don't have the resources to really carry through with a lawsuit. In your case, your insurance will carry the burden of the legal fees since they don't want to have to pay out --- key aspect for maintaining your insurance. If anything, for an AirBnB I'd be more afraid of getting bad online reviews than a lawsuit. For my long term rentals, there is no real online review system, that I know of, if a tenant doesn't like me. Its all word of mouth.
I hope that helps. good luck.
@Michael Lewicki as the saying goes, it's better to have it and not need it than need it and not have it. Especially if you plan to scale up your business and bring in business partners.
@John Underwood
Yea you’re right I just overthink worst case scenarios
@David M.
Yea that does make sense, I can get an umbrella policy like everyone seems to advise. I’m from NYC, here there’s always some lawsuit going on so I always worry they’ll go after me personally and my other assets.
An LLC is very cheap insurance and insulates your asset(s). However, financing will certainly be more difficult and more expensive.
This can be circumvented by transferring property to an LLC after closing the loan, but you need to make sure that is fine with your lender beforehand. Some lenders have a due on sale / transfer clause which you must be mindful of.
Overall, I highly recommend using an LLC.
Just be mindful of the often suggested "franksteining" of your Title and mortgage. The Due on Sale clause to me is a minor problem --- you just need to be ready to refinance. however, you need to protect/maintain the corporate veil of your LLC. That is its whole reason for being. So, potentially co-mingling your funds and using like an alter-ego is a bad idea. Just think, which entity makes the mortgage payments? Its under your personal name so it should be drafted from your bank account. But, the LLC is the one doing the leasing, right? Think about it... If this was with two strangers, would this really work? I write a little more about this here
https://www.biggerpockets.com/...
I keep writing about this and have yet to hear anything. Meanwhile, the mortgage/lien/note is still in your personal name, not under the LLC so you no longer have that liability protection. Its liabiilty might be limited to ITS assets, but you are still liable for those mortgage payments. As always, consult a few qualified professionals.