How do you structure your STR's legally?

Question

Happy Spring all!

We have been successful (moderately) in the Fix n Flip market, however recently moved and haven't found a contractor we trust here yet. That said, I have been watching this forum and have all our ducks in a row to pull the trigger on an STR. Curious to see how all you pros out there are structuring your properties. Do you have them in your personal name? One LLC for all? AN LLC for each?

John Underwood · Answer

My STR with a mortgage is in my name and has insurance.

My long term rentals that are paid for are spread out across 10 different LLC'S that are owned by a master LLC that is owned by a trust.

John Underwood · Answer

I don't want to trigger the due on sale clause in my mortgage. No worth the risk to me.

I also take care of my properties and tenants to minimize any law suit risks.

Megan Templeton · Answer

Hi there! I do recommend holding the STR in an LLC - an LLC with anonymity if possible. Tthe important pieces to consider when setting up an LLC is the cost to form the LLC, the state requirements for compliance, the charging order protections in the state, and lastly where the property is located (although this is not definitive). The LLC formation process involves completing paperwork and filing with the secretary of state, paying a formation fee, and creating an operating agreement. The cost varies by state. The process can take between 1-6 weeks depending on the state, attorney you are working with, and complexity of the operating agreement. For attorneys, The benefits of using an LLC are that it removes liability from your personally and provides protection in the event of a lawsuit because the only asset(s) at risk would be those held by the LLC. There are also tax benefits and lending benefits as an LLC provides new opportunies for write offs, financing, etc. Ideally you will only have one property per LLC to ensure liability between properties is not comingled. If you are going to have multiple properties, a series LLC is a good option as its scalable. The series LLC will allow you to create unlimited child series underneath the parent entity so they will scale with you as you grow your business and eliminate the need for multiple traditional LLCs which would require multiple filings, fees, etc so would be costly and time consuming. Series LLCs benefit from one state filing and one fee so they are cost efficient and streamlined. They also help with operations as you can run them with one bank account and one set of books (if you manage the books properly by designating funds to each property).

Wally Burbage · Answer

My business partner and I currently have 2 STR's and are looking for more. We have them in our names and each have $2 million umbrella liability policies for law suit exposure. We are looking at private money for some of our future purchases and will most likely use an LLC for those.

Drew Nashmy · Answer

Nice strategy!

Drew Nashmy · Answer

Thanks John - that was my original thought. Appreciate the input.

How do you structure your STR's legally?

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