Business Structure for Multiple STRs
For those of you who own more than one STR. How do you have it structured?
I see a lot of discussions about placing properites in an LLC, but the discussion tends to end there. When I look at Airbnb profiles, I often see owners that managed those properties under their own name. "Joe" is the host and also hosts 5 other properties. Isn't that risky from a liablity standpoint? When people sue they often sue the property and the property manager. If the property manger is the owner of that property it seems like he puts that property and all his or her other properties at risk.
I'm trying to create a structure that will provide me with a reasonable amount protection without being a nightmare to manage. After listening to some podcasts on the subject (BP Rookie 105 for example), it seems like something like this would provide the best protection.
The management company would basically be "hired" to run the properties but wouldn't actually own anything. Funds would go through the management company, to the property (pay bills) then go to the investment company which is where I would gain my paycheck.
Of course I also have an umbrella policy and each LLC would have its own liability coverage.
Am I making this to complicated? I would love to hear how you guys have set up your businesses.
Thanks.
Last, to respond to some comments that I know are coming.
- Yes, I understand that a forum is not the best place to get legal advice.
- Yes, I have an appointment with a Lawyer on Tuesday so I'm not just relying solely on this thread.
- Yes, I do know how to use the search function, but I still haven't found what I'm looking for (♫ U2)
- Yes, I overthink everything... that's just who I am.
I think you're making it way too complicated, unless you own and manage dozens of STRs. Many very experienced STR investors here don't even use LLCs, just good liability insurance. If you already have that covered then I don't see why a complex business structure is necessary.
The structure I was just advised on from MA tax accountant - continue to put my personal STRs in my personal LLC and use another LLC for property management business and real estate transactions. I am licensed realtor in MA. I operate as a foreign LLC in FL (which is linked to my personal LLC) for my personal Florida STR. I am investigating other state regulations as I expand my out-of-state investments. Hope this helps. I also carry $2M liability insurance per personal property. Once I start managing other people's STRs, I plan to purchase an umbrella policy. Still figuring that part out. Hope this helps.
State-specific. Different business entities available in different states (not sure if the properties are all w/ you in TX, using a TX lawyer)
@Alex Talcott I live in TX but the properties are in TN. I think the concept of having a seperate LLC to manage the properties could be universal though. If you hold your properties in an LLC but manage them personally it feels like you are exposing yourself to the very risk you're trying to avoid by forming an LLC in the first place.
@Rhonda Cohen That sounds more or less like what I'm thinking about doing. Question, is your Airbnb (VRBO, or whatever) account in your personal name or in the management company's name?
@Kevin Luttrell I appreciate the feedback. Insurance policies are great and I have them, but there are also times when they aren't enough. You could get sued for something that the insurance company refuses to pay on for example. That's where having an LLC can be helpful. As Luke often says, The STR business is "hosting drunk people on vacation". There's a lot that can go wrong and the idea that I would hold any of these properties in my own personal name (much less multiple) is too much risk for me.
Thanks for all your input.
Some states offer "series LLCs" -- advantages and disadvantages to different states' structures
Quote from @Nathan W.:My personal properties in my name on website. Deposits to personal LLC business account. When managing other people’s property it will under my business name. Deposits will go into bank account of LLC for property management.
@Alex Talcott I live in TX but the properties are in TN. I think the concept of having a seperate LLC to manage the properties could be universal though. If you hold your properties in an LLC but manage them personally it feels like you are exposing yourself to the very risk you're trying to avoid by forming an LLC in the first place.
@Rhonda Cohen That sounds more or less like what I'm thinking about doing. Question, is your Airbnb (VRBO, or whatever) account in your personal name or in the management company's name?
@Kevin Luttrell I appreciate the feedback. Insurance policies are great and I have them, but there are also times when they aren't enough. You could get sued for something that the insurance company refuses to pay on for example. That's where having an LLC can be helpful. As Luke often says, The STR business is "hosting drunk people on vacation". There's a lot that can go wrong and the idea that I would hold any of these properties in my own personal name (much less multiple) is too much risk for me.
Thanks for all your input.
@Alex Talcott Yes, I'm still trying to wrap my brain around those. I'll definaltey ask the lawyer on Tuesday if that's a good option here. Good point.
@Nathan W. I 1000% agree with @Alex Talcott, series LLC's make it VERY attractive from an ownership standpoint, but you will need to discuss with the attorney how that relates to asset protection. I would also say, just because the STR is being listed by an individual, DOES NOT mean that is how Title is held. You can personally list all the properties and make it seem that the STR's listed on your AirBnB profile are yours, but legally speaking it all boils down to who is on Title. Several professionals, I would recommend that you discuss your idea and structure with
- Corporate Attorney (which your doing and kudos to you for taking that step to arrange before posting on BP about it)
- Property Insurance agent. This will be critical, because you don't want too complicated a process that the insurance companies overcharge you (not sure if this could be an issue but it strikes me as a possibility)
- Lender. Unless you plan on buying all cash, and never touching the equity, or if you have a broad base of private money (not private lenders, there is a difference) then you will need to understand the lenders' requirements for STR's, and more importantly how they will expect to have title held so that they are protected. Having a preferred lender involved in your conversation, especially when talking with the attorney will save you ALOT of back and forth between parties, thus increasing unnecessary costs.
Personally, I do not see you overcomplicating things, you are doing your best to be well educated and approaching your venture with eyes wide open. It took me over FOUR years of studying and sitting under mentorship before I made my first real estate investment deal as a lender. I actually made that loan while deployed to Afghanistan on the side of a mountain, to an RE Investor in Pensacola, FL. So while everyone bangs on the "Time is short act NOW" drum, you continue to shore up your knowledge and confidence. I believe the previous three mentioned professionals will help answer any and all questions that you may have concerning your structure as well how to best proceed. Best wishes and much success. I've attached a PNG file that may better explain my thoughts. You basically have the idea down, yet you may want to have the Management company NOT owned by the owing entity as well you may want to structure the ownership entity as a Corp, so that you can #1: collect a W2 #2: contribute to a solo 401K #3: Run more personal expenses through the entity for tax write off options such as health ins. and other insurances. As a side note this Ownership Corp could easily be replaced with an LLC taxed as an S-Corp, but you will have to consult your CPA about that as well.
@Edwin Epperson That graphic is perfect and exactly what I was looking for. I think I'll show that to the lawyer when we talk. Thanks!
I do wonder if having the Airbnb profile in your personal name vs the Management Company's is a problem. I get that the TItle is held in the Asset LLC but that's a different entity anyways. It just feels like you are personally managing vs using the Management LLC which could lead to liability but I'm probably overthinking that part of this.
Thanks again for taking the time to post.
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@Nathan W. it's always a balance/choice between amount of insurance and LLC for asset protection.
One thing everyone forgets though, is keeping your name out of the equation also keeps you & your family personall safe:
1) Not nutjobs tracking you down and showing up at your house (happened to me)
2) Keeps your name out of the news if something goes wrong
FYI - not sure why you and Edwin both show separate Management Companies? Your XYZ LLC could be a holding company that you own, that the individual property LLC's hire to run their affairs. As long as the property LLC's are single-member, they may not need their own bank accounts. Only the XYZ holding company would need a bank account (collect funds, pay bills). The holding company would then hire a property management company on behalf of the property LLC's.
What's up @Nathan W.! I got my structure in a way where I am completely separate. I could go into depth into this. However, I believe there are more other qualified individuals who can walk you through a personalized business and entity structuring plan. Have you heard of Anderson Business Advisors? I have a link I can send your way, I am affiliated with them so they will give you a free structuring as a result of using the link. Let me know if that'll help
I use a structure as you'll see Clint Coons talk about on YT. He has a great description. Had our own lawyers draft it up.
Legal side of things: Holding Company to manage ---> TX series LLC to hold the TX properties and FL entities to hold STRs in Florida.
Tax side of things: Have two business accounts, money goes from AirBnb or VRBO to this account. I can take owner draws from the money in the LLC side or take W-2 salary or owner distributions from the corporate side.
I am just starting to set up BlueVine banking because it allows Profit First sub accounts. Listen to Profit First for Real Estate Investors. Very good to set up in advance.