Starting out Air BnB Arbitrage

[Dominic Nastri]

Anyone with Air Bnb arbitrage experience. When starting out did you create an LLC?

If so, I am assuming one LLC is enough to cover as many units that you scale to.

I read an article that said opening up a separate LLC for each unit is necessary to adequately protect you without risking all of your units at once but that seems like a lot.

Lmk

[John Carbone]

Quote from @Dominic Nastri:

Anyone with Air Bnb arbitrage experience. When starting out did you create an LLC?

If so, I am assuming one LLC is enough to cover as many units that you scale to.

I read an article that said opening up a separate LLC for each unit is necessary to adequately protect you without risking all of your units at once but that seems like a lot.

Lmk

We really need a bot on here to filter for “arbitrage” and auto remove posts. This is getting ridiculous.

[John Underwood]

These are not your units, you are just subleasing an owners property.

I would make someone leasing personally guarantee the lease outside the LLC.

[Dominic Nastri]

Quote from @John Carbone:

Quote from @Dominic Nastri:

Anyone with Air Bnb arbitrage experience. When starting out did you create an LLC?

If so, I am assuming one LLC is enough to cover as many units that you scale to.

I read an article that said opening up a separate LLC for each unit is necessary to adequately protect you without risking all of your units at once but that seems like a lot.

Lmk

We really need a bot on here to filter for “arbitrage” and auto remove posts. This is getting ridiculous.

[Dominic Nastri]

Quote from @John Underwood:

These are not your units, you are just subleasing an owners property.

I would make someone leasing personally guarantee the lease outside the LLC.

Interesting, ok. So its not necessary at all?

[Dominic Nastri]

Quote from @John Carbone:

Quote from @Dominic Nastri:

Anyone with Air Bnb arbitrage experience. When starting out did you create an LLC?

If so, I am assuming one LLC is enough to cover as many units that you scale to.

I read an article that said opening up a separate LLC for each unit is necessary to adequately protect you without risking all of your units at once but that seems like a lot.

Lmk

We really need a bot on here to filter for “arbitrage” and auto remove posts. This is getting ridiculous.

Why whats wrong with it? Just trying to learn about different avenues to take. 

[John Underwood]

Quote from @Dominic Nastri:

Quote from @John Underwood:

These are not your units, you are just subleasing an owners property.

I would make someone leasing personally guarantee the lease outside the LLC.

Interesting, ok. So its not necessary at all?

 Maybe one for the business along with insurance and any licenses to manage property for others.

[Dave Stokley]

Quote from @Dominic Nastri:

Quote from @John Carbone:

Quote from @Dominic Nastri:

Anyone with Air Bnb arbitrage experience. When starting out did you create an LLC?

If so, I am assuming one LLC is enough to cover as many units that you scale to.

I read an article that said opening up a separate LLC for each unit is necessary to adequately protect you without risking all of your units at once but that seems like a lot.

Lmk

We really need a bot on here to filter for “arbitrage” and auto remove posts. This is getting ridiculous.

Why whats wrong with it? Just trying to learn about different avenues to take. 

There are seemingly multiple posts per day here about STR arbitrage, and the general consensus among community is that it’s not a good business.

You should search the forums for threads on arbitrage and you will find literally hundreds.

[Michael Baum]

Hey @Dominic Nastri, arbitrage is somewhat frowned on here.

No owner in their right mind would have a lease signed through an LLC.

Do you have a good amount of cash available? So many folks want to get started with arbitrage and don't have the capital to keep going if even one thing goes awry.

[Nathan Gesner]

An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.

Warning: I am not an attorney and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.

ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appears on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.

LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.

Additional thoughts:

1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.

2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.

3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.

4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your basic insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.

5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 12 years experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.

If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is likely to be higher, then you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require additional, on-going effort to maintain.

[Eric Prescott]

Quote from @Nathan Gesner:

An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.

Warning: I am not an attorney and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.

ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appears on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.

LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.

Additional thoughts:

1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.

2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.

3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.

4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your basic insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.

5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 12 years experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.

If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is likely to be higher, then you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require additional, on-going effort to maintain.

Can this post be pinned to the top of multiple forum categories or threads, please?