Second home loan for STR -- Rent to my LLC?

Question

Hi friends! I am in the process of buying a 3 bed, 1 bath single family home in Big Bear, CA that I primarily plan to use as a STR but would also like to visit ~20 days of the year. I currently live in LA, about 3 hours away from Big Bear.

I have been pre-approved for several second home loans, some at 10% down, and one with NFCU for 5% down (an offer too good to pass up). I know Fannie Mae has requirements for second home properties. I plan to occupy the unit more than 14 days/year, and also plan to self manage the property, so I believe I meet all of these requirements.

My question is more so about the liability and tax implications...If the mortgage is written in my name, is it possible to rent out the property to my LLC? Being that I plan to airbnb the property when I am not there, I want to make sure I am as protected as possible while also enabling as many tax deductions.

Michael Baum · Answer

Hey @Devin Arrigo, there is no tax benefit for doing what you are talking about. LLCs are pass through entities.

Don't over complicate things. Just get good STR insurance and an umbrella.

If you transfer the property to an LLC after purchase, you will most likely trigger the due on sale clause. That will require you to come up with more down and an increase in interest rate.

Sarah Kensinger · Answer

You NEED more then insurance for liability protection!! Insurance is just that insurance, a company that pays out a certain amount if you are sued and anything above that is your responsibility. Check out Anderson Advisors for guidance on what to do for your set up. They offer a free 45-minute consultation and LOTS of informative YouTube videos!

Account Closed · Answer

Topic No. 415, Renting Residential and Vacation Property

Patrick Forelli · Answer

Im in the same situation as Devin,

I'm looking to purchase an airbnb with a 2nd home loan. I understand an LLC cannot be on the title because that would violate my mortgage, but I am interested in establishing an LLC for liability reasons and to leverage business credit. I see business credit cards such as with US Bank offer 18 months 0 % APR.

I have enough funds in reserve to furnish and cover costs on my own, but I figured it would be valuable to have a 10-15 k cushion while building up business credit for future investments down the line.

Does this sound feasible/ legal?

Buy the property with a 2nd home loan, occupy the residence for 14 days, rent the property to my management company LLC who rents it out on airbnb, and leverage 15k in 0 % interest through business credit cards.

Would love to know what people think.

Devin Arrigo · Answer

Thank you! Much appreciated everyone. Sounds like the easiest path forward is just to take advantage of the 5% down, get good STR ins + umbrella policy, and go from there.

Second home loan for STR -- Rent to my LLC?

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