First Duplex Financed with FHA... STR in other unit
Investor · Detroit, MI · Member since 2026 · 12 posts · 8 votes
First Duplex Financed with FHA... STR in other unit
Most Popular Reply
Accountant · Long Island, NY · Member since 2021 · 180 posts · 142 votes
3moQuote from @Alec Sherman-Brown:
Quote from @Christopher Tile:
Thanks for looping me in.
Regarding the tax treatment, if it's a single member LLC it will be treated as a "disregarded entity". Essentially what this means as it's reported the same way if it was under your name or under an LLC.
So, to answer your question, yes, you will be reporting this rental on a schedule E regardless of the LLC. This is where you claim all expenses including depreciation.
HOWEVER - in order to make this work properly I'd highly suggest you speak to a real estate CPA. You are walking a thin line with part of the home being a STR and the other part being a primary residence. Capitalizing the property correctly (just the business use) is important in this scenario and involves a larger conversation. There are absolutely scenarios on the forum that walk through this situation and the nuances.
In my honest opinion, the STR portion of the residence in MI is likely a small value. Of that value, the bonus depreciation is probably going to be small. In order to break out the bonus depreciable assets you need to pay for a cost seg. Will the benefit outweigh the cost of doing the whole STR loophole/exception (and paying a CPA that knows how to record it properly - ton on the tax forum here on BP)? Probably not, but I would have no way of knowing unless we took a deep dive into the exact property you are looking into and your W2.
Also, odds are your taxable income is not way into the 37% tax bracket. I'm making assumptions of course, but essentially what I'm trying to say is that your tax savings won't be as much as someone in their 30's with a very high W2 income.
This is really good advice. Thanks a ton. If the tax savings are as little as you expect they might be, switching my strategy into medium-term rental (which has high demand in the market I'm purchasing in) would likely be a better option, though I think a brief conversation with a CPA like yourself would be very informative.
You are correct in assuming that I'm not taxed into the 37% bracket haha
Got it - then to be completely honest, don't worry about the STR loophole. House hack with a MTR/LTR is going to be your move long story short. The ROI at a lower tax bracket isn't really worth it.
Especially since you are 23 and are looking for a primary residence.
26 Replies
- 3moOwen RosenBusiness MemberProfessional · Clinton Township, MI · Member since 2015 · 675 posts · 259 votes
Quote from @Alec Sherman-Brown:
Hello,
I'm 23 years old, buying my first investment property (a duplex in Ferndale, MI) as an owner-occupant to take advantage of FHA financing. My strategy is a house-hack, but the other unit will be a short-term rental to maximize monthly revenue. I have a couple questions for more experienced investors.
1. With my property being financed with FHA, my name must be on the title and thus it cannot be in an LLC. Obviously, this is not preferable. My long-term strategy will be to have each property in their own LLC to minimize my personal risk. With that in mind, I wanted to clarify on taking advantage of the STR Loophole:
a. Despite the property not being officially within an LLC, can I still claim its expenses, depreciation, etc. to offset my own taxable income from my W-2?
2. For the lender, I needed basic residential homeowner's insurance... More experienced investors, what type of insurance do you recommend on a property like this when operating an STR out of it?
3. Any and all other advice you have would be great.
Thanks a lot,
Alec Sherman-Brown
Have you confirmed with the home insurance provider that they are comfortable with an STR in the second unit?
Royal Oath Insurance Group4.9204 Reviews- Investor · Detroit, MI · Member since 2026 · 12 posts · 8 votes3mo
Quote from @Owen Rosen:
Quote from @Alec Sherman-Brown:
Hello,
I'm 23 years old, buying my first investment property (a duplex in Ferndale, MI) as an owner-occupant to take advantage of FHA financing. My strategy is a house-hack, but the other unit will be a short-term rental to maximize monthly revenue. I have a couple questions for more experienced investors.
1. With my property being financed with FHA, my name must be on the title and thus it cannot be in an LLC. Obviously, this is not preferable. My long-term strategy will be to have each property in their own LLC to minimize my personal risk. With that in mind, I wanted to clarify on taking advantage of the STR Loophole:
a. Despite the property not being officially within an LLC, can I still claim its expenses, depreciation, etc. to offset my own taxable income from my W-2?
2. For the lender, I needed basic residential homeowner's insurance... More experienced investors, what type of insurance do you recommend on a property like this when operating an STR out of it?
3. Any and all other advice you have would be great.
Thanks a lot,
Alec Sherman-Brown
Have you confirmed with the home insurance provider that they are comfortable with an STR in the second unit?
The lender instructed me that they need a residential due to FHA financing to close, but told me short term rental is fine after close, and the insurance agency instructed me to switch to a commercial policy after close.
- 3moOwen RosenBusiness MemberProfessional · Clinton Township, MI · Member since 2015 · 675 posts · 259 votesIt's not residential vs. commercial. Just a matter of if you can have a second unit with STR or if you change policies after close if you can owner occupy one unit.
Quote from @Alec Sherman-Brown:
Quote from @Owen Rosen:
Quote from @Alec Sherman-Brown:
Hello,
I'm 23 years old, buying my first investment property (a duplex in Ferndale, MI) as an owner-occupant to take advantage of FHA financing. My strategy is a house-hack, but the other unit will be a short-term rental to maximize monthly revenue. I have a couple questions for more experienced investors.
1. With my property being financed with FHA, my name must be on the title and thus it cannot be in an LLC. Obviously, this is not preferable. My long-term strategy will be to have each property in their own LLC to minimize my personal risk. With that in mind, I wanted to clarify on taking advantage of the STR Loophole:
a. Despite the property not being officially within an LLC, can I still claim its expenses, depreciation, etc. to offset my own taxable income from my W-2?
2. For the lender, I needed basic residential homeowner's insurance... More experienced investors, what type of insurance do you recommend on a property like this when operating an STR out of it?
3. Any and all other advice you have would be great.
Thanks a lot,
Alec Sherman-Brown
Have you confirmed with the home insurance provider that they are comfortable with an STR in the second unit?
The lender instructed me that they need a residential due to FHA financing to close, but told me short term rental is fine after close, and the insurance agency instructed me to switch to a commercial policy after close.
You should be able to find a policy that suits both and would have allowed you to close the loan. Otherwise you could be exposed. It's not enough to just have a policy unless you don't care if claims are denied. Your lender can't give you proper insurance advice so you need an insurance professional that can.Royal Oath Insurance Group4.9204 Reviews - Investor · Detroit, MI · Member since 2026 · 12 posts · 8 votes3moYes, understood. Thank you for your advice. If you have any information on where to look for a policy that will cover my butt for liability with a short term rental that would be great.
Quote from @Owen Rosen:
It's not residential vs. commercial. Just a matter of if you can have a second unit with STR or if you change policies after close if you can owner occupy one unit.Quote from @Alec Sherman-Brown:
Quote from @Owen Rosen:
Quote from @Alec Sherman-Brown:
Hello,
I'm 23 years old, buying my first investment property (a duplex in Ferndale, MI) as an owner-occupant to take advantage of FHA financing. My strategy is a house-hack, but the other unit will be a short-term rental to maximize monthly revenue. I have a couple questions for more experienced investors.
1. With my property being financed with FHA, my name must be on the title and thus it cannot be in an LLC. Obviously, this is not preferable. My long-term strategy will be to have each property in their own LLC to minimize my personal risk. With that in mind, I wanted to clarify on taking advantage of the STR Loophole:
a. Despite the property not being officially within an LLC, can I still claim its expenses, depreciation, etc. to offset my own taxable income from my W-2?
2. For the lender, I needed basic residential homeowner's insurance... More experienced investors, what type of insurance do you recommend on a property like this when operating an STR out of it?
3. Any and all other advice you have would be great.
Thanks a lot,
Alec Sherman-Brown
Have you confirmed with the home insurance provider that they are comfortable with an STR in the second unit?
The lender instructed me that they need a residential due to FHA financing to close, but told me short term rental is fine after close, and the insurance agency instructed me to switch to a commercial policy after close.
You should be able to find a policy that suits both and would have allowed you to close the loan. Otherwise you could be exposed. It's not enough to just have a policy unless you don't care if claims are denied. Your lender can't give you proper insurance advice so you need an insurance professional that can. - 3moOwen RosenBusiness MemberProfessional · Clinton Township, MI · Member since 2015 · 675 posts · 259 votes
Quote from @Alec Sherman-Brown:
Yes, understood. Thank you for your advice. If you have any information on where to look for a policy that will cover my butt for liability with a short term rental that would be great.Quote from @Owen Rosen:
It's not residential vs. commercial. Just a matter of if you can have a second unit with STR or if you change policies after close if you can owner occupy one unit.Quote from @Alec Sherman-Brown:
Quote from @Owen Rosen:
Quote from @Alec Sherman-Brown:
Hello,
I'm 23 years old, buying my first investment property (a duplex in Ferndale, MI) as an owner-occupant to take advantage of FHA financing. My strategy is a house-hack, but the other unit will be a short-term rental to maximize monthly revenue. I have a couple questions for more experienced investors.
1. With my property being financed with FHA, my name must be on the title and thus it cannot be in an LLC. Obviously, this is not preferable. My long-term strategy will be to have each property in their own LLC to minimize my personal risk. With that in mind, I wanted to clarify on taking advantage of the STR Loophole:
a. Despite the property not being officially within an LLC, can I still claim its expenses, depreciation, etc. to offset my own taxable income from my W-2?
2. For the lender, I needed basic residential homeowner's insurance... More experienced investors, what type of insurance do you recommend on a property like this when operating an STR out of it?
3. Any and all other advice you have would be great.
Thanks a lot,
Alec Sherman-Brown
Have you confirmed with the home insurance provider that they are comfortable with an STR in the second unit?
The lender instructed me that they need a residential due to FHA financing to close, but told me short term rental is fine after close, and the insurance agency instructed me to switch to a commercial policy after close.
You should be able to find a policy that suits both and would have allowed you to close the loan. Otherwise you could be exposed. It's not enough to just have a policy unless you don't care if claims are denied. Your lender can't give you proper insurance advice so you need an insurance professional that can.sent a DM
Royal Oath Insurance Group4.9204 Reviews
- 3moAndrew SteffensBusiness MemberTampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
I agree with Owen, my wife is a insurance agent and I have sold STR house hacks and she has properly insured them.
As for the LLC portion I suggest you talk to a CPA like @Christopher Tile but you should be able to deduct expenses regardless of it being in your personal name or LLC. Also, the LLC really does little to protect against "personal risk" that is what personal liability insurance is for. I am not an attorney, but from what I have seen an LLC will only shield you typically from some contract dispute issues. Any negligence or tort type claims you will likely be sued personally as well.
Vacation Rentals of Florida53 Reviews- Investor · Detroit, MI · Member since 2026 · 12 posts · 8 votes3mo
Quote from @Andrew Steffens:
I agree with Owen, my wife is a insurance agent and I have sold STR house hacks and she has properly insured them.
As for the LLC portion I suggest you talk to a CPA like @Christopher Tile but you should be able to deduct expenses regardless of it being in your personal name or LLC. Also, the LLC really does little to protect against "personal risk" that is what personal liability insurance is for. I am not an attorney, but from what I have seen an LLC will only shield you typically from some contract dispute issues. Any negligence or tort type claims you will likely be sued personally as well.
Thanks for your advice, Andrew. I'll reach out to Christopher.
Regarding the use of an LLC per property, my understanding was that the primary reason for that strategy was to limit your losses in the event of a catastrophic lawsuit. As in, you could only have seized whatever holdings are under the hood of the LLC and your other personal assets would remain untouched.Obviously, I am a novice, but that was my understanding after reading Ken McElroy's "ABCs of Buying Rental Property."
- Accountant · Long Island, NY · Member since 2021 · 180 posts · 142 votes3mo
Quote from @Alec Sherman-Brown:
Quote from @Andrew Steffens:
I agree with Owen, my wife is a insurance agent and I have sold STR house hacks and she has properly insured them.
As for the LLC portion I suggest you talk to a CPA like @Christopher Tile but you should be able to deduct expenses regardless of it being in your personal name or LLC. Also, the LLC really does little to protect against "personal risk" that is what personal liability insurance is for. I am not an attorney, but from what I have seen an LLC will only shield you typically from some contract dispute issues. Any negligence or tort type claims you will likely be sued personally as well.
Thanks for your advice, Andrew. I'll reach out to Christopher.
Regarding the use of an LLC per property, my understanding was that the primary reason for that strategy was to limit your losses in the event of a catastrophic lawsuit. As in, you could only have seized whatever holdings are under the hood of the LLC and your other personal assets would remain untouched.Obviously, I am a novice, but that was my understanding after reading Ken McElroy's "ABCs of Buying Rental Property."
As a response to this I would say you are mostly right.
However the detail is beyond that.
The protection only holds if you respect the entity: property titled in the LLC's name, a separate bank account, no commingling, adequate capitalization. Sloppy formalities let a plaintiff "pierce the veil" and reach you personally.Also, if you personally do something negligent, you can be named individually. The LLC shields you from others' conduct and from contract claims against the business.
Lastly, I'd always advise for a first property not to get too caught up in entity structure. A solid commercial umbrella policy (that covers STRs of course) will be sufficient (on top of a STR compliant DP3 policy). After we get passed a couple properties, we can worry about entity structure. Not to say that going the LLC route immediately is not possible or even advised in certain scenarios, but there is more complexity.
- 3moAndrew SteffensBusiness MemberTampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Alec Sherman-Brown:
Quote from @Andrew Steffens:
I agree with Owen, my wife is a insurance agent and I have sold STR house hacks and she has properly insured them.
As for the LLC portion I suggest you talk to a CPA like @Christopher Tile but you should be able to deduct expenses regardless of it being in your personal name or LLC. Also, the LLC really does little to protect against "personal risk" that is what personal liability insurance is for. I am not an attorney, but from what I have seen an LLC will only shield you typically from some contract dispute issues. Any negligence or tort type claims you will likely be sued personally as well.
Thanks for your advice, Andrew. I'll reach out to Christopher.
Regarding the use of an LLC per property, my understanding was that the primary reason for that strategy was to limit your losses in the event of a catastrophic lawsuit. As in, you could only have seized whatever holdings are under the hood of the LLC and your other personal assets would remain untouched.Obviously, I am a novice, but that was my understanding after reading Ken McElroy's "ABCs of Buying Rental Property."
Right, and that is only true to a certain extent. If you are found negligent and someone dies or is seriously injured at your property they can and likely will pierce the corporate veil and sue you personally.
Vacation Rentals of Florida53 Reviews
- Accountant · Long Island, NY · Member since 2021 · 180 posts · 142 votes3mo
Thanks for looping me in.
Regarding the tax treatment, if it's a single member LLC it will be treated as a "disregarded entity". Essentially what this means as it's reported the same way if it was under your name or under an LLC.
So, to answer your question, yes, you will be reporting this rental on a schedule E regardless of the LLC. This is where you claim all expenses including depreciation.
HOWEVER - in order to make this work properly I'd highly suggest you speak to a real estate CPA. You are walking a thin line with part of the home being a STR and the other part being a primary residence. Capitalizing the property correctly (just the business use) is important in this scenario and involves a larger conversation. There are absolutely scenarios on the forum that walk through this situation and the nuances.
In my honest opinion, the STR portion of the residence in MI is likely a small value. Of that value, the bonus depreciation is probably going to be small. In order to break out the bonus depreciable assets you need to pay for a cost seg. Will the benefit outweigh the cost of doing the whole STR loophole/exception (and paying a CPA that knows how to record it properly - ton on the tax forum here on BP)? Probably not, but I would have no way of knowing unless we took a deep dive into the exact property you are looking into and your W2.
Also, odds are your taxable income is not way into the 37% tax bracket. I'm making assumptions of course, but essentially what I'm trying to say is that your tax savings won't be as much as someone in their 30's with a very high W2 income.
- Investor · Detroit, MI · Member since 2026 · 12 posts · 8 votes3mo
Quote from @Christopher Tile:
Thanks for looping me in.
Regarding the tax treatment, if it's a single member LLC it will be treated as a "disregarded entity". Essentially what this means as it's reported the same way if it was under your name or under an LLC.
So, to answer your question, yes, you will be reporting this rental on a schedule E regardless of the LLC. This is where you claim all expenses including depreciation.
HOWEVER - in order to make this work properly I'd highly suggest you speak to a real estate CPA. You are walking a thin line with part of the home being a STR and the other part being a primary residence. Capitalizing the property correctly (just the business use) is important in this scenario and involves a larger conversation. There are absolutely scenarios on the forum that walk through this situation and the nuances.
In my honest opinion, the STR portion of the residence in MI is likely a small value. Of that value, the bonus depreciation is probably going to be small. In order to break out the bonus depreciable assets you need to pay for a cost seg. Will the benefit outweigh the cost of doing the whole STR loophole/exception (and paying a CPA that knows how to record it properly - ton on the tax forum here on BP)? Probably not, but I would have no way of knowing unless we took a deep dive into the exact property you are looking into and your W2.
Also, odds are your taxable income is not way into the 37% tax bracket. I'm making assumptions of course, but essentially what I'm trying to say is that your tax savings won't be as much as someone in their 30's with a very high W2 income.
This is really good advice. Thanks a ton. If the tax savings are as little as you expect they might be, switching my strategy into medium-term rental (which has high demand in the market I'm purchasing in) would likely be a better option, though I think a brief conversation with a CPA like yourself would be very informative.
You are correct in assuming that I'm not taxed into the 37% bracket haha
- Accountant · Long Island, NY · Member since 2021 · 180 posts · 142 votes3mo
Quote from @Alec Sherman-Brown:
Quote from @Christopher Tile:
Thanks for looping me in.
Regarding the tax treatment, if it's a single member LLC it will be treated as a "disregarded entity". Essentially what this means as it's reported the same way if it was under your name or under an LLC.
So, to answer your question, yes, you will be reporting this rental on a schedule E regardless of the LLC. This is where you claim all expenses including depreciation.
HOWEVER - in order to make this work properly I'd highly suggest you speak to a real estate CPA. You are walking a thin line with part of the home being a STR and the other part being a primary residence. Capitalizing the property correctly (just the business use) is important in this scenario and involves a larger conversation. There are absolutely scenarios on the forum that walk through this situation and the nuances.
In my honest opinion, the STR portion of the residence in MI is likely a small value. Of that value, the bonus depreciation is probably going to be small. In order to break out the bonus depreciable assets you need to pay for a cost seg. Will the benefit outweigh the cost of doing the whole STR loophole/exception (and paying a CPA that knows how to record it properly - ton on the tax forum here on BP)? Probably not, but I would have no way of knowing unless we took a deep dive into the exact property you are looking into and your W2.
Also, odds are your taxable income is not way into the 37% tax bracket. I'm making assumptions of course, but essentially what I'm trying to say is that your tax savings won't be as much as someone in their 30's with a very high W2 income.
This is really good advice. Thanks a ton. If the tax savings are as little as you expect they might be, switching my strategy into medium-term rental (which has high demand in the market I'm purchasing in) would likely be a better option, though I think a brief conversation with a CPA like yourself would be very informative.
You are correct in assuming that I'm not taxed into the 37% bracket haha
Got it - then to be completely honest, don't worry about the STR loophole. House hack with a MTR/LTR is going to be your move long story short. The ROI at a lower tax bracket isn't really worth it.
Especially since you are 23 and are looking for a primary residence.
- 3moJ CastroBusiness MemberLender · Florida · Member since 2025 · 644 posts · 238 votes
Hi @Alec Sherman-Brown, welcome to BP!
Congratulations, at 23 years old, purchasing a duplex with FHA financing and house hacking is a great way to get started in real estate investing. Many experienced investors built their portfolios using a very similar strategy.Regarding your first question, it's important to speak with a qualified CPA regarding your specific tax situation, but generally speaking, a property does not need to be owned by an LLC to qualify for legitimate business deductions. Many investors own their first few properties in their personal names, especially when using owner-occupied financing programs such as FHA. A tax professional can help determine how depreciation, operating expenses, and short-term rental activity may impact your personal tax return.
On the insurance side, I would strongly recommend speaking with an insurance agent who has experience with investment properties and short-term rentals. Standard homeowner policies often have limitations when it comes to STR activity. Many investors obtain landlord policies, STR-specific endorsements, umbrella liability coverage, or a combination of these depending on their business model and risk tolerance.
A few additional thoughts:
• Verify that short-term rentals are permitted in your municipality and understand any licensing or registration requirements.
• Keep detailed records of every expense from day one.
• Build adequate cash reserves. Unexpected repairs and vacancies are part of the business.
• Focus on guest experience and property management systems if you're planning to operate the STR yourself.
• Don't underestimate the value of long-term financing. FHA can be an excellent tool to acquire your first property and preserve capital.From a lending perspective, one of the biggest mistakes new investors make is focusing solely on maximizing revenue. Make sure you're also analyzing occupancy assumptions, cleaning costs, maintenance, insurance, and local regulations to ensure the numbers still work under conservative scenarios.
Overall, you're starting with a solid strategy. House hacking a duplex allows you to gain experience as both an owner and operator while benefiting from owner-occupied financing. The lessons you learn on this first property will likely be worth far more than any book or course.
Best of luck with the purchase, and if you decide to expand your portfolio in the future, there are a variety of financing options available once you're ready to move beyond owner-occupied loans.
- Investor · Detroit, MI · Member since 2026 · 12 posts · 8 votes2moThanks for all the advice, J! After having a few conversations with other experts on this thread, I had largely landed on a few of the same conclusions. One follow-up question for you though: Can you speak to what you meant by focusing on “property management systems if you’re planning to operate the STR yourself?”
Quote from @J Castro:
Hi @Alec Sherman-Brown, welcome to BP!
Congratulations, at 23 years old, purchasing a duplex with FHA financing and house hacking is a great way to get started in real estate investing. Many experienced investors built their portfolios using a very similar strategy.Regarding your first question, it's important to speak with a qualified CPA regarding your specific tax situation, but generally speaking, a property does not need to be owned by an LLC to qualify for legitimate business deductions. Many investors own their first few properties in their personal names, especially when using owner-occupied financing programs such as FHA. A tax professional can help determine how depreciation, operating expenses, and short-term rental activity may impact your personal tax return.
On the insurance side, I would strongly recommend speaking with an insurance agent who has experience with investment properties and short-term rentals. Standard homeowner policies often have limitations when it comes to STR activity. Many investors obtain landlord policies, STR-specific endorsements, umbrella liability coverage, or a combination of these depending on their business model and risk tolerance.
A few additional thoughts:
• Verify that short-term rentals are permitted in your municipality and understand any licensing or registration requirements.
• Keep detailed records of every expense from day one.
• Build adequate cash reserves. Unexpected repairs and vacancies are part of the business.
• Focus on guest experience and property management systems if you're planning to operate the STR yourself.
• Don't underestimate the value of long-term financing. FHA can be an excellent tool to acquire your first property and preserve capital.From a lending perspective, one of the biggest mistakes new investors make is focusing solely on maximizing revenue. Make sure you're also analyzing occupancy assumptions, cleaning costs, maintenance, insurance, and local regulations to ensure the numbers still work under conservative scenarios.
Overall, you're starting with a solid strategy. House hacking a duplex allows you to gain experience as both an owner and operator while benefiting from owner-occupied financing. The lessons you learn on this first property will likely be worth far more than any book or course.
Best of luck with the purchase, and if you decide to expand your portfolio in the future, there are a variety of financing options available once you're ready to move beyond owner-occupied loans.
Are you simply implying not to forget about them so that I can shift to a more passive role in the future as I grow my portfolio? Thanks.
- 2moDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 8k+ votes
Quote from @Alec Sherman-Brown:
Hello,
I'm 23 years old, buying my first investment property (a duplex in Ferndale, MI) as an owner-occupant to take advantage of FHA financing. My strategy is a house-hack, but the other unit will be a short-term rental to maximize monthly revenue. I have a couple questions for more experienced investors.
1. With my property being financed with FHA, my name must be on the title and thus it cannot be in an LLC. Obviously, this is not preferable. My long-term strategy will be to have each property in their own LLC to minimize my personal risk. With that in mind, I wanted to clarify on taking advantage of the STR Loophole:
a. Despite the property not being officially within an LLC, can I still claim its expenses, depreciation, etc. to offset my own taxable income from my W-2?
2. For the lender, I needed basic residential homeowner's insurance... More experienced investors, what type of insurance do you recommend on a property like this when operating an STR out of it?
3. Any and all other advice you have would be great.
Thanks a lot,
Alec Sherman-Brown
Welcome to BP & RE investing fellow Detroiter!
Some great advice so far, although a bit all over the place.
Let's look at your questions logically:
1) The benefits of LLCs for SFR are overblown for beginners.
- What additional assets do you have that really need protection from a lawsuit?
- If you self-manage, you're bound to make a mistake that will allow "piercing of the corporate veil" that an LLC is supposed to offer.
- You can just get more insurance to cover your asset exposure.
- Yes, doesn't have to be in an LLC to deduct business expenses. Recommend setting up an LLC, so you can open business bank account and keep your personal and business income & expenses separated. You can also use a Doing Business As (DBA) to open biz bank account.
- LLCs do provide a decent amount of anonymity that can be useful as your portfolio grows!2) The lender should accept a policy that provides MORE protection than a basic homeowners policy. From experience I'm going to guess your lender wants to just take the path of least resistance to make their job easier.
- Up to you how hard you want to push back on them.3) Other thoughts:
- Here's Ferndale's ordinance for STRs:
https://www.ferndalemi.gov/resources/short-term-rentals- STR is typically more lucrative than MTR, but STR requires more time from you with cleanings and stocking supplies.
--- Why not try them both out and go with what best works for you?What are your plans AFTER you stabilize this duplex?
- You may want to max out your cashflow to save for paydown on mortgage amount, so you can refi out of the FHA (to use it for next purchase) and get rid of or reduce MIP/PMI.
- If you can tolerate it:
--- Rent out the other bedroom in your unit
--- Consider fixing up the basement so YOU can live down there and rent out your unit also.
-----NOTE: city regs will not allow you to rent out the basement, but they can't stop owner from living in the basement.- We can recommend a great RE CPA here locally if you're interested.
DM us for anything else we can assist with🙃
Logical Property Management4.9450 Reviews- Investor · Detroit, MI · Member since 2026 · 12 posts · 8 votes2mo
Quote from @Drew Sygit:
Quote from @Alec Sherman-Brown:
Hello,
I'm 23 years old, buying my first investment property (a duplex in Ferndale, MI) as an owner-occupant to take advantage of FHA financing. My strategy is a house-hack, but the other unit will be a short-term rental to maximize monthly revenue. I have a couple questions for more experienced investors.
1. With my property being financed with FHA, my name must be on the title and thus it cannot be in an LLC. Obviously, this is not preferable. My long-term strategy will be to have each property in their own LLC to minimize my personal risk. With that in mind, I wanted to clarify on taking advantage of the STR Loophole:
a. Despite the property not being officially within an LLC, can I still claim its expenses, depreciation, etc. to offset my own taxable income from my W-2?
2. For the lender, I needed basic residential homeowner's insurance... More experienced investors, what type of insurance do you recommend on a property like this when operating an STR out of it?
3. Any and all other advice you have would be great.
Thanks a lot,
Alec Sherman-Brown
Welcome to BP & RE investing fellow Detroiter!
Some great advice so far, although a bit all over the place.
Let's look at your questions logically:
1) The benefits of LLCs for SFR are overblown for beginners.
- What additional assets do you have that really need protection from a lawsuit?
- If you self-manage, you're bound to make a mistake that will allow "piercing of the corporate veil" that an LLC is supposed to offer.
- You can just get more insurance to cover your asset exposure.
- Yes, doesn't have to be in an LLC to deduct business expenses. Recommend setting up an LLC, so you can open business bank account and keep your personal and business income & expenses separated. You can also use a Doing Business As (DBA) to open biz bank account.
- LLCs do provide a decent amount of anonymity that can be useful as your portfolio grows!2) The lender should accept a policy that provides MORE protection than a basic homeowners policy. From experience I'm going to guess your lender wants to just take the path of least resistance to make their job easier.
- Up to you how hard you want to push back on them.3) Other thoughts:
- Here's Ferndale's ordinance for STRs:
https://www.ferndalemi.gov/resources/short-term-rentals- STR is typically more lucrative than MTR, but STR requires more time from you with cleanings and stocking supplies.
--- Why not try them both out and go with what best works for you?What are your plans AFTER you stabilize this duplex?
- You may want to max out your cashflow to save for paydown on mortgage amount, so you can refi out of the FHA (to use it for next purchase) and get rid of or reduce MIP/PMI.
- If you can tolerate it:
--- Rent out the other bedroom in your unit
--- Consider fixing up the basement so YOU can live down there and rent out your unit also.
-----NOTE: city regs will not allow you to rent out the basement, but they can't stop owner from living in the basement.- We can recommend a great RE CPA here locally if you're interested.
DM us for anything else we can assist with🙃
This is really great input, thank you so much. Most of what you said aligns with my strategy. At this point, with the number of properties available to me being smaller due to limited capital, the best investment to me seems to be renovation projects or short term rental (some sort of sweat equity since I’ve got the extra time). I am also planning on splitting one of the units with a roommate to push myself from breaking even on the property (eliminating my living expenses) to pocketing about 1k a month. The idea of renovating the basement to live in it myself and renting out the other unit is very interesting, thank you.
All good things to think about! - 2moDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 8k+ votes
Quote from @Alec Sherman-Brown:
Quote from @Drew Sygit:
Quote from @Alec Sherman-Brown:
Hello,
I'm 23 years old, buying my first investment property (a duplex in Ferndale, MI) as an owner-occupant to take advantage of FHA financing. My strategy is a house-hack, but the other unit will be a short-term rental to maximize monthly revenue. I have a couple questions for more experienced investors.
1. With my property being financed with FHA, my name must be on the title and thus it cannot be in an LLC. Obviously, this is not preferable. My long-term strategy will be to have each property in their own LLC to minimize my personal risk. With that in mind, I wanted to clarify on taking advantage of the STR Loophole:
a. Despite the property not being officially within an LLC, can I still claim its expenses, depreciation, etc. to offset my own taxable income from my W-2?
2. For the lender, I needed basic residential homeowner's insurance... More experienced investors, what type of insurance do you recommend on a property like this when operating an STR out of it?
3. Any and all other advice you have would be great.
Thanks a lot,
Alec Sherman-Brown
Welcome to BP & RE investing fellow Detroiter!
Some great advice so far, although a bit all over the place.
Let's look at your questions logically:
1) The benefits of LLCs for SFR are overblown for beginners.
- What additional assets do you have that really need protection from a lawsuit?
- If you self-manage, you're bound to make a mistake that will allow "piercing of the corporate veil" that an LLC is supposed to offer.
- You can just get more insurance to cover your asset exposure.
- Yes, doesn't have to be in an LLC to deduct business expenses. Recommend setting up an LLC, so you can open business bank account and keep your personal and business income & expenses separated. You can also use a Doing Business As (DBA) to open biz bank account.
- LLCs do provide a decent amount of anonymity that can be useful as your portfolio grows!2) The lender should accept a policy that provides MORE protection than a basic homeowners policy. From experience I'm going to guess your lender wants to just take the path of least resistance to make their job easier.
- Up to you how hard you want to push back on them.3) Other thoughts:
- Here's Ferndale's ordinance for STRs:
https://www.ferndalemi.gov/resources/short-term-rentals- STR is typically more lucrative than MTR, but STR requires more time from you with cleanings and stocking supplies.
--- Why not try them both out and go with what best works for you?What are your plans AFTER you stabilize this duplex?
- You may want to max out your cashflow to save for paydown on mortgage amount, so you can refi out of the FHA (to use it for next purchase) and get rid of or reduce MIP/PMI.
- If you can tolerate it:
--- Rent out the other bedroom in your unit
--- Consider fixing up the basement so YOU can live down there and rent out your unit also.
-----NOTE: city regs will not allow you to rent out the basement, but they can't stop owner from living in the basement.- We can recommend a great RE CPA here locally if you're interested.
DM us for anything else we can assist with🙃
This is really great input, thank you so much. Most of what you said aligns with my strategy. At this point, with the number of properties available to me being smaller due to limited capital, the best investment to me seems to be renovation projects or short term rental (some sort of sweat equity since I’ve got the extra time). I am also planning on splitting one of the units with a roommate to push myself from breaking even on the property (eliminating my living expenses) to pocketing about 1k a month. The idea of renovating the basement to live in it myself and renting out the other unit is very interesting, thank you.
All good things to think about!Look into FHA 203(k) to finance the rehab costs into the purchase mortgage!
Logical Property Management4.9450 Reviews - Investor · Detroit, MI · Member since 2026 · 12 posts · 8 votes2mo
Quote from @Drew Sygit:
Quote from @Alec Sherman-Brown:
Quote from @Drew Sygit:
Quote from @Alec Sherman-Brown:
Hello,
I'm 23 years old, buying my first investment property (a duplex in Ferndale, MI) as an owner-occupant to take advantage of FHA financing. My strategy is a house-hack, but the other unit will be a short-term rental to maximize monthly revenue. I have a couple questions for more experienced investors.
1. With my property being financed with FHA, my name must be on the title and thus it cannot be in an LLC. Obviously, this is not preferable. My long-term strategy will be to have each property in their own LLC to minimize my personal risk. With that in mind, I wanted to clarify on taking advantage of the STR Loophole:
a. Despite the property not being officially within an LLC, can I still claim its expenses, depreciation, etc. to offset my own taxable income from my W-2?
2. For the lender, I needed basic residential homeowner's insurance... More experienced investors, what type of insurance do you recommend on a property like this when operating an STR out of it?
3. Any and all other advice you have would be great.
Thanks a lot,
Alec Sherman-Brown
Welcome to BP & RE investing fellow Detroiter!
Some great advice so far, although a bit all over the place.
Let's look at your questions logically:
1) The benefits of LLCs for SFR are overblown for beginners.
- What additional assets do you have that really need protection from a lawsuit?
- If you self-manage, you're bound to make a mistake that will allow "piercing of the corporate veil" that an LLC is supposed to offer.
- You can just get more insurance to cover your asset exposure.
- Yes, doesn't have to be in an LLC to deduct business expenses. Recommend setting up an LLC, so you can open business bank account and keep your personal and business income & expenses separated. You can also use a Doing Business As (DBA) to open biz bank account.
- LLCs do provide a decent amount of anonymity that can be useful as your portfolio grows!2) The lender should accept a policy that provides MORE protection than a basic homeowners policy. From experience I'm going to guess your lender wants to just take the path of least resistance to make their job easier.
- Up to you how hard you want to push back on them.3) Other thoughts:
- Here's Ferndale's ordinance for STRs:
https://www.ferndalemi.gov/resources/short-term-rentals- STR is typically more lucrative than MTR, but STR requires more time from you with cleanings and stocking supplies.
--- Why not try them both out and go with what best works for you?What are your plans AFTER you stabilize this duplex?
- You may want to max out your cashflow to save for paydown on mortgage amount, so you can refi out of the FHA (to use it for next purchase) and get rid of or reduce MIP/PMI.
- If you can tolerate it:
--- Rent out the other bedroom in your unit
--- Consider fixing up the basement so YOU can live down there and rent out your unit also.
-----NOTE: city regs will not allow you to rent out the basement, but they can't stop owner from living in the basement.- We can recommend a great RE CPA here locally if you're interested.
DM us for anything else we can assist with🙃
This is really great input, thank you so much. Most of what you said aligns with my strategy. At this point, with the number of properties available to me being smaller due to limited capital, the best investment to me seems to be renovation projects or short term rental (some sort of sweat equity since I’ve got the extra time). I am also planning on splitting one of the units with a roommate to push myself from breaking even on the property (eliminating my living expenses) to pocketing about 1k a month. The idea of renovating the basement to live in it myself and renting out the other unit is very interesting, thank you.
All good things to think about!Look into FHA 203(k) to finance the rehab costs into the purchase mortgage!
I know! Such a powerful tool. Unfortunately, I didn't hear about it until the BP real estate podcast it was in a couple weeks ago, so my first strategy is more turn-key but high revenue through STR, and my next project will definitely utilize the FHA 203(k), I think.
- 2moDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 8k+ votes
Quote from @Alec Sherman-Brown:
Quote from @Drew Sygit:
Quote from @Alec Sherman-Brown:
Quote from @Drew Sygit:
Quote from @Alec Sherman-Brown:
Hello,
I'm 23 years old, buying my first investment property (a duplex in Ferndale, MI) as an owner-occupant to take advantage of FHA financing. My strategy is a house-hack, but the other unit will be a short-term rental to maximize monthly revenue. I have a couple questions for more experienced investors.
1. With my property being financed with FHA, my name must be on the title and thus it cannot be in an LLC. Obviously, this is not preferable. My long-term strategy will be to have each property in their own LLC to minimize my personal risk. With that in mind, I wanted to clarify on taking advantage of the STR Loophole:
a. Despite the property not being officially within an LLC, can I still claim its expenses, depreciation, etc. to offset my own taxable income from my W-2?
2. For the lender, I needed basic residential homeowner's insurance... More experienced investors, what type of insurance do you recommend on a property like this when operating an STR out of it?
3. Any and all other advice you have would be great.
Thanks a lot,
Alec Sherman-Brown
Welcome to BP & RE investing fellow Detroiter!
Some great advice so far, although a bit all over the place.
Let's look at your questions logically:
1) The benefits of LLCs for SFR are overblown for beginners.
- What additional assets do you have that really need protection from a lawsuit?
- If you self-manage, you're bound to make a mistake that will allow "piercing of the corporate veil" that an LLC is supposed to offer.
- You can just get more insurance to cover your asset exposure.
- Yes, doesn't have to be in an LLC to deduct business expenses. Recommend setting up an LLC, so you can open business bank account and keep your personal and business income & expenses separated. You can also use a Doing Business As (DBA) to open biz bank account.
- LLCs do provide a decent amount of anonymity that can be useful as your portfolio grows!2) The lender should accept a policy that provides MORE protection than a basic homeowners policy. From experience I'm going to guess your lender wants to just take the path of least resistance to make their job easier.
- Up to you how hard you want to push back on them.3) Other thoughts:
- Here's Ferndale's ordinance for STRs:
https://www.ferndalemi.gov/resources/short-term-rentals- STR is typically more lucrative than MTR, but STR requires more time from you with cleanings and stocking supplies.
--- Why not try them both out and go with what best works for you?What are your plans AFTER you stabilize this duplex?
- You may want to max out your cashflow to save for paydown on mortgage amount, so you can refi out of the FHA (to use it for next purchase) and get rid of or reduce MIP/PMI.
- If you can tolerate it:
--- Rent out the other bedroom in your unit
--- Consider fixing up the basement so YOU can live down there and rent out your unit also.
-----NOTE: city regs will not allow you to rent out the basement, but they can't stop owner from living in the basement.- We can recommend a great RE CPA here locally if you're interested.
DM us for anything else we can assist with🙃
This is really great input, thank you so much. Most of what you said aligns with my strategy. At this point, with the number of properties available to me being smaller due to limited capital, the best investment to me seems to be renovation projects or short term rental (some sort of sweat equity since I’ve got the extra time). I am also planning on splitting one of the units with a roommate to push myself from breaking even on the property (eliminating my living expenses) to pocketing about 1k a month. The idea of renovating the basement to live in it myself and renting out the other unit is very interesting, thank you.
All good things to think about!Look into FHA 203(k) to finance the rehab costs into the purchase mortgage!
I know! Such a powerful tool. Unfortunately, I didn't hear about it until the BP real estate podcast it was in a couple weeks ago, so my first strategy is more turn-key but high revenue through STR, and my next project will definitely utilize the FHA 203(k), I think.
Ok, just understand you can typically only have one FHA loan at a time.
Logical Property Management4.9450 Reviews - Investor · Detroit, MI · Member since 2026 · 12 posts · 8 votes2moYeah, I know. You can only live in one house at a time after all 😆 I plan on refinancing the first place I bought after about a year so that I can move on to another project.
Quote from @Drew Sygit:
Quote from @Alec Sherman-Brown:
Quote from @Drew Sygit:
Quote from @Alec Sherman-Brown:
Quote from @Drew Sygit:
Quote from @Alec Sherman-Brown:
Hello,
I'm 23 years old, buying my first investment property (a duplex in Ferndale, MI) as an owner-occupant to take advantage of FHA financing. My strategy is a house-hack, but the other unit will be a short-term rental to maximize monthly revenue. I have a couple questions for more experienced investors.
1. With my property being financed with FHA, my name must be on the title and thus it cannot be in an LLC. Obviously, this is not preferable. My long-term strategy will be to have each property in their own LLC to minimize my personal risk. With that in mind, I wanted to clarify on taking advantage of the STR Loophole:
a. Despite the property not being officially within an LLC, can I still claim its expenses, depreciation, etc. to offset my own taxable income from my W-2?
2. For the lender, I needed basic residential homeowner's insurance... More experienced investors, what type of insurance do you recommend on a property like this when operating an STR out of it?
3. Any and all other advice you have would be great.
Thanks a lot,
Alec Sherman-Brown
Welcome to BP & RE investing fellow Detroiter!
Some great advice so far, although a bit all over the place.
Let's look at your questions logically:
1) The benefits of LLCs for SFR are overblown for beginners.
- What additional assets do you have that really need protection from a lawsuit?
- If you self-manage, you're bound to make a mistake that will allow "piercing of the corporate veil" that an LLC is supposed to offer.
- You can just get more insurance to cover your asset exposure.
- Yes, doesn't have to be in an LLC to deduct business expenses. Recommend setting up an LLC, so you can open business bank account and keep your personal and business income & expenses separated. You can also use a Doing Business As (DBA) to open biz bank account.
- LLCs do provide a decent amount of anonymity that can be useful as your portfolio grows!2) The lender should accept a policy that provides MORE protection than a basic homeowners policy. From experience I'm going to guess your lender wants to just take the path of least resistance to make their job easier.
- Up to you how hard you want to push back on them.3) Other thoughts:
- Here's Ferndale's ordinance for STRs:
https://www.ferndalemi.gov/resources/short-term-rentals- STR is typically more lucrative than MTR, but STR requires more time from you with cleanings and stocking supplies.
--- Why not try them both out and go with what best works for you?What are your plans AFTER you stabilize this duplex?
- You may want to max out your cashflow to save for paydown on mortgage amount, so you can refi out of the FHA (to use it for next purchase) and get rid of or reduce MIP/PMI.
- If you can tolerate it:
--- Rent out the other bedroom in your unit
--- Consider fixing up the basement so YOU can live down there and rent out your unit also.
-----NOTE: city regs will not allow you to rent out the basement, but they can't stop owner from living in the basement.- We can recommend a great RE CPA here locally if you're interested.
DM us for anything else we can assist with🙃
This is really great input, thank you so much. Most of what you said aligns with my strategy. At this point, with the number of properties available to me being smaller due to limited capital, the best investment to me seems to be renovation projects or short term rental (some sort of sweat equity since I’ve got the extra time). I am also planning on splitting one of the units with a roommate to push myself from breaking even on the property (eliminating my living expenses) to pocketing about 1k a month. The idea of renovating the basement to live in it myself and renting out the other unit is very interesting, thank you.
All good things to think about!Look into FHA 203(k) to finance the rehab costs into the purchase mortgage!
I know! Such a powerful tool. Unfortunately, I didn't hear about it until the BP real estate podcast it was in a couple weeks ago, so my first strategy is more turn-key but high revenue through STR, and my next project will definitely utilize the FHA 203(k), I think.
Ok, just understand you can typically only have one FHA loan at a time.
- 2moBasit SiddiqiBusiness MemberAccountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
Regarding an LLC for a house-hack. It likely wouldn't provide you the liability protection.
An LLC is for business / business property.
A house-hack is split between a personal and busienss property.
You should consult with an attorney just to confirm.
You should be able to obtain the benefits of a STR for tax purposes if the STR unit is a separate unit.
Best of luck to you!
Basit Siddiqi CPA4.979 Reviews- Investor · Detroit, MI · Member since 2026 · 12 posts · 8 votes2moThanks so much, Basit. I’m gonna have to do some research to figure out realistically what the tax savings would be as a study from an accountant may be more expensive than my potential savings.
Quote from @Basit Siddiqi:
Regarding an LLC for a house-hack. It likely wouldn't provide you the liability protection.
An LLC is for business / business property.
A house-hack is split between a personal and busienss property.
You should consult with an attorney just to confirm.
You should be able to obtain the benefits of a STR for tax purposes if the STR unit is a separate unit.
Best of luck to you!
- Lender · United States · Member since 2026 · 14 posts · 6 votes2mo
Solid thread already, especially Christopher and Drew on the entity and tax side. One thing worth adding since your plan is to refi out of the FHA loan after about a year to move on to the next deal.
That refi timeline matters more than it looks like right now. When you go to refinance, the lender is going to look at how the duplex actually performed, not what you projected when you bought it. If the STR side ran below your initial numbers, even for a few months while you were learning the operation, that shows up in your refi qualification right when you need the strongest possible picture to pull cash out and move to property two.
Worth tracking your actual STR performance against your original underwriting from day one, not just for taxes, but specifically so you know where you stand 9 or 10 months in, before you're sitting across from a lender. If occupancy or ADR came in soft, you have time to either adjust the operation or adjust your refi expectations before it becomes a surprise.
One thing on the renovation side since you mentioned doing some of this as sweat equity. If you need to furnish the STR unit or cover smaller setup costs before your cash flow kicks in, a 0% intro APR card can cover that without touching savings, as long as you've got a clear payoff plan before the intro period ends. Just don't let it become a habit that's still sitting there unpaid 12 months from now.
On the capital side for whenever you do move to property two, since you mentioned FHA 203k as the next play, just know that once it's a true investment property rather than owner occupied, you'll be financing differently. The gap between what a hard money or DSCR lender covers and what the deal actually costs to close is usually bigger than first time investors expect, down payment, closing costs, and the first rehab draw before the lender reimburses you.
This is actually where that year of equity buildup in your current duplex becomes useful beyond just the refi. Once you've got meaningful equity, a HELOC on that property can work as a flexible source for the next down payment or rehab gap instead of waiting to save it from scratch, since it's revolving and you're only paying interest on what you actually draw. Worth having all of this mapped out before you're under contract on deal two rather than after.
Great first deal regardless. Most 23 year olds aren't thinking this carefully about the exit before they've even closed on the entry.
- Investor · Detroit, MI · Member since 2026 · 12 posts · 8 votes2mo
Quote from @Mick Wadley:
Solid thread already, especially Christopher and Drew on the entity and tax side. One thing worth adding since your plan is to refi out of the FHA loan after about a year to move on to the next deal.
That refi timeline matters more than it looks like right now. When you go to refinance, the lender is going to look at how the duplex actually performed, not what you projected when you bought it. If the STR side ran below your initial numbers, even for a few months while you were learning the operation, that shows up in your refi qualification right when you need the strongest possible picture to pull cash out and move to property two.
Worth tracking your actual STR performance against your original underwriting from day one, not just for taxes, but specifically so you know where you stand 9 or 10 months in, before you're sitting across from a lender. If occupancy or ADR came in soft, you have time to either adjust the operation or adjust your refi expectations before it becomes a surprise.
One thing on the renovation side since you mentioned doing some of this as sweat equity. If you need to furnish the STR unit or cover smaller setup costs before your cash flow kicks in, a 0% intro APR card can cover that without touching savings, as long as you've got a clear payoff plan before the intro period ends. Just don't let it become a habit that's still sitting there unpaid 12 months from now.
On the capital side for whenever you do move to property two, since you mentioned FHA 203k as the next play, just know that once it's a true investment property rather than owner occupied, you'll be financing differently. The gap between what a hard money or DSCR lender covers and what the deal actually costs to close is usually bigger than first time investors expect, down payment, closing costs, and the first rehab draw before the lender reimburses you.
This is actually where that year of equity buildup in your current duplex becomes useful beyond just the refi. Once you've got meaningful equity, a HELOC on that property can work as a flexible source for the next down payment or rehab gap instead of waiting to save it from scratch, since it's revolving and you're only paying interest on what you actually draw. Worth having all of this mapped out before you're under contract on deal two rather than after.
Great first deal regardless. Most 23 year olds aren't thinking this carefully about the exit before they've even closed on the entry.
Thanks a ton, Mick. A lot to unpack here.
Question for you, how exactly is the rental performance taken into consideration for appraisal? That way I can plan better around how much cash I’d expect to put in for 20-25% equity when I refinance.
- 2moAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
Hey Alec, love that you're thinking about this so strategically at 23, you're already asking better questions than most first-time investors! I know there have ben a lot of good replies to this thread but I thought I would give my 2 cents as well.
Christopher and Andrew both gave really solid input here worth building on from the tax side.
On your LLC question, yes you absolutely can still claim all the STR tax benefits even without the property in an LLC. The LLC is a liability protection tool, not a tax requirement. Depreciation, expenses, the STR loophole with material participation, all of that flows through to your personal return regardless of whether there's an LLC involved. Christopher is right that a single-member LLC is a disregarded entity anyway, so from a tax perspective it's treated the same as personal ownership. The liability exposure is the real reason to eventually move it into an LLC, and an umbrella policy in the meantime is a practical way to bridge that gap like the others mentioned.
On the STR loophole specifically, since this is a house hack where you'll be living in one unit and STRing the other, the tax treatment is actually really interesting. The STR unit can generate losses that with material participation may be usable against your W-2 income, which at your income level could be a meaningful benefit. Making sure the material participation is documented correctly from day one is really important, keep a log of your hours from the start.
On insurance, the others covered it well, you need a commercial or STR-specific policy for the rental unit, not a standard homeowner's policy. Your lender requiring residential insurance for FHA doesn't cover STR liability so make sure those are treated as separate coverage needs.
You're off to a great start. Definitely worth sitting down with a CPA who understands STR tax strategy before you close so everything is set up correctly from day one. Happy to connect!
INVESTOR FRIENDLY CPA®5241 Reviews- Investor · Detroit, MI · Member since 2026 · 12 posts · 8 votes2moGreat advice, Ashish. Please check your DMs, I'd like to continue this discussion on feasibility of the STR loophole.
Quote from @Ashish Acharya:
Hey Alec, love that you're thinking about this so strategically at 23, you're already asking better questions than most first-time investors! I know there have ben a lot of good replies to this thread but I thought I would give my 2 cents as well.
Christopher and Andrew both gave really solid input here worth building on from the tax side.
On your LLC question, yes you absolutely can still claim all the STR tax benefits even without the property in an LLC. The LLC is a liability protection tool, not a tax requirement. Depreciation, expenses, the STR loophole with material participation, all of that flows through to your personal return regardless of whether there's an LLC involved. Christopher is right that a single-member LLC is a disregarded entity anyway, so from a tax perspective it's treated the same as personal ownership. The liability exposure is the real reason to eventually move it into an LLC, and an umbrella policy in the meantime is a practical way to bridge that gap like the others mentioned.
On the STR loophole specifically, since this is a house hack where you'll be living in one unit and STRing the other, the tax treatment is actually really interesting. The STR unit can generate losses that with material participation may be usable against your W-2 income, which at your income level could be a meaningful benefit. Making sure the material participation is documented correctly from day one is really important, keep a log of your hours from the start.
On insurance, the others covered it well, you need a commercial or STR-specific policy for the rental unit, not a standard homeowner's policy. Your lender requiring residential insurance for FHA doesn't cover STR liability so make sure those are treated as separate coverage needs.
You're off to a great start. Definitely worth sitting down with a CPA who understands STR tax strategy before you close so everything is set up correctly from day one. Happy to connect!
Join the conversationCreate a free account to reply, vote on answers and follow this thread.