Hi, guys! I'll double check with our attorney or accountant, but does anyone know if a STR property, purchased under a residential mortgage as a second home, is covered by an LLC (should I choose to form one), from a liability stand point?
Not an attorney or accountant, but based on what I know, save the paperwork and just get an umbrella insurance policy to protect your liability. Then no additional bookkeeping, no potential to pierce the corporate veil, and the way the tax code is now structured it's not going to make a difference to your tax liability, either, I don't believe.
Yes LLC is a "coverage" by definition of a legal entity which is not you, and it doesn't matter if the liability is triggered by an STR guest, an LTR tenant or a handyman working there etc. The assets they can go after is capped by what the LLC owns not what YOU own.
Now generally speaking, is the LLC a good solution or not, it's debatable. I personally have gone the path @Julie McCoy described and I agree with her, but your situation maybe different. Umbrella's have their own caveats and are not perfect either. Keep in mind that insurance companies are great at cashing the checks for premiums but not that great when they have to pay. If it was that obvious and easy, then there would have been no investor using LLCs and everyone would just use insurance for protection.
1. Is it worth the extra ~5k plus LCC fees
2. Will your bank even let you hold the property as an LLC.
And think of it this way if it’s a 200,000 property that is financed and you owe 150,000 what can they come after? The 50 grand in equity you have? If you’ve got 1 million in insurance and your platform (AirBnB vrbo) also give you 1 million in insurance, why form an LLC to protect 50 grand when you have 1 millionX2 already?
Julie is right though look into umbrella policies.
**Google “business attorney” in your area and call and ask some question as we, (especially me!) are NOT legal experts.
@Jeff Oberts and don’t forget to send your guests and make them sign the rental agreement (easier done on vrbo than AirBnB) that says “if you break your finger it’s not my problem” so these situations never occur.
All good points! Thanks, guys!
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