STR, LLC or no LLC that is the question

23 Replies

Hi guys and gals,

I'm contemplating doing Airbnb arbitrage in my area. Just to be clear, I'll be leasing apartments and homes to host Airbnb guests. I am not clear on if it is necessary or perhaps advised to start this off by using an LLC to put all my leases under and funnel the rents through for added tax benefits as well as liability protection.

Let me know what you’ve experienced or heard. 

@Isaac Chun . You plan to put leases on properties and airbnb them in Las Vegas? You might want to do some more research before you spend your money on incorporate.com. To my knowledge you’ll never get this off the ground.

@Lucas Carl

Hi there, thanks for you comment. Though could you give some information to substantiate your statement. I’m always open to hear people’s input, but it helps to have some backing to it. 

We did this for a short period in FLL and most owners did not allow subleasing. You'd be hard pressed to find one here that would allow you to short-term rent their home while doing a long-term lease with them. The owner also needs to apply for the short-term rental license and you need to consider liability, damages and upkeep. All in all, you need the owner's consent and cooperation.

@Anand S.

Thx for sharing your experience. Do you recall the major objections those landlords had? Please expound on upkeep. Wouldn’t supplemental insurance cover anything else that Airbnb’s insurance doesn’t cover?

They just didn't like the idea of having their home run like a hotel. The misconception they have is that it would have more wear and tear. I tried to overcome that objection by explaining that, unlike a LTR, STR's are professionally cleaned almost weekly and during that time they are inspected for damage and if any, repairs are made immediately. I've had many LTR's where after a year I have to repaint the entire home, replace appliances and do other repairs that easily exceed the security deposit.

The other outcome is you open their eyes to the opportunity and they want to do it themselves. 

@Isaac Chun . 1. Why would your landlord let you do this? 2. Vegas is cracking down hard and the laws change monthly. Type “AirBnB Las Vegas” into google and hit the news button. Yikes.

@Anand S.

I’m sure there will be a bunch of both those scenarios out of the people you approach. Though I’m pretty confident that I’ll find even 1 of 10 that will be open to give it a try and that’s all that I need really. If I can find even 3-4/year that would add up to a significant cash flow quickly. Not looking for a get rich quick, just an above average return on my investments 👍🏽

@Lucas Carl

True that greater Las Vegas is in a transitional and unpredictable phase with STR. As it stands, I've found that the city of north Las Vegas is still an unregulated area. Though there is no way of telling how long this will last, it's what makes leasing a property to Airbnb so attractive. You're able to minimize exposure to risk of market shifts and regulations changes and still make a good return on your minimal investment. To each his own tolerance to risk for their investments🤙🏽😁

How is this an investment? What are you investing in? A couch? This is a job. That’s may or may not be there tomorrow. 

@Lucas Carl

I understand where you’re coming from when you look at it as a job. Though it can easily be nearly fully automated with the basic systems in place. What I’m referring as investment, would be some furniture, rent, deposit. Worse case things go all the way upside down and I have to get a license to continue doing Airbnb or even worse and it goes all the way to left field(very unlikely to be this extreme as the city sees too many ways that they can make a buck off hosts by taxing them ) and they ban it from our city, I lose my deposit and have to recoup my money from selling my furniture. How’s many other business models can you say it would that easy to walk away from if it failed?

If they outlaw STR the next day or the next month after you start, do you plan to continue to pay the landlord out of your pocket for the remainder of the lease or just stiff them? Vegas hasn't grandfathered any STR properties after they outlawed them in Clark county and changed the rules in Las Vegas.

@Bill Brandt

Hey bill, not sure why you came out he gate sounding so angry. Anyways, if I needed to evolve, then I’d just change my marketing model to 30+ day rentals to avoid being penalized by said potential changes. Not to say it would be as profitable, but it would be enough to cover my liabilities for the remainder of my leases. Then I’d reevaluate and possibly just not renew my leases if profits aren’t worth the effort that is being put into the business. Is it just me, seems that the only thing people have done is say how impossible or how bad all the what if’s are with this business model. There’s always the option to relocate my Airbnb rentals to another more friendly market should this one become unworkable. 

I’m sorry  but it’s obviously hard to tell emotions on here. Thee was zero anger. It was a legitimate question. I wasn’t questioning you or your motives at all. I just see so many idea on here for the person with little to no money to get started that put all the risk on someone else...

Get it under contract with a bunch of contingencies so you can back out and then shop the deal even if you have zero money. Take over their mortgage subject to and if you can’t pay it you can just walk away, Get a property with seller financing and then sell it to someone else with s bigger downpayment and if they stop paying, walk away. This seems close to the same thing. Got no money? Lease someone else’s property and rent it out. Can’t cover the rent or the laws change, walk away. 

I would guess if 100 people followed this plan, 90 wouldn’t make 1 month’s rent payment after they couldn’t rent it out. Or if somehow the Airbnb newbie overestimated income to underestimated expenses and found they were losing money every month. 

@Bill Brandt

It’s all good man. No harm lol

You’re probably pretty close to your stats. That’s why it’s important for investors to have a well thought out plan B and C.  Seems like a lot of people lack good ethics and the integrity that you mentioned. Unfortunately it gives the good 10% a bad image from the get go. I appreciate the honest questions and hope I gave a realistic and somewhat thought out response on how I’d personally handle those potential challenges. 

ps. I didn’t think you could lease out the condo-tell yourself?

The one I looked at, the platinum on Koval (this was 5 years ago when I wanted to rent it out when I wasn’t using it.) doubled the Hoa fees for every week beyond 2 per year that they weren’t allowed to rent it out. And they kept 50% when they did. 

Which obviously means you could rent it out yourself but at the time the Hoa fees were already high, and doubling them and adding cleaning yourself made the 50% charge with cleaning cheaper.)

The question of using an LLC is better answered by YOUR landlord. Many won't lease to an LLC and, even if they do, they will look for a personal guarantee as well negating the main reason to use an LLC.

But, if you find the rare one that will lease to an LLC, you will want to go that route for asset protection and the tax advantages under the new tax bill. Nevada is a good state for that and you can probably do the filing yourself without needing one of the online services.

Good luck with your plan. Getting a lease that lets you sublease will probably be a challenge.

@Chuck Kramer

Thank you for your input. I may just consider approaching this as a sole proprietor under a DBA company name without the additional entity. Though I would be sure to carry a fair amount of liability renters insurance to cover most of potential negative situations that could hurt my personal finances.

It would also be important to see what the building's insurance does and does not cover. As a "sublet", some policies may exclude you. Just be sure to check.