Rental Property Investor · Paola, KS · Member since 2017 · 39 posts · 20 votes
I'm curious to know whether it would be most appropriate to have a business (LLC?) for running an AirBnB business, separate from an LLC that is already used primarily for construction and rehab work. I'm wanting to build a system of short term rentals in the midwest, mainly in the Kansas City area. But I wonder whether it would make most sense for liability reasons to track these sorts of business transactions under separate businesses.
I'd also be curious to know what resources other people used to help learn the best way to systematize their short term rentals.
@Oliver Sparks first... I would not “Airbnb” in any city. You’ll get shut down sooner than later. Your neighbors will call the cops because someone is puking in the lawn at 2 am. The city will fine you. You’ll be gone in a year.
The exception would be if you have a commercially zoned building and you want to buy the whole thing and “Airbnb” it as hotel competition. But I’m the end the hotels will win. And Airbnb has and will start popping these buildings up on their own and if the hotels don’t wipe you out Airbnb will.
As far as your LLC I suppose that depends on many variables. Do you own the properties are are you starting an STR property management (PM) company? If you're looking to start a company then yes start it with an LLC and get your insurance and get your ducks in a row.
If you own the properties are they financed? Because the bank isn't going to let you finance them as an LLC unless that LLC has tax returns and DTI of its own. Are you paying cash? Then yes buy it as an LLC and self manage it with no LLC.
Lots of variables these are just a few. Typed on an iPhone. Vote button please.
An LLC does not "systematize". For many people, it just makes it more complicated and a lot of them will wind up not running it properly and will not have the protection they think. it also makes it difficult to get financing. your true protection is proper short term rental insurance and a solid legal agreement and deep knowledge of the industry and pristine business processes.
the most disturbing thing about your post is the plan for a string of short-term rentals, and perhaps the lack of understanding that should really be involved. Nothing can make you go under faster than being overleveraged and overwhelmed and underprepared. So many people wandering in here with the plan to scale up and are totally unprepared for when they have to scale down rapidly.
@Ken Latchers thanks for the response. I should clarify, as I was really presenting two different questions. The LLC question was specifically aimed at finding out whether or not the same LLC used for construction can or should be used for doing short term rentals.
The other question about systematizing the AirBnB portion of the business is really a separate question asking for resources that others have used to help streamline the processes within the business.
I appreciate your response on taking the right approach and suggestions on insurance etc.
@Oliver Sparks first... I would not “Airbnb” in any city. You’ll get shut down sooner than later. Your neighbors will call the cops because someone is puking in the lawn at 2 am. The city will fine you. You’ll be gone in a year.
The exception would be if you have a commercially zoned building and you want to buy the whole thing and “Airbnb” it as hotel competition. But I’m the end the hotels will win. And Airbnb has and will start popping these buildings up on their own and if the hotels don’t wipe you out Airbnb will.
As far as your LLC I suppose that depends on many variables. Do you own the properties are are you starting an STR property management (PM) company? If you're looking to start a company then yes start it with an LLC and get your insurance and get your ducks in a row.
If you own the properties are they financed? Because the bank isn't going to let you finance them as an LLC unless that LLC has tax returns and DTI of its own. Are you paying cash? Then yes buy it as an LLC and self manage it with no LLC.
Lots of variables these are just a few. Typed on an iPhone. Vote button please.
Separate llc’s. You don’t want any liabilities from the contracting business to affect the real estate operations, and vice a versa. Also, your real estate income could be passive, versus the ordinary income from the contracting.
@Lucas Carl Thanks for the advice. I do own some SFR's in areas that would be attractive to people wanting to stay just outside of the city. So I plan to use those, as well as manage some properties owned by others with the intention of using it as a short term rental.
@Oliver Sparks Would advise to keep your potential liabilities per biz venture separate. If it's all pooled together your existing business and new assets all share the risk - definitely consult an attorney if you choose to pursue REI outside your core construction biz.