Liability Protection : Short Term Rental ADU on PrimaryResidence

12 Replies


I am planning on setting up 2 rental ADU on my property in Seattle, it's a 1/2 Acre Lot so space is not a constraint, but I need some inputs on liability protection strategies anyone has implemented for a short term rental ADU on your primary residence backyard.

For instance, Are there options to split the lot and sell the ADU Occupied land to a LLC, and this LLC is operating the Rental Units in the backyard? So in case of a lawsuit, it would be separated from any equity in the primary residence?


@Ekta D., I am not a lawyer, and you will need a RE lawyer for that. You can discuss with the lawyer the option of creating a condo-association and have the main unit and the DADU as a condo association. Then the DADU can be movedsold to LLC.

THe lawyer will give you more details about this option

Hey @Ekta D., that is a very complex thing IMHO. @Sherief Elbassuoni hit the nail on the head. You need an attorney for this.

I doubt you can subdivide a city lot in Seattle. Unless it is a 5 acre parcel somewhere, but that would be a multi million dollar property.

In regards to creating a condo association, that could complicate the sale of the property down the road. I am not a lawyer, but this sounds like it could be a problem.

@Ekta D. Why don't you get STR host insurance policy instead. Much simpler solution IMO. You just have to make sure it's STR host policy and not a regular landlord long term rental policy. If you are not sure how to navigate insurance policies, try to get an insurance broker to give you all available STR insurance options.

If you are still determined to proceed with splitting the lot, whether it is possible or does it even make sense, will be determined by local RE laws and ordinances. Wouldn’t monkey with them and get a lawyer as others have said.

@Ekta D. check with your city or county zoning office regarding the legalities of constructing additional dwelling units on your property. As others mentioned, it is unlikely you can split the parcel. 

Since the short term rental is on your property, an LLC is pretty much useless. I say that because an LLC is essentially claiming separation from a business. Operating a business on your personal residence makes it difficult to claim such separation.

Many standard home owners insurance policies do not cover short term rental liability. There are companies that specialize in STR insurance. The best starting point is contacting your current insurance agent. Ask them about coverage through your current provider or if they broker other providers.

Hey @Ekta D., @Joe Splitrock pointed out something I didn't think about. Do you actually have ADU's on the property already?

If so, then just get a standard STR policy. Foremost is good and many use them. We use Proper, it is more expensive but I have been happy with their service and communication.

There really is no need to setup an LLC for this. Get a good umbrella policy for the whole shebang to cover anything else.

Now, if you don't have ADU's constructed on the property, that is a different story.

The city of Seattle launched a new website in Sept 2020 that goes into detail on ADU's. https://aduniverse-seattlecity...

The mayor in 2019 changed the rules for ADU's and their construction making it easier to build them. The whole point was to give property owners a way to offer up cheaper long term housing for lower income people in the city.

Now you will have to check and make sure your neighborhood will allow STR's in those units at all. It is a bit of a crap-show in Seattle when in comes to housing.

@Ek D.

For Airbnb liability, I'd reach out to Proper Insurance. We have a lot of buyers looking for second homes in Denver and Colorado Springs that they use as a short-term rental when not there. Most use Proper Insurance and are happy with it. It will be slightly more expensive than a traditional homeowners' policy, but you've got to make sure you're covered. (It's also what we used when were doing STRs in Colorado.)

Originally posted by @Ek D. :

@Sherief Elbassuoni

Thanks, what do other Short Term Rental owners do for liability protection?

 A FTR insurance. Different insurance companies provide that.