When to form Corp or LLC for my short-term rentals

Question

Hi!

I own one property that I live in and Airbnb when I travel over the summer. I also have 2 rentals units that I Airbnb. When is it time for me to incorporate? All three properties are in Los Angeles. I’m thinking about adding a townhouse in Raleigh, NC.

I already have a Corp for my video production agency, which is my full-time job.

Thanks for any guidance or recommendations!

John Duston · Answer

@John Duston

Whether to put the rentals into an entity is a lawyer and insurance broker question. I don't see it costing thousands to put them into an LLC or Corp. Whether to put it into a LLC or corporation is a CPA question

Jillian Ez · Answer

@Joseph Bafia so cool! Would love some advice! Everything from mortgage broker to real estate broker.

Joseph Bafia · Answer

@Jillian Ez

I actually live in Raleigh and have rentals in western NC, but since my son moved out to LA, I’m pursuing property in CA.

Anything I can help with in Raleigh let me know.

I have all my properties in my own name (except 1 that I co-own).

Daniel Hyman · Answer

I assume your question is whether or not to form an LLC. Many people mistakenly equate an LLC with a corporation.

An LLC may or may not be a good idea, but you'd want to discuss it with an attorney. And, yes, keep in mind the super high annual fee that CA charges. NC is much, much less.

John Duston · Answer

@Jillian Ez

I'm hesitant to recommend incorporating as SoCal, especially Los Angeles appreciates so quickly that you'll have basis issues taking it out if the corp.

An LLC could be the starting point as you can elect to be taxed as a corporation ( whether S or C). If a corporation is applicable without knowing the details of your situation.

In California, we do have to pay an FTB tax of $800 a year.

John Underwood · Answer

It is expensive to create and maintain LLC'S in California.

You might be better off with an umbrella policy.

Jillian Ez · Answer

@Jillian Ez

My CPA told me to talk to a real estate lawyer for the best answer, but offered this:

“This depends on several factors including concerns for liability and budget. Running a rental property under a separate legal entity can add a thousands to compliance costs. If that makes sense from a liability and budget perspective, then that may be best.

For our clients with rental properties, I would estimate that about two-thirds own and run them personally and the other third have each entity under its own LLC.”

When to form Corp or LLC for my short-term rentals

When to form Corp or LLC for my short-term rentals

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