Rental Property Investor · Syracuse, UT · Member since 2019 · 11 posts · 2 votes
Hi Utah BPers,
I'm new to the real estate investing. I'm really interested in buying a property here in Utah to use as a vacation rental. For any of you experienced vacation rental property owners, does it make sense to form an LLC and buy the property under the LLC? Any pros/cons would be appreciated? Any suggestions on how to go about forming the LLC in Utah? I'm not sure how difficult/costly it would be to form the LLC so I don't know if any hassle in forming and maintaining the LLC would be worth it (considering the only property I own is just my primary residence). Would love your insights and guidance.
You did respond to a previous post of mine. This was your response:
"Yes to the LLC. This is a business, treat it like one."
I appreciated your response and, in a perfect situation (costs and other factors not part of the equation), I would form the LLC. However, there are other factors involved that I need to consider. I would like to have pros/cons. Can you give me some? I'd also like to learn from someone that had set up an LLC in Utah. Have you set one up in Utah? If so, if you are willing to give me more info, I'd appreciate it.
In answer to your question, I have no idea who Nate Halliday is.
@John Huber, the pros to an LLC is that you do get liability protection if you run them right. it can be easier it seems to take advantage of some tax breaks if you have them, like owning your vehicle and even buying health insurance for employees if you get big enough. That is why you need a good CPA to explain what you can do and can't. The cons are one the cost of setting one up, which is small, doing yearly reports to the state to keep your status current, depending on how you elect to be taxed you may have to file a separate tax form, and of course getting loans can be a little tougher, but you can do it, the rates are a little higher, the terms a little shorter so cash flow can suffer, you should maintain separate bank accounts and records anyway. You have to personally guarantee the loans anyway. Read up on the rules of how to operate an LLC, so you don't mess up. They are pretty inexpensive if you file for it yourself.
@Jerry W. So if I'm understanding you correctly, if the rental property is "owned" by the LLC, the same level of risk to my personal assets exists for default on the rental loan because I'm still giving a personal guarantee to the lender. If that is correct, then the real value of the LLC isn't the loan default risk protection, but rather the other liabilities (being sued by a tenant, etc). Is there a way to take out a loan personally (increases probability of qualifying) but be able to have the rental property listed as part of the LLC?
I think the LLC is overkill, and it's going to make financing the property a lot harder. I don't know if any of that changes specifically for vacation rentals--if that's jumps into some category of 'running a business'--but generally LLCs don't offer 100% protection anyway, and really not more than an umbrella insurance policy does.