Can register a short-term rental space as an LLC?

Question

Happy Saturday everyone,

Having seen several posts from successful investors on this platform,  my wife and I got fired up and decided to test the waters of real estate investing starting with our basement (house hack) for short or mid-term renting. The contractor starts renovations next week but we're wondering if it's legally possible to register this space as a separate LLC that rents from our primary residence, lol?

Any advise will be greatly appreciated. Thanks in advance.

John Underwood · Answer

@Bill Brandt

I agree with Bill. This is not needed at all.

Just make sure you have the correct insurance for a STR. You can add an umbrella policynif your still concerned.

Sean O'Keefe · Answer

@Jamiru Mutebi Generally, most real estate investors put their rentals into an LLC to limit their personal liability in the event that someone gets hurt on the property and sued or to help formalize the relationship with the investment partner. This is in addition to an umbrella insurance policy. Since this is only half a house it would be difficult to transfer the title/deed of the property into an LLC and benefit from the additional limited liability that LLC provides over and above just an insurance policy.

*This post does not create a CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.

Jamiru Mutebi · Answer

I get your point now @Bill Brandt, and @Sean O'Keefe thank you so much!

Bill B. · Answer

I don’t know if it’s allowed, only your local government department in charge licensing would know. BUT… Why? There’s no tax advantage, no privacy advantage, no liability advantage.

What are you doing other than adding costs and complexity? You might make insurance impossible to get. What’s the upside?

Andrew Postell · Answer

@Jamiru Mutebi sure, you can absolutely do this, have a separate bank account, etc.  This isn't that big of a deal but you can certainly do it if you wish.

Jamiru Mutebi · Answer

Thank you, @John Underwood

Bill B. · Answer

I have zero problem with house hacking, it’s how I started 30 years ago. I had never paid rent and didn’t want to start. So I bought a place (actually assumed a mortgage with $10k down, back when that was a thing.) had 3 buddies move in and pay me a little more than the payment plus utilities.

I’m simply saying there’s no reason to form the LLC. I have a dozen rentals without an LLC. You get the same tax write offs, there’s no tax benefit to llcs. Because this rental is in your home there’s no privacy or liability advantage to the LLC. So why create it? You’re spending money for zero benefit. Ask the person who’s going to make money off setting up the LLC and keeping it separate from your personal life why you should do it other than provide them with a job.

If they say taxes, privacy, or liability they either don’t understand you’re house hacking your primary home, they don’t know what they’re talking about, or they’re lying. If they come up with other reasons, tell us what they are.

And again, you may invalidate your umbrella policy (your most important insurance if you have a net worth higher than standard insurance policy limits.) or make getting regular homeowners insurance harder. It may make the rental license easier or harder. I’ve never had to get a license for a rental.

Jamiru Mutebi · Answer

@Bill Brandt, thank you for your response. First and foremost, I am a new investor trying to maximize my options here. But to better understand what your implying here, are you saying it's a bad idea to house hack the basement? or turning it into an LLC? or both?, please help understand what you are trying to mean, or what would be your best move in our situation.

However, if its possible like @Andrew Postell seem to imply, my basic understanding would be that making it a legitimate business despite being on our property, as well as the owners of both the property and business, it qualifies us for some tax advantages like any other business. Again, we are gathering information to do what's best, we are not experts. Thank you, again.

Can register a short-term rental space as an LLC?

Most Popular Reply