Buying a California property privatly vs. LLC (Airbnb use)
Most Popular Reply
Stuart UdisPro Member
Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votesLLC's and Insurance are completely unrelated to one another and play separate roles. Before you continue down the rabbit hole you're on it's important to understand real estate disputes are predictable, and so is the way they are resolved. When investors understand why conflicts arise and how the resolution process works, they can implement practical systems that prevent most issues from escalating. They also become far better positioned to shift liability to the responsible party and resolve conflicts quickly and cost-effectively. That should be your starting point.
Understand how and why the asset protection system will benefit you. In your case you have to be focused on the risks and conflicts associated with buying and renovating real estate and then using that same real estate as a STR. Both phases of ownership carry different risks along with the most likely conflicts to arise differ depending on the phase of ownership. Start there and then you can reverse engineer systems and asset protection that are geared to first prevent those liability events from ever arising and if they do, your systems deflect liability onto the responsible party, or your insurance is there to cover the exposure.
That's how you effectively protect yourself. Most investors brace for liability events, treat conflict as inevitable, and spend unnecessarily on asset-protection without ever asking how or why their asset protection systems will actually benefit them
14 Replies
- 9moJason WrayPro MemberBanker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
Ofir,
if you buy it as primary you will not be able to close it in an LLC becuase It will more than likelyhave a "Due on Sale clause". There are a few things you can do to avoid this and still close in an LLC or quit claim after you close.
If you want feel free to check out my profile and send me a message or email. Be easy to walk you through how to structure and what to do step by step. There is a way to do this without having to put more money down and still get a good Rate.
- 9moArman AhmedPro MemberReal Estate Agent · Columbus Cleveland Dayton, OH · Member since 2024 · 2k+ posts · 904 votes
For short-term rentals, you generally want a setup that maximizes flexibility and protects your liability. Many investors use their personal name for financing and initial occupancy, while running the Airbnb operations through an LLC with proper insurance and an umbrella policy. This way, you avoid complications with loans or title transfers upfront. In the Midwest, this approach is especially popular because financing tends to be easier and more favorable for individuals, and local regulations are often more straightforward than in high-cost markets.
- 9moStuart UdisPro MemberAttorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
LLC's and Insurance are completely unrelated to one another and play separate roles. Before you continue down the rabbit hole you're on it's important to understand real estate disputes are predictable, and so is the way they are resolved. When investors understand why conflicts arise and how the resolution process works, they can implement practical systems that prevent most issues from escalating. They also become far better positioned to shift liability to the responsible party and resolve conflicts quickly and cost-effectively. That should be your starting point.
Understand how and why the asset protection system will benefit you. In your case you have to be focused on the risks and conflicts associated with buying and renovating real estate and then using that same real estate as a STR. Both phases of ownership carry different risks along with the most likely conflicts to arise differ depending on the phase of ownership. Start there and then you can reverse engineer systems and asset protection that are geared to first prevent those liability events from ever arising and if they do, your systems deflect liability onto the responsible party, or your insurance is there to cover the exposure.
That's how you effectively protect yourself. Most investors brace for liability events, treat conflict as inevitable, and spend unnecessarily on asset-protection without ever asking how or why their asset protection systems will actually benefit them
- 9moJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
I have heard the cost of an LLC in California is cost prohibitive and annual fee is expensive.
First you don't really need an LLC if you take care of your property and guests.
You can always add an umbrella policy.
Second, you could look into putting it in a trust that a Wyoming LLC is the beneficiary of and avoid any California LLC.
- 9moStuart UdisPro MemberAttorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
I see a lot of investors default to a trust + Wyoming LLC structure because it's marketed as asset protection. In reality, real estate disputes are almost always resolved where the property is located, under that state's law. A Wyoming entity doesn't change venue, choice of law, or how operational liability is evaluated. Umbrella coverage is commonly misunderstood as well. It's simply excess general liability coverage, not a cure-all, and it doesn't apply to many situations investors assume it does.
When a claim isn’t covered by insurance, it’s often far easier to secure a judgment or lien against the deed holder than pierce the veil of the entity. This is a very overlooked component of real estate ownership. Judgments and liens are far more valuable because they are attached to collateral and clouds title. Most importantly most investor losses come from operational gaps that lead to disputes and claims that cause higher premiums, and errors caused by the distractions resolving disputes, many of which are nuisance in nature.
So the real question is whether these structures actually improve outcomes, or just make financing harder and operations messier and add unnecessary operational distractions making businesses less profitable. Asset protection is important, but focusing on practicality is important and must be weighed against over complicating and interfering with your business.
- 9moCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
LLCs are overrated. You are jumping through a lot of hoops - and great expense - to achieve "limited liability" on one property.
You're much better off just putting it in your name. if you want "limited liability," buy good insurance.
- 9moMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
So @Stuart Udis, I have always been an advocate for small time STR owners with one or 2 properties to make sure they have the correct STR insurance and an umbrella to cover most problems.
LLC's, from what I understand, provide protection against contract issues, but not negligence issues. I have read a bunch of cases where the LLC was pretty easily pierced when an owner neglected a repair and the like.
I am curious as to your opinion. I have spoken with about 40 attorneys about this and most tell me that an LLC isn't much protection against negligence.
- 9moStuart UdisPro MemberAttorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
@Michael Baum I’ll try to tackle each point, starting with insurance, and I largely agree with you here. This is not limited to STRs. For any property use, having insurance that actually matches how the real estate is being operated is critical. A mismatch between use and policy is one of the easiest ways for coverage to be denied.
Using your example, the property policy must explicitly allow for STR use. There is an important caveat, however. Even with proper STR coverage in place, operating the property in violation of local municipal regulations can still create coverage issues. Depending on the policy language, that alone can trigger an exclusion. So it is not just about matching coverage to use. It is also about understanding exclusions and making sure operations align with what the policy assumes.
The same logic applies across the board. Builders risk coverage during construction, understanding allowable vacancy periods in the policy and securing vacant property coverage when applicable, and always maintaining general liability coverage alongside the property policy.
Umbrella coverage is simply excess general liability coverage. It only comes into play once the underlying general liability limits are exhausted and only for covered events. In the context of real estate, that usually means a fairly significant personal injury claim, not a cure all for operational or coverage gaps. In your STR case, it doesn't protect property, it doesn't apply in the event there's a defect or workmanship issue, it doesn't help if a guest trashes your place during a stay. Really just extreme cases of premises liability or extreme cases of implied warranty of habitability that cause severe physical injury that exceeds the primary GL coverage limit.
To segue into @Collin Hays point about having good insurance, the most effective way to achieve that is by operating the business well and avoiding conflicts in the first place. While some uses are inherently higher risk and may push investors into surplus carriers, most owners end up in surplus line coverage, which is more expensive and less regulated, because they are viewed as risky operators. That typically results from negative claim history, canceled policies, or weak operational controls. Therefore, spend more time and energy operating the business in a manner that avoids claims in the first place, but if a claim were to occur make sure its covered under the policy and not an exclusion.
Check out my prior posts on LLCs. I am an advocate for investors holding real estate in LLCs, but primarily for business planning purposes and to keep personal names out of the docket. Understanding how disputes are actually resolved, how attorneys are compensated in the types of cases that lead to larger damage awards, and how claims are pursued in practice is very relevant. Its very misunderstood but should influence asset protection set ups.
I write often about how easy it is to attach a judgment or lien to the underlying real estate. In many cases, that is a far more straightforward and effective path to recovery than attempting to collect a judgment against an individual, which is an extremely rare and usually impractical avenue. Understanding that reality materially changes how you think about risk, operations, insurance, and entity structure.
One additional point that often surprises people is how personal injury cases are actually framed- these tend to be the larger dollar amount conflicts. Many plaintiffs’ attorneys will intentionally narrow or omit certain facts from the narrative in order to keep the claim within the coverage of the property owner’s insurance policy. That can mean downplaying or excluding allegations of negligent or grossly negligent conduct, even if including them might strengthen the factual claim.
This is deliberate. A settlement or judgment tied to a covered insurance event results in payment to both the injured party and their counsel. A judgment based on uncovered conduct, by contrast, is often uncollectible and functionally just a piece of paper.
- 9moMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
Thanks @Stuart Udis, I appreciate the insight.
Hey @Ofir R. sorry to derail your thread a bit but I hope you got what you were looking for information wise.
- 9moOfir R.Member since 2023 · 26 posts · 17 votesOP
@Michael Baum no worries, I'm glad if this thread is helping others. I myself am still not sure what to do but hoping on figuring this out.
- 9moAndrew SteffensBusiness MemberTampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
As mentioned (this question comes up a lot) this will primarily depend on the loan you are getting and is less of a decision for you. I own STR's in both my personal name and my LLC, it all depended on the loan terms at the time I purchase or refinanced.
Too many people think closing the STR in an LLC provides liability protection and that is not true. It does provide some protection under contract law, but your exposure in a home is more based on liability for accidents than exposure caused by a contract.
Long story short you need an umbrella liability policy for this.
LLC's may offer some tax benefit, but most of the time its negligible setting up either personal or LLC, and a lot of times you can own it personally but take the income into the LLC. This is a question for your CPA.
Good luck!
Vacation Rentals of Florida53 Reviews- 9moOfir R.Member since 2023 · 26 posts · 17 votesOP
Quote from @Andrew Steffens:
As mentioned (this question comes up a lot) this will primarily depend on the loan you are getting and is less of a decision for you. I own STR's in both my personal name and my LLC, it all depended on the loan terms at the time I purchase or refinanced.
Too many people think closing the STR in an LLC provides liability protection and that is not true. It does provide some protection under contract law, but your exposure in a home is more based on liability for accidents than exposure caused by a contract.
Long story short you need an umbrella liability policy for this.
LLC's may offer some tax benefit, but most of the time its negligible setting up either personal or LLC, and a lot of times you can own it personally but take the income into the LLC. This is a question for your CPA.
Good luck!
Thank you and everyone. :)
- 9moCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
Quote from @Andrew Steffens:
As mentioned (this question comes up a lot) this will primarily depend on the loan you are getting and is less of a decision for you. I own STR's in both my personal name and my LLC, it all depended on the loan terms at the time I purchase or refinanced.
Too many people think closing the STR in an LLC provides liability protection and that is not true. It does provide some protection under contract law, but your exposure in a home is more based on liability for accidents than exposure caused by a contract.
Long story short you need an umbrella liability policy for this.
LLC's may offer some tax benefit, but most of the time its negligible setting up either personal or LLC, and a lot of times you can own it personally but take the income into the LLC. This is a question for your CPA.
Good luck!
and make sure your umbrella isn't leaking any water!
- Investor · CA · Member since 2025 · 9 posts · 1 vote2mo
I believe that if you purchase the property through an LLC, the interest rate will likely be higher since you'll most likely need to use a DSCR loan.
If you'd prefer a conventional loan in your personal name, it's a good idea to check with the lender beforehand to see whether they have any restrictions on transferring the property to an LLC later. Some portfolio lenders that keep loans on their own books may not allow this, but Fannie Mae and Freddie Mac-backed loans guidelines permit you to deed a rental property into an LLC you control after closing without triggering a due-on-sale clause.
https://guide.freddiemac.com/app/guide/section/8406.1
Join the conversationCreate a free account to reply, vote on answers and follow this thread.