Financing Short Term Rentals w/ a Business Partner

[Eddie Hincewicz]

Hello BP Community! 

I'm reaching out for your insight. I'm partnering with a close friend to purchase properties for short-term rentals in Page County, VA. My partner already has an STR, but this is my first time diving into the STR market and investing with a partner. We plan on creating an LLC for our business venture and are reviewing options on how to structure our first deal (meeting with a real estate lawyer and tax professional soon).

In doing my own research, I came across a BP forum post that discussed buying a property with a residential loan, then using a quitclaim to transfer the deed to your LLC. This seemed risky to me for a number of reasons...maybe I'm just being naive. Wouldn't it make more sense to purchase the property through an LLC, or, at the very least, transfer the deed to a land trust and list the LLC as the beneficiary?

I attempted to list out the pros and cons of both approaches below. Are there any seasoned STR vets out there that can provide insight on the options below?

Potential Options: 

1) Purchase property with a residential loan (sole or joint). Quitclaim to a land trust. List LLC as the beneficiary.

Pros: better financing than commercial

Cons: Loan would me in my/our name (does that pierce the corp veil?), the note could be called, transfer tax, would need to change title insurance, what else? 

2) Purchase property via the LLC with a commercial loan. A long-term hard money loan to the LLC would be another financing option based on the STR returns we're seeing.

Pros: protected from the start

Cons: worse terms than a residential loan

Thanks,

Eddie