Using an LLC to get around STR restrictions?

Question

Hi there, we recently purchased a single-family home in a town in Goshen, New York for the purposes of listing it as a STR.

Just before closing, while we were in contract, the town placed severe restrictions on STRs. With the investment opportunity no longer viable, we're putting it back on the market for sale.

My wife came across this video last night, however: How To Get Around Short Term Rental Restrictions

I have to say, I'm not quite following her arguments. She's basically saying that if I place the home under an LLC I can get around these restrictions.

I'm very skeptical. Is there any truth to support this?

Moderator note: post edited to show link

NEW Moderator Note: Based on @Joe Splitrock's comment below, I removed the link again. BP should not be linking to, and thereby promoting such irresponsible Guru crap. - Ned Carey, Moderator.

Joe Splitrock · Answer

Watching the video just elevates her standing on Youtube and generates more views and more revenue for her false advice. There is no debate here. When an individual or group of individuals are prohibited from operating a short term rental in a property or market, that applies to a business entity. "Owner" in a legal context would be any individual, entity or agent that controls the property.She makes multiple false statements. 1. She says you need a business entity (LLC, C-Corp, S-Corp) to have a business. Operating without an entity makes you a sole proprietor business. A business doesn't require an entity and an entity doesn't mean you have a business. Business is defined by operation activities, not entity.2. She says get a business so you can get an EIN. An EIN is an employer identification number. This is a type of tax ID. You can apply for an EIN if you are a sole proprietor, although it is usually not necessary if you don't have employees. Some sole proprietors still get an EIN to avoid using their social security number in business. Most landlord sole proprietors use their social security number as tax ID for simplicity, but you can also get an EIN. Either way, having an EIN has nothing to do with having to follow short term rental rules.3. She says don't tell the owner or condo manager that you are renting it on AirBNB, tell them you are a corporation with corporate business travelers. Although lying about your use of the property, may avoid getting caught, it is hardly creative and it doesn't require a business entity. Anyone can lie and if you are good at it, you may avoid getting caught. She claims her process is ethical, but lying by most standards is unethical.4. She says stay away from terms like "Airbnb, vacation rental, short term rental" and instead just say you are renting to clients. Making up a new term for what you do, doesn't change the legal nature of your business. A business is defined by actions and short term rentals are generally defined as stays under 30 days in most markets. Condos or some cities may define a different intervals, but the point is that it doesn't matter what you call it. People need to be careful because operating a business entity doesn't shield you from legal repercussions. If an LLC engages in illegal practices, the owners can be held personally liable. If the LLC is hit with fines, an attorney can go after you personally for damages. Her real strategy is lying and luck. Lying about the nature of the business and lucky due to low enforcement of short term rental restrictions. If you are the type of person who wants to rely on lying and luck, no need to bother setting up an LLC. The mistake people make when using the "lying and luck" strategy is assuming just because it worked yesterday, it will work tomorrow. People get emboldened and take more chances. It eventually catches up to you. This is how good people get in big trouble.There is an old saying, "if it sounds too good to be true, it probably is".

Luke Carl · Answer

No. I would not recommend this. This is like telling a girl that's out of your league that you play left field for the Baltimore orioles. She's going to find out.

Don Konipol · Answer

@Ned CareyI don’t understand the need to use complicated procedures such as the video describes to “get around” short term rental restrictions. Just declare yourself to be a “sovereign citizen”. As an added benefit you won’t be subject to Federal taxes, or any law, rule or regulation not specifically mentioned in the US Constitution.

Ned Carey · Answer

Her real strategy is lying and luck. @Joe Splitrock I love it. Great synopsis

Jerry W. · Answer

OK,I didn't get to see the video, but let me weigh in. Yes I am an attorney, and was a prosecutor for much of my career. First off an LLC or even a corporation is considered to be a person under the law. Otherwise they could not transact business or enter into contracts. Next forming a legal entity does not allow you to violate laws. Legal entities can be fined just like people, their property can be forfeited by the courts as well. While you cannot imprison a legal entity, once you start breaking laws knowingly as a legal entity it is possible to charge the owners or operators of a company personally for their actions. You think the officers at ENRON didn't do jail time? Do you really think selling drugs, doing money laundering, etc. will shield the people who are procuring them to be done? There is also a federal law called RICCO, my recollection is it means Racketeering Influenced Corrupt corporate organizations. It allows direct lawsuits against corporations for doing illegal acts and triples the damages that are available. As to not telling folks that you are using AIR BnB and saying they are clients, do you really think they can't look at AIR BnB or VRBO sites? It takes 5 minutes to get the information. Who is going to be the host? The host picture would be fun to use as an exhibit. The money must go to a bank account somewhere. A simple subpeona would get you who the owner is. Think you can get past that? after 911 the Patriot Act tightened up using IDs to get bank accounts. It would be extremely easy to prove these violations and the people operating them would be lucky to not end up in jail for conspiracy. Odds are high that the property could be forfeited or at least tied up for years. Think the mortgage company didn't get a personal guaranty from someone to get the loan?I could go on with this for a long time, short story you get caught, get fines, maybe jail. The good news is whoever followed her advice and got caught could sue her for the misleading information in the video. It is possible she could be charged with accessory before the fact, but that would be a little tougher, but not impossible.

Natalie Kolodij · Answer

I Wish I could like this post more than once. I kept re-tapping the like button as if it would increase something like on tiktok. My stupid millenial habbits.

Ned Carey · Answer

@Natalie Kolodij Good feedback. It amazes me how many people act like you are not in business unless you own an entity. The concept of a "Sole Proprietorship" seems pretty basic to me. I almost summoned you to this post but I remembered you were an accountant not an attorney.

Ned Carey · Answer

@Scott Krause Wow. She actually had the nerve to post this in public. I am not an attorney but i am 100% confident that this is BOGUS! Despite her claims, a legal entity is a person in the eyes of the law and must obey the law. It certainly depends on how any HOA or Condo documents are worded but my guess is that in 100% of the cases she is breaking Condo/ HOA rules. It appears she is also encouraging people to break contractual agreements. She could be sued for this. It is know as "Interference with contract" My guess is she is doing this and getting away with it. Just because you can get away with something doesn't make it legal. The reason BP was started was to protect people from paying for Gurus that preach this crap. Hopefully a real attorney will jump in.

David M Trapani · Answer

Many cities with STR regs will not issue STR permits to LLC's or corporations. Likely, they want to know who they're dealing with and an individual who's accountable for problems/complaints. Also, most jurisdictions do not allow transfer of a permit on sale or between (buying or selling shareholders, members or partners) owners. They don't want LLC memberships or corporate stock being sold or shuffled, such that the permit may transfer or potentially last in perpetuity. Not familiar with NY law. However, my sense is forming an LLC in this instance will not fly.

Natalie Kolodij · Answer

I'm not an attorney. But any time someone doesn't know the difference between an entity and a business I write off their knowledge. An LLC =/= a busness. Operating as a business per IRC 162 makes you a business. The majority of businesses in the US are sole props- meaning they don't have an LLC or Corporation. So those are businesses without an LLC. Having an LLC doesn't make you a business, and yes uh a business can absolutely ocucpy a prpoerty- how does she think every commercial lease int he world works?