Using an LLC to get around STR restrictions?

[Scott K.]

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]

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".