STR Insurance & Holding Title

[Brent Salazar]

Hello BP,

I'm wondering if any experienced operators out there can shed some light on best practices. My partner and I bought a home in our personal names and operate our guest house as a STR. We created an LLC to operate the STR but hold title in our personal names. Our thought for this is, in the future it would help show income for lending purposes and possibly create a liability buffer. I am now looking to get the proper STR insurance on the unit. I have been quoted a commercial policy which is fine, but they are also trying to sell me on a separate liability policy because its operated in an LLC. I also currently have a personal umbrella policy, but they are claiming the personal umbrella wont help liability in the event an STR guest wants to sue. This is because of the operation within the LLC. The biggest reason I have the umbrella is for exactly that reason.

To add an additional layer of complexity I am under contract to buy land and build another STR. If I hold title in the LLC they want to sell me yet another vacant land policy, but If I held title in my personal name my primary home owners/ umbrella would cover it. I wanted to operate and hold title in the LLC as much as possible to protect my assets but I feel like this is getting more complicated than needed. With everything considered I'm wondering if I should just hold title to all my property's in my personal name and operate the STR's in the LLC with commercial policy's but no separate liability coverage. If they sue the LLC and it does not own anything who cares? If they were able to pierce the LLC and reach me personally I would have my umbrella policy to cover liability. Am I correct on my thinking?

Rant over lol, please comment if you have any input! 

Thank you! 
 

[Michael Baum]

Hey @Brent Salazar, do you guys own the home outright? If so then moving it to the LLC is not a big deal, but if you have a mortgage, then you might trigger the due on sale clause which will require a refinance and possibly more down depending on equity.

It sounds like you might have overcomplicated the situation but operating as an LLC but holding the property yourselves vs in the LLC.

I have never seen that kind of situation before. I don't see any kind of benefit to being setup that way IMHO. It seems to have the worst of both worlds.

Do you have a ton of other assets that could be attached if sued?

There is a lot to unpack here.