LLC for Airbnb

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LLC for Airbnb

Luis Ramirez
Lake Orion Michigan · Member since 2022 · 16 posts · 14 votes

Hello BiggerPockets community,

I'm currently a homeowner renting out my primary residence on Airbnb and considering the prospect of buying a new property for rental purposes. I've heard about the benefits of forming an LLC for managing Airbnb properties and would appreciate some guidance on the matter.

Specifically, I'm curious about:

  1. What are the key advantages of forming an LLC for managing Airbnb properties?
  2. If I already own an Airbnb property (my primary residence) and plan to purchase a new house for rental purposes, what would be the recommended approach for transitioning the existing property into an LLC?
  3. Is it preferable to transfer ownership to the LLC or consider a corporate lease arrangement for the existing property?
  4. Are there any specific considerations or legal aspects I should be aware of when making this transition?

Additionally, I'm based in Michigan, and I would like to know if anyone in the community is familiar with companies or professionals in Michigan who can assist in the process of forming an LLC and managing the legal aspects of transitioning Airbnb properties.

Any insights or experiences you can share would be immensely helpful as I navigate this potential transition. Thank you in advance for your valuable input!

Best regards,

Luis Ramirez

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Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
2y

Hey @Luis Ramirez, so there are varying opinions on this. Here is my take.

An LLC can be beneficial once you get to a certain level. Like 10 or more properties. You can setup a series LLC where each property is in it's own LLC under a parent LLC.

For 2 properties, I don't think it is necessary. Just have top notch insurance and get an umbrella to cover yourself. Run a tight ship. Fix stuff asap that could cause issues, like a loose or rotten deck board.

Many mortgages have a due on sale clause that would get triggered by a transfer to an LLC. That means you would need to refinance, usually with some down (if you don't have enough equity) and a higher interest rate. Not all mortgages, but I would check before doing anything else.

The corporate lease thing has been beaten to death and the general consensus is that it doesn't work.

There is no tax advantage to doing an LLC. An LLC is a pass through entity.

You can use any competent attorney to form the LLC. It doesn't have to be formed in your state. As a matter of fact, forming it in other states could save you $$$ in formation and the long run.

Bottom line, my opinion, it is not necessary at your stage of investing.

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  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    2y

    Hey @Luis Ramirez, so there are varying opinions on this. Here is my take.

    An LLC can be beneficial once you get to a certain level. Like 10 or more properties. You can setup a series LLC where each property is in it's own LLC under a parent LLC.

    For 2 properties, I don't think it is necessary. Just have top notch insurance and get an umbrella to cover yourself. Run a tight ship. Fix stuff asap that could cause issues, like a loose or rotten deck board.

    Many mortgages have a due on sale clause that would get triggered by a transfer to an LLC. That means you would need to refinance, usually with some down (if you don't have enough equity) and a higher interest rate. Not all mortgages, but I would check before doing anything else.

    The corporate lease thing has been beaten to death and the general consensus is that it doesn't work.

    There is no tax advantage to doing an LLC. An LLC is a pass through entity.

    You can use any competent attorney to form the LLC. It doesn't have to be formed in your state. As a matter of fact, forming it in other states could save you $$$ in formation and the long run.

    Bottom line, my opinion, it is not necessary at your stage of investing.

    4Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    2y
    Quote from @Michael Baum:

    Hey @Luis Ramirez, so there are varying opinions on this. Here is my take.

    An LLC can be beneficial once you get to a certain level. Like 10 or more properties. You can setup a series LLC where each property is in it's own LLC under a parent LLC.

    For 2 properties, I don't think it is necessary. Just have top notch insurance and get an umbrella to cover yourself. Run a tight ship. Fix stuff asap that could cause issues, like a loose or rotten deck board.

    Many mortgages have a due on sale clause that would get triggered by a transfer to an LLC. That means you would need to refinance, usually with some down (if you don't have enough equity) and a higher interest rate. Not all mortgages, but I would check before doing anything else.

    The corporate lease thing has been beaten to death and the general consensus is that it doesn't work.

    There is no tax advantage to doing an LLC. An LLC is a pass through entity.

    You can use any competent attorney to form the LLC. It doesn't have to be formed in your state. As a matter of fact, forming it in other states could save you $$$ in formation and the long run.

    Bottom line, my opinion, it is not necessary at your stage of investing.


     I agree with Michael. You don't need this.

    1Reply
  • Patricia Andriolo-Bull
    Member since 2022 · 527 posts · 413 votes
    2y

    My only caveat would be none of us know their personal situation.  The OP may have investments other equity.  It’s not about the number of rental properties it’s about the overall exposure.  Personally, even with umbrella, I like to further separate rental exposure.

    0Reply
  • Andrew SteffensBusiness Member
    Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
    2y

    It is a very case by case scenario and the two people who could advise you best would be a CPA and/or an asset protection attorney. For most people, the benefits are negligible. The biggest difference to me would be in financing. Conventional financing (usually cheaper) does not allow you to use LLC's, it must be in your personal name (or a trust). If you are using private lenders, they actually usually require an LLC.

    [email protected]813-563-0877
    Vacation Rentals of Florida53 Reviews
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    0Reply
  • Brooklyn McCarty
    Investor · Member since 2022 · 1k+ posts · 754 votes
    2y

    These are all questions I would be asking my CPA and my lawyer. 

    1Reply
  • Jeremy Jareckyj
    Real Estate Agent · Salt Lake City, UT · Member since 2020 · 490 posts · 205 votes
    2y

    LLCs are more for asset protection rather than tax advantages for RE

    0Reply
  • Christian Cortez
    Member since 2024 · 15 posts · 9 votes
    2y

    Don't wait to put it in an LLC. Just form the LLC preferably in Wyoming. Wyoming does not release who owns the LLC. Most other states allow you to look up who the owners are of said LLC. Check with your lender prior to closing to verify it is ok to put the property into an LLC. Like another post said if it's after the closing, you might be required to refinance your loan to do it.

    2Reply
  • Sarah KensingerPro Member
    Real Estate Consultant · OH · Member since 2023 · 2k+ posts · 1k+ votes
    2y

    I would highly recommend getting in contact with Anderson Business Advisors to help you work through all the above questions. You want to be set up right, so your assets are protected! It takes one guest to bring a huge headache your way or to potentially ruin your life and everything you worked for. Many people say it's not necessary, but many don't understand what is at stake. Ever since Covid lawsuits have more than doubled, so I would highly recommend talking to professionals that can help you choose the right set up for you!

    [email protected]330-557-3021
    0Reply
  • Sarah KensingerPro Member
    Real Estate Consultant · OH · Member since 2023 · 2k+ posts · 1k+ votes
    2y
    Quote from @Christian Cortez:

    Don't wait to put it in an LLC. Just form the LLC preferably in Wyoming. Wyoming does not release who owns the LLC. Most other states allow you to look up who the owners are of said LLC. Check with your lender prior to closing to verify it is ok to put the property into an LLC. Like another post said if it's after the closing, you might be required to refinance your loan to do it.

    You still need an LLC in the state your property is in. The WY LLC holds the state LLC (the state the STR in located) so yes, the owner can't be easily traced. 
    [email protected]330-557-3021
    1Reply
  • Christian Cortez
    Member since 2024 · 15 posts · 9 votes
    2y
    Quote from @Sarah Kensinger:
    Quote from @Christian Cortez:

    Don't wait to put it in an LLC. Just form the LLC preferably in Wyoming. Wyoming does not release who owns the LLC. Most other states allow you to look up who the owners are of said LLC. Check with your lender prior to closing to verify it is ok to put the property into an LLC. Like another post said if it's after the closing, you might be required to refinance your loan to do it.

    You still need an LLC in the state your property is in. The WY LLC holds the state LLC (the state the STR in located) so yes, the owner can't be easily traced. 
    You do not need an LLC in the state your property is in. Buying an STR in Kentucky and LLC in Wyoming for the purchase. Now as far as business I am conducting can require me to have an LLC or business license in the state I am in. All depends on the laws for said state. 
    1Reply
  • Sarah KensingerPro Member
    Real Estate Consultant · OH · Member since 2023 · 2k+ posts · 1k+ votes
    2y
    Quote from @Christian Cortez:
    Quote from @Sarah Kensinger:
    Quote from @Christian Cortez:

    Don't wait to put it in an LLC. Just form the LLC preferably in Wyoming. Wyoming does not release who owns the LLC. Most other states allow you to look up who the owners are of said LLC. Check with your lender prior to closing to verify it is ok to put the property into an LLC. Like another post said if it's after the closing, you might be required to refinance your loan to do it.

    You still need an LLC in the state your property is in. The WY LLC holds the state LLC (the state the STR in located) so yes, the owner can't be easily traced. 
    You do not need an LLC in the state your property is in. Buying an STR in Kentucky and LLC in Wyoming for the purchase. Now as far as business I am conducting can require me to have an LLC or business license in the state I am in. All depends on the laws for said state. 
    No, it MUST be in the state the property is located in. Just like a business LLC MUST be in the state I do business in, unless I file certain paperwork. Since I mentioned professionals are the best to ask, I'll try to track down some resources from our business advisors. They have an extensive YouTube channel so you can check that out as well if you're interested....Anderson Business Advisors and Clint Coons channels.
    [email protected]330-557-3021
    0Reply
  • Trent Reeve
    Atlanta · Member since 2022 · 710 posts · 641 votes
    2y
    Quote from @Sarah Kensinger:
    Quote from @Christian Cortez:
    Quote from @Sarah Kensinger:
    Quote from @Christian Cortez:

    Don't wait to put it in an LLC. Just form the LLC preferably in Wyoming. Wyoming does not release who owns the LLC. Most other states allow you to look up who the owners are of said LLC. Check with your lender prior to closing to verify it is ok to put the property into an LLC. Like another post said if it's after the closing, you might be required to refinance your loan to do it.

    You still need an LLC in the state your property is in. The WY LLC holds the state LLC (the state the STR in located) so yes, the owner can't be easily traced. 
    You do not need an LLC in the state your property is in. Buying an STR in Kentucky and LLC in Wyoming for the purchase. Now as far as business I am conducting can require me to have an LLC or business license in the state I am in. All depends on the laws for said state. 
    No, it MUST be in the state the property is located in. Just like a business LLC MUST be in the state I do business in, unless I file certain paperwork. Since I mentioned professionals are the best to ask, I'll try to track down some resources from our business advisors. They have an extensive YouTube channel so you can check that out as well if you're interested....Anderson Business Advisors and Clint Coons channels.
    thats not what my tax and lawyer people say. you have to have a physical address in the state you are forming your LLC in, but it doesnt have to be in the state your property is in.
    1Reply
  • Sarah KensingerPro Member
    Real Estate Consultant · OH · Member since 2023 · 2k+ posts · 1k+ votes
    2y
    Quote from @Trent Reeve:
    Quote from @Sarah Kensinger:
    Quote from @Christian Cortez:
    Quote from @Sarah Kensinger:
    Quote from @Christian Cortez:

    Don't wait to put it in an LLC. Just form the LLC preferably in Wyoming. Wyoming does not release who owns the LLC. Most other states allow you to look up who the owners are of said LLC. Check with your lender prior to closing to verify it is ok to put the property into an LLC. Like another post said if it's after the closing, you might be required to refinance your loan to do it.

    You still need an LLC in the state your property is in. The WY LLC holds the state LLC (the state the STR in located) so yes, the owner can't be easily traced. 
    You do not need an LLC in the state your property is in. Buying an STR in Kentucky and LLC in Wyoming for the purchase. Now as far as business I am conducting can require me to have an LLC or business license in the state I am in. All depends on the laws for said state. 
    No, it MUST be in the state the property is located in. Just like a business LLC MUST be in the state I do business in, unless I file certain paperwork. Since I mentioned professionals are the best to ask, I'll try to track down some resources from our business advisors. They have an extensive YouTube channel so you can check that out as well if you're interested....Anderson Business Advisors and Clint Coons channels.
    thats not what my tax and lawyer people say. you have to have a physical address in the state you are forming your LLC in, but it doesnt have to be in the state your property is in.
    Could be why you guys aren't protected in the case of a lawsuit. I would double check with a real estate attorney who understands structures for rental properties. To me, this sounds suspiciously like a work around with lower entity costs.   
    [email protected]330-557-3021
    0Reply
  • Sarah KensingerPro Member
    Real Estate Consultant · OH · Member since 2023 · 2k+ posts · 1k+ votes
    2y

    @Trent Reeve @Christian Cortez

    Here is the video on why you shouldn't have an LLC outside the state the rental is located in. Running a business in another state besides the one it's based in, is pretty much the same as well.

    When Can You Use An Out Of State LLC To Hold Real Estate

    [email protected]330-557-3021
    0Reply
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