LLC for my Vacation Rental

[Luke Carl]

So I think it's best I start an LLC for my vacation rental. It's doing much better than expected and I want to protect myself.

I have no idea how this works. In fact I heard on a podcast where a guy started an LLC after he signed the paperwork and the deed was transferred in his personal name and he formed an LLC later and he got screwed. Maybe I didn't hear that correctly?

My mortgage is currently being sold to who knows what bank. 

Please advice me on how this works. 

Thanks! 

[Bill Higgins]

It may differ by state so I'd certainly recommend contacting an attorney that specializes in investment property in your state. I formed an LLC and purchased 2 properties under the LLC...be sure to include your business title when you sign all legal forms.

From a financing perspective I was able to get a loan using the LLC name but had to be a personal guarantor. It's very unlikely any financial institution will issue financing to the LLC alone so you'll have to personally guarantee the loan, but including the LLC allows your company to build credit and hopefully will allow you to separate business and personal credit at some point. I found rates and terms were much better when I used a local bank (specifically a bank that operates on the island).

I certainly agree with establishing an LLC to conduct business but you'll want to be careful how you operate so your day-to-day activities don't cross between multiple companies and deteriorate the value of the LLC. Example: we also manage other peoples properties so I have a different LLC for the management aspect. This requires separate bank accounts, etc.

You'll also want to consider how many properties you want to include within each LLC. Our current properties are both in Galveston, TX but we're considering purchasing a property on the lake near Austin. I'll probably create another LLC for properties I purchase in that area so I limit my exposure.

It's worth $1-$2k to protect $500k of assets and cash-flow, especially as you grow and people start to recognize your wealth building.  One example I was given was of a taxi cab business: a truck driven hit a taxi-cab, fortunately there were no fatalities but both cars were totaled.  The accident was the fault of the truck driver but a passenger in the cab sued the taxi company (the person that appeared to have the most money).  The taxi company incorporated each car separately so with the car being totaled there were no assets to go after.