Purchase Under LLC or Personal Name? Larger Down Payment?

Question

Hi Experienced STR investors!  I just got an LLC setup and am currently debating starting my first STR in a downtown urban setting or something just outside of a bigger city.  Besides deciding on the best location for my first project, I am wondering if using my LLC is a good move, or if buying a property personally is better?  With so many tight regulations in the cities, I'm wondering if my LLC would raise a red flag on my STR listing or when buying the home.  ALSO if anyone has advice regarding a down payment, I'd appreciate it.  I have the cash to put 50% or more down on a nice property, but is that necessary in an urban area?  It seems like I'd have to put at least that much down to get a positive cash flow in a big city.  Thanks for any input!

Liz Weiss · Answer

@Thomas S.  That was actually my initial thought.  Do you think that investing in a urban city like Portland or Seattle would be difficult to have positive cash flow with an STR?  It looks like the saturated market is making it hard to command higher nightly rates and an STR there looks like it's making returns that are similar to a LTR.

Thanks for the input @Steve Vaughan !

Steve Vaughan · Answer

The biggest decider for me whether to own in an LLC or personally is asset type.

For little houses (or up to 4-plex, residential property) with debt, I own personally and carry good insurance.  Too hard to finance/ will get crummy commercial rates and terms inside an entity.

Commercial property like 5+ unit apt bldgs, I own in LLCs.

Lastly, with residential mortgages, I like to put 20% down vs 50%.  Just enough to not have PMI.  If you have to put 50% down just to cash-flow, I would invest in something else completely, like a REIT.  Just my $.02 @Liz Weiss

Thomas S. · Answer

Equity actually reduces true cash flow and replaces it with phantom cash flow that you have purchased at a very high opportunity value. In theory if a property cannot produce positive cash flow with a hypothetical 100% leverage buying cash flow with your own money is a losing proposition.