I'm a newbie, how do I get started on the financial side??

Question

Hi everyone,

i am looking to get into the STR market by purchasing my first property in Virginia this winter.

On the finance side, I assume I will need to start an LLC. How will that effect the purchasing process? My down payment is ready, what are the steps I need to take prior to purchasing my first property to make sure I am protecting myself while not leaving any money on the table.

I am new to this, all incites and advice are welcomed and appreciated.

Aj Parikh · Answer

Are you looking to purchase in the Shenandoah / Luray / Basye region? I would love to connect to learn about your experience because I have been wanting to buy in that area as well.

Cassidy Burns · Answer

I highly recommend reaching out to @Michael H. Cook if you are looking to buy in Luray, Shenandoah Valley, Massanutten, etc.  He's written 2 articles on everything you need to know about STRs in those areas.

Michael H. Cook · Answer

Thanks @Cassidy Burns Here is the link to that intro article:

https://www.biggerpockets.com/...

Joaquin Camarasa · Answer

Hey Adam, Im Northern Virginia based and have thought in the past to buy in Shennandoah. I did a couple of trips up there to check out properties and also looked the different types of Airbnb. I decided to hold on for now but eventually I'd like to get a cabin for my family and rent it out when we don't go. I'd love to follow your journey and see what you end up buying. I will DM you.

Greg R. · Answer

An LLC is not always necessary. Many investors don't put their properties in an LLC, but many do. For your protection you mainly need good insurance that covers STR uses, and umbrella insurance. That should be more than adequate for a newbie w/ a single property.

David M. · Answer

@Kingsley Thomas just trying to keep you straight.. then just make sure aren’t co-mingling and your returns are straight… of course consult a qualified processing or two

Kingsley Thomas · Answer

A one-time quit claim to an LLC after purchase won't pierce the veil.  You are just moving the personal asset into the business.  It simplifies the process and helps you get better terms.

David M. · Answer

@Adam Graziano

Your reasons for the LLC aren't valid:  "I figured theLLC would help me keep all of the accounts and cash flow seperate from my personal funds. It will alo help with renovation write-offs once tax season rolls around. Are there any down sides to starting a LLC?"  If you want to keep the funds separate, just open another personal bank account.  Or, just do your bookkeeping correctly so that you can track the funds.  Don't confuse bookkeeping with accounting.  Legal entities such as LLC's do not provide any tax/accounting benefits unless you are investing with nonspousal partners.  So, any expenses that you have with the property will be deductible just the same regardless.

The LLC is really only for the limited liablity protection.  You need to operate the LLC properly which is where many to most investors and people in general mess it up.  Also, legal entities are not eligbile for conforming residential loans.  You will have to use commercial financing which is generally more expensive.  There is where people balk at their LLC operation as they don't want to pay for the loans.  Also, quit claim deeding your Title back and forth also starts to look like using the LLC as an alter-ego which also pierces your corporate veil.  The cleanest way to transfer the property into a LLC would be to also refi into a loan named by the LLC at the same time.  Otherwise, with the loan still in your name, it can still look like co-mingling --- who pays the mortgage?  If you draft the funds from the LLC's bank account, then the company is paying your personal loan...  Who takes the deduction?  Since its your loan, it should be done your itemized deductions, not necessarily on the SchE or SchC for the LLC (assuming a single member LLC) or parternship return (assuming multimember) since the LLC never made the interest payments in the first place.

So, yes, starting with a LLC certainly will affect your financials.  You'll need to stop working with the "residential" lender and find a commercial lender (or at least a "residential" lender who has non-residential loan products).

Hope that helps.  Good luck.

Aaron Porter · Answer

There is 2 ways to think about setting up the structure...  if you do it now in the beginning the initial setup is cheaper as opposed to setting up the structure further down the road.  right now the structure is small and as you acquire more properties and grow your portfolio there is more to add in so the initial setup is more expense because there is more.  I love asset protection structure that utilize land trusts, series LLC's, agent and living revocable trusts, when needed DST's.  If you check out Royal Legal Solutions that is what they do and they really are the best at it.

As far as having the needed insurance.  Make sure that your property is insured with a Dwelling/landlord policy and that the insurance carrier has the ability to cover short term rentals.  there are some carriers that will only do long term.  I always suggest to my clients that they set their liability coverage to the limit that is required by the carrier for use with an umbrella policy.  then you purchase an umbrella policy to raise your limits to cover you with the coverage amount that your personal risk desires.  whether that is 1 million, 2 million, 5 million, 20 million... (if you set your limits that high the carriers will want to have an understanding as to why especially if you only own 1 rental property)  but your umbrella can also offer extra coverage for your personal home, and autos.

Conner Olsen · Answer

You don't need the LLC to purchase the properties, you can always put the properties in an LLC later if you want. You can open up a separate bank account and credit card that you use solely for the business. If you want to build up the credit on that LLC then you should get the credit card in its name. So you can get one right off the bat, but you don't need one.

I'm a newbie, how do I get started on the financial side??

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