All Forum Posts by: Brent Salazar

Quote from @Michael Baum:

Quote from @Brent Salazar:

Quote from @Scott E.:

If I read your post correctly, you are currently running your guest house as a STR, but you do not currently have proper insurance in place. You need to get this fixed immediately. This is an emergency situation.

Regarding further protection, it gets messy and confusing. And you will get a mixed bag of answers depending on who you ask. Generally speaking you start with the right insurance. Behind that insurance can be an umbrella policy. And behind the umbrella policy can be a complex web of corporations, LLCs, and trusts to protect you.

Asset protection can get very complicated. Most real estate investors are probably not as protected as they 'should' be, but most will also probably never deal with a claim.

Talk to an attorney. And seriously, you gotta get that insurance situation straightened up.

Thanks for your input Scott, I do have a commercial policy on the STR at the moment. The asset is covered but the liability follows me personally not the business. It was the land purchase that spurred conversations with my insurance agent and unraveled this web. 

So what kind of commercial property policy do you have? Is it specific to STRs or just a basic commercial policy? You might not be as covered as you think without some of the STR policy protections.

The liability will follow you regardless if you hold the property yourself or in an LLC when it comes to negligence. An LLC can offer some protection, but LLCs are easily overcome when it comes to negligence.

I think things are getting confusing. You might want to call you mortgage company and see if you can move the STR into the LLC without penalty. A lot don't care as long as they are getting paid. You could then create a series LLC with each property held in child LLCs under a parent LLC. It offers more protection overall.

I will say that I am not an attorney so I would consult with a real estate attorney who is also an investor.

Check out this BP blog by @Scott Smith - https://www.biggerpockets.com/...

Lots of info about series LLCs.

I appreciate your input, for insurance reasons sounds like the best route to go is to own it personally and operate it personally or own it through the company and run it through the company.

Quote from @Scott E.:

If I read your post correctly, you are currently running your guest house as a STR, but you do not currently have proper insurance in place. You need to get this fixed immediately. This is an emergency situation.

Regarding further protection, it gets messy and confusing. And you will get a mixed bag of answers depending on who you ask. Generally speaking you start with the right insurance. Behind that insurance can be an umbrella policy. And behind the umbrella policy can be a complex web of corporations, LLCs, and trusts to protect you.

Asset protection can get very complicated. Most real estate investors are probably not as protected as they 'should' be, but most will also probably never deal with a claim.

Talk to an attorney. And seriously, you gotta get that insurance situation straightened up.

Thanks for your input Scott, I do have a commercial policy on the STR at the moment. The asset is covered but the liability follows me personally not the business. It was the land purchase that spurred conversations with my insurance agent and unraveled this web. 

Quote from @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. 

Thanks for your response, no we don’t own the home out right. Like I mentioned before the initial reason for setting up the LLC and running the short term rental through it was to show income through our tax returns and have more access to lending in the future. In my experience, traditional banks will take 70% of LTR income but not any business income unless it’s shown income on tax returns for 2+ years. I guess I’m kind of surprised that no one else is operating this way. 

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! 
 

@Jasmine NA

I’m in WA state and have been working with my property manager. As the WA state proclamation states you cannot give them notice to vacate even if the lease term is up during the eviction moratorium. Unless you plan to personally occupy the property or sell it. I would consult an attorney or trusted property manager in the area before you send anything.

@Gary Mazzarella I am new to flag but do have some friends invested in high end STR in Sedona, as others have said it's all in the HOA. City and state are enjoying the tax revenue, but certain communities are becoming upset at the change of use in their quiet neighborhoods.

@Shawn Mahoney I recently moved to flag, and am also looking to expand my portfolio here. From what I have been able to observe smaller investors can do well with STR here if you get in the right location with the right buy. Prices here right now are inflated and inventory is very low. The long term rental game is hard to cash flow in the single family home right now, and a lot of investment groups are investing in large multi. Like any investment if you can buy it right your golden!

@Julie Marquez It has grown a lot even the last few years. Many developers are putting in multifamily housing, and the city is investing lot in the downtown area. We just got a new library down the street from my place. Exciting stuff! Also I hear in the Arlington area they are planning to open an Amazon Distribution hub, and dozens of apartment buildings! 

I own a duplex's in Sedro Woolley and in Mount Vernon. It use to be Mount Vernon and Burlington had higher rents, but the demand is so great in Skagit that a lot of folks are looking to sedro for housing. I recently had a tenant turn over and was able to raise rents while still having a lot of interest. Be mindful that most homes that are affordable in that area where built around the turn of the century, and may need a lot of updating if not cared for properly. If you have any more questions DM me and I can give you my 2 cents. I would buy more property in skagit in a heartbeat.  

@Timothy Chi

Hello Timothy,

I'm in mount Vernon and own two duplex's that were purchased as owner occupied. The first was FHA at 3.5% down and a very low interest rate. This is a great first time buyer product. The second was a little trickier but WA FED offers a product that allows for 10% down owner occupied multi family. The interest rate will be a point or so higher than conventional but for my deal it worked out great. I'm about a year into the asset and have forced some equity. I will be performing a rate refi to lower my costs now that I have over 20% equity. Feel free to DM me if you have any other questions about lending or the market up here.