All Forum Posts by: Lee Liberman

Does anyone have a strong understanding of short term rental (airbnb) insurance coverage?

i have seen policies that are standard landlord policies (premises liab and building coverage) but allow short term rentals but dont add additional coverages that may be needed ($1000).  i have also seen policies specifically geared to short term rentals that add additional protection (foremost $1500) but don't have general liability coverage.  lastly i have seen commercial based coverage that includes general liability as well as premises and building (proper $3k of which only $400 is general liab).  my goal is to get a policy similar to foremost that has an added element of general liab to stay in the ballpark of $2k.

i am holding these in my personal name to avoid quit claim risk and keep lending rates low.  based on that i want to have umbrella coverage and general liability as well to ensure as much coverage as possible.  this is also my 5th rental so i am no longer covered under my personal umbrella (max 4 rentals) and thus was ideally looking for a combined personal and commercial policy but i am not sure that exists.  i am likely going to get stuck needing both a personal umbrella and an additional commercial umbrella.

does anyone have suggestions?  looking for reasonably priced commercial policies on the st rental and clarity on how best to set up umbrella/general liab protection.

Thanks, 

It’s obvious owning makes the most sense long term but when you are young you will be more inclined to move out of state for a job or change locations as you progress. Owning a home during this time is likely going to cost more in the long run due to all the transaction costs. Once you settle down it will make sense to buy.

In mountain view ca some of the breakeven points are over twenty years so it almost always makes sense to rent. In more reasonable big cities its closer to six years. Im sure in the midwest which i havent looked into, it svery low and may make sense to buy if you only plan for 3-4 years.

the other thing i hear about on this site is that the stock market has crazy fees and wont generate as much as real estate. This is completely untrue as over the last month the big brokers are all charging zero fees. The expense ratio on etfs is negligible. There is no more passive investment. You cant compare a reno project brrrr to stocks as thats not a passive comparison. Stocks typically perform better than reits which is comparable and is truly passive.

im all for re investing but it takes work and is stressful but will yield more than stocks if you do it correctly. Just like warren buffet beats the market because he takes over companies (he is the brrrr of stocks) not by actively investing and beating other fund managers.

So this new generation should run the numbers and see if it makes sense to buy. This biggest element in the calculation is the intangible value you place on owning a home. The calculation is different for everyone even with the same scenario. People should realize everyone has said the same about each generation. It will work out fine as it always has. I think people realize college and specifically certain majors arent good investments. But for some fields its the best investment you can make even at large price tags. The hard part is knowing what you want to do when your 18 without any background to make that decision. 

Does anyone (@Ned Carey) have thoughts on whether targeting the interest component is worthwhile in tax lien auctions and/or the foreclosure component?  Id be curious what returns people are getting through targeting high interest vs foreclosure potential.

If you have to pay $100 bucks to register and the liens are all redeemed shortly after the auctions, I could see this not being very profitable when I can get 2% in a bank account doing nothing (and worse when rates were 5% a while back).  If liens are redeemed typically 3 months down the road, there may be an argument for the interest component.

On the flip side, if you target higher lien to value properties, i would assume there is more chance of foreclosure.  However, it is impossible to fully research enough houses to appropriately bid, so is a conservative ratio of house value used or a general neighborhood value?  What are good shortcut valuation methods being used.

i didnt want to deal with commercial loans so i have the properties in my name and not an llc. With rates rising i dont feel comfortable with quit claiming as they may have more incentive to call them. Some people dont think llcs matter and you can just get a ton of insurance in its place. Others think llc is the only way to go. If fannie lent to llcs it wouldnt matter but this causes people to prioritize different things.  Im balancing the small likelihood of huge interest rate rises causing refinancing to crush us vs the small likelihood of a non insurance covered tenant lawsuit that crushes us. Both are bad and impossible to quantify. 

I wanted to see if anyone would be willing to share what the largest settlements they were involved in as a landlord.  The goal would be to try to ascertain the amount of coverage that is needed for my insurance policies.

@Brian Schmelzlen that is correct. The properties are held in personal name

Does this structure add any protection?

Properties are purchased in my and my partners individual names (tenants in common) for the purpose of renting.

We use an LLC (owned by both of us) to move money around for income/expenses of the process of renting these properties. If we have a property manager, they will send net rent checks to this account and we pay would pay them out of this account. The property management agreement is between the LLC and the property manager. The entity is used for all aspects of the business.

Mortgages are in the personal names of me and my partner (no LLC).

Insurance is maintained on the properties themselves and with the LLC as a named insured.

If a lawsuit were to occur, would we be personally liable? What if we accidentally at one point use our personal checking account to pay for something as opposed to running it through the operating LLC? Does that pierce the vail of the LLC if it provided any protection to begin with.

Please respond only if you are a lawyer or consulted a lawyer in thinking through your structure and feel confident in the response.

Thanks,

I dont think you can have income and expenses allocated amongst 2 people in the operating llc if one of them doesnt own the underlying property though

Situation:

My brother owns a rental and I own a rental in our personal names prior to us looking to invest as partners.

We purchased our first house together (house 3) in an LLC with both our names attached to the LLC and it currently is finished, with a builders risk policy, and about to be rented under a property manager in the near future.

We are now acquiring our 2nd house as partners (house 4) to BRRRR in my personal name.

I am able to get loans and he currently isn't due to our respective incomes.

He is doing the work (finding properties and hiring/managing contractors) and I am providing the cash/loan.

We want to split everything 50/50 but don't want to place the properties in an LLC as we wont be able to get traditional loans. The first house we likely want to move out of the LLC into my personal name and rent for a few months so we can get traditional financing on this one to complete the BRRRR.

We are not concerned about one of us screwing the other one over.

I am about to buy personal umbrella coverage for the houses in my name.

Questions:

1) Does it make sense or is it possible to use one llc as an operating llc where we split all repairs/expenses/rental income/etc and leave the houses (and associated mortgages) in our personal names? The houses would not be owned by the operating LLC or vice versa. The net income will flow to us individually (partnership [k1] most likely).

1a) if we go this route, are there any issues you foresee?  I am not sure how something like mortgage interest expenses can be handled if its in my personal name but we want it to flow through the llc so its split evenly.

2) Do I need to look into a business umbrella policy or is personal policy going to provide me the correct coverage for the homes which are outside an LLC but used as a rental?

3) If after we have a few houses, and my brother has a larger income, we can begin purchasing the houses in his name. As long as we just keep the FMV of each of our respective inventory in line with one another we should be even as far as liquidation value, correct? Any other issues in keeping this part even?

Thanks,

Clint Coons has a bunch of videos that help explain land trust structures.  Nevada and Wyoming can be used for anonymity purposes as the holding company (owner of all the LLCs you created operating in the states the property is in).  The land trust takes title to the property and is held in the LLCs for liability protection.