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Should you get an LLC to protect your Airbnb transcript
Hi everybody, John here. On today’s episode we’re going to discuss should you get an LLC to protect your Airbnb. Now first off, I’m not an attorney, so please consult your attorney or tax professional or your unique situation. Now these concepts will be basic. There are people who have studied law for years, case law changes and more to it than this podcast episode. But this is to get you started. You as a short-term rental owner started in the right direction so you can avoid a total loss total wipe out scenario. Okay, so let’s get into it. Why is an LLC important for your vacation rental? So hopefully you never get sued, but if you do, you want to be protected. The US is extremely lawsuit happy litigious people, sue for everything. Have you ever seen all the attorney billboards in Florida and those mesotheliomas on late night tv?
Whether you’re guilty or you’re innocent getting sued, it takes so much money, it takes time, it takes energy. No one likes it, it’s horrendous. And LLC protects you. So holding title in an LLC is the key. You want an LLC in your state. You don’t want a Delaware, Wyoming one, but in your state why it makes it so much easier to sign up for business tax receipts and lodging license and whatever permits your local area of requires. I’m speaking from Florida’s perspective. Once you have an LLC out of state, they’re gonna make you register with Florida anyway. You’re gonna have to fi like file what’s called a foreign corporation or foreign LLC paperwork so that you can get the right paperwork for Kissimmee, for Davenport, for Orlando, they are going to want you to be registered in Florida.
It’s the same with the other 49 states. You may have an LLC in another state, but to comply with a local law, they’re gonna want you to have an LLC in their state. So that’s why I’m recommending an LLC in your state, the state where your vacation rental is located. Okay, so let’s get into the next topic. Whatever assets an LLC owns and controls it can be sued for. So what you wanna do is if you have multiple properties, protect each property with its own separate LLC because the assets will be protected by their separate LLCs. Instead of an accident at your property impacting the assets of your other property, you want to separate your assets to minimize your risk of loss. And without the LLC protection, you are at risk of losing way more money.
So what are some of the costs of getting LLC set up? Right? So you have set up costs, which is usually a couple hundred can run into the thousands. You have renewal fees as well, annual filing fees, any sort of prep service you pay, that’s the cost of getting it set up. It’s not that expensive to do it. You’re getting way more and upside from doing this and it’s a great investment as you grow your short-term rental business. If you have a vacation home, you should have an LLC. Now if you’re trying to get a mortgage taken out, some lenders do not allow you to take out a mortgage in the name of an LLC. So what many people do is they quit claim to deeded over after closing. But definitely consult your attorney on this. I’ve seen it done many times, but consult your attorney.
It’s the only way you’re gonna know for sure if you can do it. You do not want something happening at your vacation rental putting your other businesses and personal assets at risk. You should have an LLC and the more you scale the more LLCs you will want. So if you add three or four properties, each of those three or four properties should have its own separate LLC. Got it? Perfect. So say you have a slip and fall, you know it turns into a lawsuit, they become judgment creditor, right? What’s going to happen is the creditor very likely to settle quickly because of what’s called charging order protection. It’s a technique used by many good LLC lawyers. They do a great job at this and if the vacation rental property is owned in the LLC, the creditor cannot force the partition of the home to pay for the settlement.
And this protection is not available with other forms of ownership, including corporations only for LLCs. Also, if your LLC has a dispute with any vendor that services you, like if it’s your cleaning vendor, if it’s any vendor like a plumber or electrician and then you’re sued by that vendor to collect, the l c owners are shielded from personal liability from business debts incurred under the LLC umbrella as well. So you also have creditor protection when you form an LLC. Then the more LLCs you have across your portfolio, the more you’re gonna have that protection extended. Now if you have a really good attorney, they can get quite crafty. And what I’ve seen a lot of people own LLC Zoo is get an LLC operating agreement and it prevents disagreements from any property owner. So if you own with a spouse family, all agreement will be in writing in this operating agreement.
So if anyone is trying to make a legal decision, acquiring insurance coverage, making any repairs, any sort of disagreement, it’s going to go back to the operating agreement of the L c. And if you’re operating your business with others, it’s not just you and your spouse, you’re operating with family or friends or partners or whatever, you should definitely have your attorney draft an LLC operating agreement as well in the l c since it’s a separate legal entity, you can also have your own bank account with cash to operate your vacation rental business. So the expenses will be tied to the l c property taxes, all accounting service expenses, all income will be tied to the LLC and it keeps it really clean and separate from your personal life. It’s another reason you want to have an LLC set up for each property you have in your portfolio.
You may be hearing his chirping in the background. That’s actually the <inaudible>. I’m in Puerto Rico right now. They do make noise after o’clock, which cuts my recording time. But I love how they sound. I apologize if they annoy you in your ear. I work hard to edit a lot of it out. But I don’t want to stop recording for you. So sometimes I just have to put up with these little guys making their noise outside. So I hope this was helpful. If you liked this content and you want me to do more of it, please leave me a rating or review on Apple Podcast or Spotify. And if you want to join the brand new Facebook group, a link will be in the show notes. Until next time, friends, stay booked and stay protected. Take care.
Vacation Rentals With John is one of the fastest growing short term rental podcasts. The show has been growing in popularity because of its no BS, to the point lessons on how to grow and operate a vacation rental. Join the facebook group. To listen to any of the past episodes, check out this page.