Written by: Sanjin Hadziomerovic

This article is part of our series discussing different scenarios involving buying and managing short-term rentals under your name or an LLC. When deciding whether to purchase a short-term rental (STR) under your own name or through a limited liability company (LLC), you need to consider important implications for liability, taxes, financing, and long-term strategy. Here, we break down the pros and cons of each option to help you make the best decision for your investment.

1. Buying a Short-Term Rental through an LLC

• Does buying a short-term rental through an LLC offer liability protection?
  Yes, purchasing through an LLC separates your personal assets from liabilities related to the rental property. This means that if a guest is injured or a legal dispute arises, only the LLC’s assets are at risk, not your personal savings or home.

• What tax flexibility does buying through an LLC offer?
  An LLC allows for pass-through taxation, meaning profits are reported on your personal tax return, avoiding corporate taxes. You can also elect for S-Corp or C-Corp taxation based on your goals.

• Will buying through an LLC improve your business credibility?
  Yes, operating through an LLC can increase your credibility with lenders, vendors, and partners by signaling a professional business structure.

• Is it easier to transfer ownership through an LLC?
  Yes, transferring ownership of a property held in an LLC is simpler, as you can sell or gift ownership interests without many of the tax implications of real property transfers.

• Do LLCs provide access to different financing options?
  LLCs can access business loans with potentially higher limits or different terms compared to personal loans.

• Can an LLC provide asset protection if you own multiple properties?
  Yes, holding each property in a separate LLC limits your liability exposure. If one property faces litigation, it won’t put your other properties or personal assets at risk.

What are the drawbacks of buying a short-term rental through an LLC?

While buying a short-term rental through an LLC offers various benefits, it comes with certain drawbacks. The formation of an LLC involves initial filing fees, and there are ongoing costs such as annual state fees and potential expenses for legal or accounting services to maintain compliance.

Additionally, some lenders may impose stricter terms, such as higher interest rates, shorter loan terms, or more stringent qualification criteria for LLC-owned properties. This can make financing more challenging, especially for newly formed LLCs or those with limited credit history. Weighing these factors is essential when deciding if the LLC structure aligns with your financial goals and investment strategy.