Why Even Small Investors Might Still Want to Consider an LLC
Summary
This article strongly recommends that short-term rental hosts, even those with a single property, form an LLC to protect their personal assets from potential lawsuits. It explains the risks of not having an LLC and offers guidance on setting one up, including potential pitfalls like triggering the "Due on Sale" clause if you already have a mortgage.
Key Insights
- •If you go through a divorce, if your real estate property is in your own personal name, it’s considered your personal property and can become part of the divorce settlement.
- •Buying rental property in your personal name exposes you to lawsuits, tenant claims, and debt collection.
Action Items
- ✓Form an LLC before closing and signing the deeds on the rental property.Effort: mediumImpact: high
Tools & Resources
- →LegalZoom: Get in touch with us at LegalZoom . We can help with everything from timing the formation of your LLC to paperwork and any individual complexities of your real estate business.
Common Mistakes
- ⚠Incorporating multiple properties into one LLC is a mistake from a legal standpoint, as all properties are on the line if a lawsuit happens.
- ⚠Forming an LLC after closing on a property technically triggers what’s called the “Due on Sale” clause, where the mortgage lender can demand full loan repayment due on the transfer of ownership.
- ⚠Not keeping personal and business finances separate (piercing the corporate veil) negates any protection offered by the LLC.
More from Regulations & Compliance
The Green Bay Common Council will consider changes to its short-term rental ordinance. This could involve new regulations or revisions to existing rules. Hosts in Green Bay should stay informed about potential updates and how they might impact their operations.
Local commissioners denied a short-term rental application, suggesting potential regulatory hurdles for new STR operations. This indicates increasing scrutiny on STRs within this locality. Hosts should be aware of potential local restrictions and permitting requirements before investing in or launching short-term rentals.
The Green Bay Plan Commission is updating its short-term rental ordinance. Details are not given, but this news signals potential changes for hosts in the area. Hosts should stay informed about the new regulations to ensure compliance and avoid penalties.
Curated by Learn STR by GoStudioM