The rising trend of unique short-term property rentals through the online portal Airbnb has seen an increased interest in the investment of properties exclusively purchased for Airbnb rental. Airbnb connects people looking for short-term holiday or business rentals with landlords worldwide and has opened up the market for increased rental profits.
As opposed to long-term rental, properties hosted through Airbnb offer flexibility and quick customer turnover. This in turn allows investors in Airbnb properties to benefit from rental increases without seeing large proportions of the year void of renters. While there is an increase in costs associated through cleaners, utilities and services, the mark-up value of a short-term rental as opposed to long-term rentals generally sees a substantial profit increase.
Investing in a property exclusively for Airbnb rental is different to general property rental investments, however, as the needs of the market varies significantly. Whilst most long-term renters seek family homes or those close to amenities, those seeking short-term rentals through Airbnb have a different list of requirements and the experience visitors have in the property is very relevant.
The Perfect Property
Renters through Airbnb value the location of the property and the potential experiences in and around the property significantly more than long-term renters. When looking to invest in Airbnb rental properties, consideration must be put into what the location and amenities in the property can offer in the short-term. In conjunction with this, properties are expected to include all the services that most normal tenants would personally provide for themselves.
A property that continues to create a steady revenue of profit even in the slower months of the year must be situated in a location that sees heavy tourist turnover even in the months where the weather is not optimal. Locations close to cities, landmarks and experiences see a higher renter turnover than remote properties that are often only appealing in good weather.
There is no doubt that investing in an Airbnb property can generate a lucrative turnover, but for an increased income it is essential that the most be made from your property. There are many benefits to considering a real estate investment entity, this includes the increased protection of your property and the decreased liability you could face. Expert attorney and author of ‘Start Your Own Corporation and Loopholes of Real Estate’ Garrett Sutton believes that ‘the LLC is the best entity to hold Airbnb property rental’ and there are certainly many advantages to using an LLC to maximize your rental profits.
Using an LLC Real Estate Investment Entity
Having spent more than 25 years helping investors in real estate to maximize the potential of their property or properties, the recommendation from Rich Dad Advisor, Garrett Sutton, of using a limited liability company (LLC) entity to safeguard their properties holds significant weight. A LLC has a procedure in place for charging orders, provides liability protection, enables a flow-through tax treatment and allows members to move their properties between being in and out of the LLC.
An LLC adjusts well for use in Airbnb rentals and the change in circumstance that rentals via the portal are expected to face. With an increased flow of tenants, normally on a short-term rental of 30 days, the liability of the LLC can reduce the risks to individual owners of accidents and injuries that may occur through having new people occupying your property regularly.
Increased Liability Protection
Entrusting your property to an LLC means that if an injury or accident occurs on your property, you can’t be found directly liable- it will instead be the responsibility of the LLC. Short-term rental insurance you have on your property may not cover every claim against the property, putting you in a position where you can’t pay and your property will be at risk. The claimant, however, can’t reach beyond the LLC to get at your other personal assets.
Prime properties rented through Airbnb are often in busy and desirable locations, an LLC acts to protect your personal assets against trespassers that could be injured on your property. When investing in a property for Airbnb it is important to consider that those renting your property may not be accustomed to the style of property they are renting or any changes that may be evident to a local renter. LLC liability protection is especially crucial in cases where, like through Airbnb rental, customer turnover is quick and ever-changing.
Deeding Into the LLC
Too many people set up an LLC and think they are protected. Once the LLC is set up there is a second important step: you must transfer title from your name to the LLC’s name. This is accomplished by using a grant or warranty deed. As long as title stays in your individual name you are still personally responsible for any claims.
Benefit from a Flow-Through Tax Entity
If your Airbnb property isn’t bringing in enough income to support continued rental then selling the property in a way that minimizes loss and increases profit is important to further extend your portfolio beyond that property. As a real estate investment entity, an LLC allows for a flow-through tax treatment. This means that the capital gains tax is calculated at a member level instead of at the corporate and shareholder level in a double tax C corporation. Your choice of entity can have key tax consequences.
As Garrett Sutton recommends, when you wish to enter into an Airbnb rental property investment, ensuring your property is protected through a LLC can help you to reduce the risk of short-term rentals whilst still enjoying the benefits of a higher rental return.