learn airbnb

The short-term vacation rental market is booming, and Airbnb investments are no longer considered simple side gigs.

Many people still elect to manage and rent out vacation homes on a small scale – may be one or two properties at a time – while other investors are expanding aggressively.

If you are one of the latter, and your vacation rental project has evolved into a stand-alone business, it might be time to consider funding a short-term Airbnb loan into an LLC.

However, before discussing why that strategy might be a good idea for your business, we should first briefly discuss how short-term Airbnb loans and LLCs work.

What is a Short-Term Airbnb Loan?

Airbnb is an online rental platform that allows would-be vacationers to connect with homeowners looking to host visitors at their residences for a few days at a time.

The hosts determine the nightly rates charged to visitors and are responsible for the property’s upkeep. Airbnb does not charge hosts for listing their properties but will charge a service fee to both the host and visitor for using the platform to book a reservation.

The term “Airbnb loan” is reasonably self-explanatory and refers to any financing used to invest in a property for the purpose of turning it into an Airbnb. Technically, there is no loan specifically designed and earmarked for Airbnb use, but lenders offer several financing options with short-term rental property investors in mind.

What is an LLC?

An LLC is a legal business entity in which its “members” (i.e., the company owner(s) and stakeholder(s)) are not personally liable for that entity’s debts or other liabilities. In essence, it provides an extra layer of protection for short-term vacation rental owners against any potential financial and/or legal issues the company might face.

While there are no special rules for converting a vacation rental into an LLC, only registered businesses entities can become LLCs. This means that you must meet certain conditions – such as obtaining licensing and permits – that can vary by state.

If you are considering an LLC for your short-term vacation rental properties, you should view business registration as one of your first steps.

Three Benefits of Funding a Short-Term Airbnb Loan into an LLC

As you further explore the idea of funding a short-term Airbnb into an LLC, you will likely come across several advantages. The three biggest are as follows:

1. LLCs Protect Your Personal Assets

One (if not the best) reason to turn your Airbnb business into an LLC is to protect your personal assets from any financial or legal hardships endured by the business. Whether you only rent out secondary properties or include your own home on Airbnb listings, you should consider the limited liability protections provided by an LLC structure.

Any number of unforeseen accidents can happen. A guest could walk on a faulty staircase step, lean too heavily against a loose second-story railing, or slip on a wet spill near the kitchen.

That guest could very well sue you as a result. If you are running your Airbnb business as a sole or general partnership, a court could rule that your personal assets are fair game as a means of recompense. This could include your cars, bank accounts, or even your home.

If you had created an LLC for your short-term vacation rental properties, however, the scope of your guest’s lawsuit would be confined within the LLC. They could only gain access to your business assets, while your personal ones would be protected by the limited liability terms.

2. LLCs Are Not Taxed Like Corporations

LLC earnings are not taxed at the corporate level. Instead, those earnings are passed through the LLC directly to the owners, without first having to pay corporate federal income taxes.

The owners then claim the earnings on their personal returns and pay taxes based on their individual income tax rates.

Skipping the corporate tax and avoiding “double taxation” can save a business significant money over time.

3. Your Finances Will Be Easier to Manage

Whenever possible, you should always look to separate your personal finances from your businesses ones. Comingling the two can be both complicated and extremely risky.

By making your short-term Airbnb business an LLC, you can avoid common accounting mistakes and potentially costly miscalculations during tax season.

As discussed earlier, LLCs are automatically filed as pass-through entities for tax purposes, meaning that business earnings are distributed directly to the owners’ accounts.

So, instead of concerning yourself with what revenue streams or bills belong in which bank accounts, the business’ income will essentially bypass the company and flow directly to the LLC owners.

With the business’ revenue earnings streamlined automatically into the owners’ accounts, you will not need to worry about manually allocating income to the other owners.

We Can Help You Fund Your LLC with an Airbnb Loan

If your Airbnb enterprise is gaining traction and you are looking to expand, you should consider funding a short-term Airbnb loan into an LLC.

You put in a lot of hours and hard-earned money into your vacation rental property. Now that it is up and running, you do not want to see the fruits of your labor stripped away by lawsuits or other debt settlements.

At Vacation Rental Loans, we have a team of experts that can work with you to design a loan product to best meet the needs of you and your LLC. We are here to help you protect your personal assets, while you focus on getting your Airbnb business rolling.

Contact us today to request a quote.