Your Questions Answered
Is it a bad idea to buy a property for air bnb before buying a family home?
~Abbi
No, it’s not a bad idea. Just make sure you’re not telling your lender your STR is your Primary Home to get a lower interest rate ... makes it REALLY awkward as the Insurance Agent when I have get creative with that Evidence of Insurance your Lender requires prior to closing to show proof of coverages . Your Lender is going to want to see a HO1/Primary Homeowners Policy EOI for their Binder Request. If they see a Commercial General Liability Acord 27 and 28 to show proof of coverages; they’re gonna know something’s up!
Are there any on here that just rent to family, friends and word of mouth? First how does that work for you and second what kind of insurance policy do you have? Would it be a landlord tenant seasonal policy?
~Michelle from New York
With that length of time, and depending on your State and the Carriers available to you, I would definitely recommend writing your policy as a Secondary/Seasonal/Vacation that allows for Short Term Rental usage.
This will offer personal liability and host liability when you’re renting your property out (even if it’s just to friends and family, you are exchanging funds).
Chankbo asks if it’s advisable to accept a request where a guest wants to have a dinner party and hire a private chef.
The recommendation would be to ask for the name and phone number of the chef so that insurance will cover him and that he has insurance himself.
[This is ] exactly what I recommend all my clients do. I tell them to tell the guest that their insurance agent is requesting the info (making me the bad guy). The ones that are legit don’t bat an eye, the ones who are not so legit always fight them on this.
Anyone own 2 properties purchased into 2 separate LLC’s? We created a new LLC for our recently purchased 2nd condo for reasons of protection, but regretting it now because it is causing double the insurance fees, business licenses, etc. To save money, we are now we are thinking about either combining them into one LLC or creating a parent LLC and making these 2 the subsidiaries.
~Michelle from Ohio
First and foremost, please speak with a CPA and a Real Estate Lawyer to discuss the pros and cons of divvying up your properties into separate LLC’s.
On the Insurance end: although we *can* schedule multiple locations on the same insurance policy, it is not necessarily always advisable.
Ex: if you are caught up in a lawsuit on 1 property, you also risk the assets of the other property as they will be discovered (the fact that you own another property, not necessarily the money you have in the property) as they are listed on the same policy.
Yes, you could save some premium, but many times the premium difference is minimal AND it’s less of a headache at tax time when it comes to divvying up annual expenses per location for tax purposes.
I know many property owners believe that an Umbrella will solve the problem of whether you need your property in an LLC or not, but this poses 2 concerns:
1) the belief that all Personal Lines Umbrella Policies will cover your STR; many Personal Lines Umbrella Policies have begun excluding STR properties due to the risk a STR property exposes a property owner to. And as it’s seen in many cities and states as a business, it no longer falls within the ‘personal lines” guidelines (of a personal lines policy) but better suited as a “commercial” risk.
2) Many STR properties are written incorrectly as a standard long term rental / Landlord Policy which unfortunately provides zero coverage at time of loss if you’re renting your property on a STR basis- and so just because you have an Umbrella doesn’t necessarily mean you’re covered if the risk was improperly written.
If the Cleaner you're hiring has a company, but doesn't have other employees, does she need to be insured? She claims her accountant says NO, unless she starts hiring employees.
Yes. Your cleaners should be Licensed, Insured, and Bonded.
EX: If your cleaners do something to cause damage to your property it would fall on you to mitigate and repair the damages versus their insurance.
I see many Hosts attempt to have their cleaner sign a waiver that waives any responsibility away from them, the Host. Sounds good in theory, but it doesn’t mean they still won’t try to go and sue your Insurance.
So I have a lakefront property I’m about to put on the market. I was debating getting a paddle board and a kayak for my guests to use. I’m worried about liability and potential lawsuit if somebody drowns. Whats the consensus about providing water sport activities?
~Mike
Please get an Insurance Policy that covers you if your guests get hurt or killed while using the paddle boards or kayaks that you provide.
Living on the lake isn’t the issue, it’s that you’re providing the equipment that could be faulty or damaged due to prior use.