Congratulations: You’re a Small Business Owner
I write this blog post from one vacation rental owner to another. This should not be construed as legal advice, tax advice, insurance advice, or any other professional advice that requires a license by law. I simply hope to arm you with questions to guide your conversation with your attorney, accountant, insurance agent, etc. When I started out, I didn’t really know what to ask and often stumbled upon better information during the casual portion of a meeting rather than by virtue of the prepared questions I had prepared for each meeting with the professional. YouTube is a great resource for getting started. There is a lot of free advice out there, but be careful because laws and tax codes vary state to state.
I run my vacation rental first and foremost as a business. My home is owned by an LLC to provide a legal layer of protection for my husband, myself, and our personal assets. I view the cost per year as minimal for the amount of protection we receive. Some people file for the LLC online themselves but I had an attorney file for mine. We also have a federal tax ID number that we applied for. We closed on our vacation rental first in our personal names. We let the title company know before closing that we wish to ultimately hold the property title in an LLC. They prepared a document for us to sign at the closing table but after we signed the bank’s paperwork. The bank would only issue the mortgage as long as the title was in our names just like on the loan but after we closed in our name the title company had a second document to move the home from our names into our LLC. So when the property went to recording, it recorded legal ownership in our LLC. I believe we had to bring an additional $100 check to closing outside of the transaction with mortgage company.
I worked with my accountant to set up my books in Quickbooks Online, QBO. I have a separate bank account and credit card for each LLC. QBO has rules that you can set so each month my standard expenses are automatically categorized and I don’t have to sort through transactions. The categories I set-up in QBO are intentionally tied to the categories on the tax form. At the end of the year I run a Profit and Loss statement for my CPA. Don’t forget to tell your CPA you bought a house; a portion of your closing costs are tax deductible. I bought Quickbooks online through my accountant and I save 30% off the monthly price. If you are looking for a bookkeeper, I LOVE Lindy Parker with Virtual Accounting Solutions and recommend her to all my family and friends.
As for insurance, the home we purchased was an attached townhome. Our HOA carries the insurance on the dwelling. However, we have a separate policy for the contents and personal liability. When my insurance agent looked at all my insurance as a package, she suggested that we purchase an umbrella policy. This is helpful for us because we could lower the personal liability limits on each policy and the umbrella will pick up where they leave off. We have a $1,000,000 umbrella policy that costs us about $225 per year. When considering our risk of a lawsuit with rental property and the cost of attorney hourly rates, I’d rather pay the insurance company and let them take on that headache should something arise. Talk to your insurance agent and ask them to give you a quote for an umbrella policy. You may need to make changes to your personal liability limits which could increase or lower your current premiums on homeowners and car insurance. Now that you are a small business owner, you should look at your insurance as a package to get the best rate and ensure you are covered. Ownership of an LLC does impact insurance coverage- it was important to our insurance agent that our LLC was wholly owned by a husband and wife. If our LLC was owned any other way, we would have been forced to purchase commercial insurance at a higher rate.