Author Topic: Turning house into a hotel  (Read 1936 times)

Marvel2017

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Turning house into a hotel
« on: February 23, 2016, 01:19:24 PM »
We live on a property in a downtown tourist area that is zoned mixed use. So we can legally turn the main house into a hotel (short term rental business basically but not having to follow the ever-changing "airbnb" laws in our town since it would be considered a hotel)-it would be sortof like a bed and breakfast but without the breakfast. We have the main house that we currently rent to long term tenants at this time (this would become the hotel), and we live in a smaller house at the back of the property. Any suggestions on how I should go about this? Should we start a LLC and apply for a business license under that name (XYZ Hospitality Group as an example), then run everything through there? Would we need to transfer the house/deed from our name into the name of the LLC?

Or do we not need to go the LLC route and just get a large umbrella insurance policy for liability purposes?

Basically, this will be a long term rental property for us and we're trying to maximize the income potential from the property by switching it to short term (which has much higher "nightly" rates on average). Anyone done something like this? Thanks

Bearded Man

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Re: Turning house into a hotel
« Reply #1 on: February 24, 2016, 07:46:45 AM »
We live on a property in a downtown tourist area that is zoned mixed use. So we can legally turn the main house into a hotel (short term rental business basically but not having to follow the ever-changing "airbnb" laws in our town since it would be considered a hotel)-it would be sortof like a bed and breakfast but without the breakfast. We have the main house that we currently rent to long term tenants at this time (this would become the hotel), and we live in a smaller house at the back of the property. Any suggestions on how I should go about this? Should we start a LLC and apply for a business license under that name (XYZ Hospitality Group as an example), then run everything through there? Would we need to transfer the house/deed from our name into the name of the LLC?

Or do we not need to go the LLC route and just get a large umbrella insurance policy for liability purposes?

Basically, this will be a long term rental property for us and we're trying to maximize the income potential from the property by switching it to short term (which has much higher "nightly" rates on average). Anyone done something like this? Thanks

Is the house paid off? If not you won't be able to do that (put it in an LLC). LLC's don't really provide much protection these days; a charging order will pierce the veil of the LLC.

Umbrella insurance is a good idea, I carry one. Good on you for doing this.

jwright

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Re: Turning house into a hotel
« Reply #2 on: February 24, 2016, 09:40:48 AM »
If you convert a long term rental into a hotel; you are changing the tax treatment from rental/passive income to trade-or-business income.  You will most likely be subject to self employment tax on the income.  Also, a residential rental is depreciated over 27.5 years, but a commercial building (hotel) is depreciated over 39 years.   

Is the increase in average nightly rent great enough to support the tax burden?

arebelspy

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Re: Turning house into a hotel
« Reply #3 on: February 24, 2016, 03:29:03 PM »
Is the house paid off? If not you won't be able to do that (put it in an LLC).

You sure can, you're just risking the bank deciding to use the acceleration clause on the mortgage.
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Marvel2017

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Re: Turning house into a hotel
« Reply #4 on: February 25, 2016, 01:28:34 PM »
I conservatively estimate I could make 2.5X as much running it as an airbnb than a long term rental ($3,500/mo more than if it is a LT rental). The reason I'm looking at doing the hotel thing is because airbnb operators have to get a permit to operate legally, and currently (because the cap is met) you can't get a permit unless you live on the property. Non-owner occupied permits are capped out. So since the property is zoned multi-use, I figured I could go about it as a hotel and not worry about permits. airbnbs still pay hotel taxes here. I would setup the property as a whole house rental (vrbo/airbnb) and manage it myself but we plan on travelling and would hire an airbnb host to manage it at that time if the $ makes sense. If not then I can just do the normal LT rental with property manager thing. There is starting to be some backlash against airbnb in our area, so I want to setup the property as a hotel to insulate myself from any restriction of the airbnb laws.
« Last Edit: February 25, 2016, 01:30:26 PM by utgrad »