Using LLC to get paid income from company instead of Airbnb for mortgage/refinance purposes

Dustin84
Level 2
Los Angeles, CA

Using LLC to get paid income from company instead of Airbnb for mortgage/refinance purposes

I've found multiple threads here on forming LLCs for the purpose of liability protection, but my question is about how an LLC could help the way my income looks to mortgage/refinance lenders. We bought our first home almost two years ago and the lender would not count a cent of my Airbnb income toward the net they needed to see to qualify me, so I ended up having to get rid of many deductions and pay a ton in taxes that I didn't need to pay just to show the right amount of net income outside of Airbnb. Going through the exact same scenario now during a refinance. So my questions is, would running the Airbnb payouts to an LLC bank account (and possibly changing SSN to EIN if needed) allow my personal income to be directly received from that LLC and not Airbnb? Surely some of you wizards have done this or at least explored it as a solution. Unfortunately my CPA doesn't seem to have a clear answer on this and doesn't seem to really understand Airbnb very well. Thanks so much for any advice and shared experience with the above :o). FYI I do know about the new lender program Airbnb started, but it doesn't work for my situation.

15 Replies 15
Ann72
Level 10
New York, NY

@Dustin84 Gosh, that's a twisty one.  So the lender doesn't count the money from Airbnb toward your overall net income - because it's paid in Monopoly money or something?  That's annoying.  And then you have a CPA who's thrown his hands up - because he can't use Google or read?  I'm only kidding.  But you've got a frustrating situation.  

 

Anyway, I don't have your exact situation, but my accountant (who also owns properties that he rents out around Brooklyn, so although not an Airbnb guy, familiar with income streams like that) set up my properties as an LLC, the chief advantage for me being that if the LLC doesn't show a profit, I get a big break on my personal taxes.

 

Separately, I'm employed by my own company, an S-Corp.  It pays my salary and issues a W-2 every year.  When I bought my apartment in New York the lender accepted the W-2.  I imagine that if the LLC paid you, it would do so through payroll, deducting the appropriate taxes, and it would issue a W-2 every year, and the lender would just accept that W-2 as proof of that income stream.  In addition, the LLC would have to file a tax return every year, and the lender would also accept that, as they no doubt accept your personal return.  If it didn't, what could their argument possibly be against it?  

We have the same setup as Ann as recommended by our CPA – an S-Corp, which is useful for small corporations because it’s a “pass through entity” where you can take shareholder distributions much more easily than a regular Corp. The S-Corp pays us a W2 salary. We actually only take a paycheck once a year in December which is allowed, and then the W2 is good to show lenders when getting financing. 

Katie---Sean0
Level 10
Carlsbad, CA

Hi Dustin, our CPA is also a lawyer and his advice was that we didn't need to form an LLC -- he said making sure our Airbnbs are correctly insured AND taking out an additional "umbrella" insurance policy should be enough to cover our behinds and the expense of an LLC was not necessary, because he said if you're concerned about liability just make sure you have enough insurance. Our CPA advised me to set up a separate bank account and QuickBooks file for the Airbnbs, and said that's enough to show it's a separate side business even though in reality the monies get transferred into my main business QuickBooks file... if that makes sense. 

 

However I haven't tried to do a refi or heloc where I want the Airbnb income to count, I don't know about that. I'm guessing the existence of a separate QuickBooks file as if it's a separate business would help. But that's from me, not my CPA.

 

I have an amazing refi guy who is good at presenting sources of legitimate self-employed income to an underwriter, in a way that satisfied the underwriter. I'm also in California, not far from you. If you want his information send me a PM I'm happy to refer you. He swung an incredible refi for us that included rental income that we pay ourselves to rent our own home office! I also did a HELOC using the same income, and their underwriter accepted it too. It's all about understanding tax returns, and then the picture you put to the underwriter -- having the right financing person is crucial. 

Thanks Sean -- I'll PM you!

Ok great, I haven't seen a PM from you yet

Hi there,

 

im very interested in ur refi person.  I’m not sure how to PM you but could u please provide me with his info.  Thanks.

@Katie---Sean0 Side note:  I LOVE your listings!  I've saved them to my California list.  

 

I'm curious about long-term bookings - yours is a minimum of 30 days?  Why do you prefer that?  I've seen plenty of other people who take listings of that length or longer and wonder how that works in terms of maintenance and wear and tear.  My very seasonal listings in Maine have a two-week maximum, but no one has ever stayed longer than a week.  If they did, I'd want my cleaner to go in every week because I don't think people realize how much dirt they accumulate every week.  How do you handle it?  

 

Just curious and always looking to expand my knowledge!

Hi Ann, thank you 🙂 that made my day. I tried to make both Airbnbs as nice as possible, while also making choices that won’t be expensive to fix or replace if things get damaged.

 

Our home is situated in a weird little zone where short term rentals are not allowed. It’s oddly controlled by the California Coastal Commission, and many affected locals are trying to get it changed. Some folks nearby do short-term anyway, and the city seems to have a fairly relaxed attitude of not shutting them down unless anyone complains. But we decided to play by the rules and only do 30-day minimum stays.

 

What we discovered is a nice little niche, for business travelers, snowbirds, and folks visiting family nearby. Our smaller place is booked up until August, I guess maybe they prefer it to a long-stay hotel, it’s a much nicer option. So far we’ve had 3 guests staying anything from 30 to 90 days, with 2 more arriving next week for 2 month stays.

 

As regards wear and tear, all my guests have taken good care of everything except one. He did a lot of damage in his 66 day stay, which I’ve ended up having to eat for various reasons I won’t bore you with here. Let’s just say it was a good learning curve early on, about how to handle that kind of situation. I actually have another thread going asking advice about whether to give our guests an inventory, as you would with a normal 30-day lease. 

I only allow a max stay of 28 days. Solely because after that they are considered a long term tenant and I would have to go through the formal eviction process which could take months if I happened to get a squatter. Obviously landlord rules very by state so yours could be different. But if you aren't in a landlord friendly state the possibility of that nightmare isn't worth it given the rare instance someone would want 28+ days

Hi Katie---Sean0, would you be open to sharing your refi contact? I'm a host trying to design my next property for refinance using Airbnb income and am trying to learn how to do it best. Thanks!

Ann72
Level 10
New York, NY

@Katie---Sean0 Ah, that all makes perfect sense!  Thanks!

Your listings are gorgeous BTW, love your decor choices, and especially the little cabin looks like a peaceful retreat.

Dustin84
Level 2
Los Angeles, CA

Thanks for all the help guys! So much support in the Airbnb Community :o).

Esther112
Level 1
Daly City, CA

For those of you who wants to refinance your house, please note that there are four lenders who take Airbnb income to qualify you. I have just refinanced through Better Mortgage. Another is Quicken Loans.

Esther Mok

superhost