How to Protect Your Short-Term Rental Business: LLCs, Zoning, and Legal Lessons Every Investor Needs to Know

If you’ve ever felt overwhelmed by the legal side of short-term rentals—LLCs, zoning laws, permits, liability—you’re not alone. It’s one of the most confusing (and most important) parts of building a sustainable short-term rental business.

On a recent episode of the Brand & Market Podcast, I sat down with Katie Johnson, a real estate attorney and short-term rental investor based in Michigan, to break it all down. Katie brings a rare perspective to the table: she not only advises investors legally, but she also owns and operates multiple short-term rentals herself.

This conversation covered a lot—from LLC structures and liability protection to zoning horror stories and why highly regulated markets might actually be your best investment.

Let’s dive in.

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Meet Katie Johnson: Real Estate Attorney & Investor

Katie Johnson is a real estate and business attorney with over 15 years of legal experience. While her early career included government work, she now focuses her practice on real estate law—particularly helping short-term rental owners make sure their businesses are legally sound.

She’s also an investor herself, owning multiple properties in Michigan, including both long-term and short-term rentals.

What makes Katie’s perspective especially valuable is that real estate runs deep in her family. Her father is also a real estate attorney, specializing in zoning and large commercial developments—everything from multifamily projects to major commercial spaces like Whole Foods.

Between the two of them, they’ve seen just about everything.

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How Katie Got Started with Short-Term Rentals

Katie and her husband began hosting back in 2015 while living in Chicago—long before short-term rentals became mainstream.

They purchased a home that allowed them to lock off part of the house and started renting it on Airbnb. What began as an experiment quickly turned into a business that outperformed their expectations.

From there, they purchased their first Michigan property near family, intending it to be both a place to visit and an investment. That property performed so well that they bought another… and then another.

Today, their portfolio includes:

• A long-term rental in Chicago
• Multiple short-term rentals in Michigan
• A mix of strategies that balance consistent income with higher-earning seasonal properties

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Long-Term vs Short-Term Rentals: Why the Mix Matters

While Katie prefers short-term rentals overall, she appreciates having at least one long-term rental for stability.

Short-term rentals—especially in seasonal markets like Southwest Michigan—can fluctuate. Having steady long-term income helps with planning, budgeting, and cash flow.

That said, when it comes to growth, Katie is focused squarely on short-term rentals, particularly well-designed properties in regulated markets.

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The Truth About Gut Renovations (Yes, They’re Worth It)

One of my favorite parts of our conversation was hearing Katie talk about a recent gut renovation.

Was it hard? Yes.
Did it take twice as long and cost twice as much as expected? Also yes.

Would she do it again?

Absolutely.

The final result was a beautifully designed property that outperforms their others and stands out in the market. Starting from scratch allowed them to create a space that books consistently and commands higher rates.

The biggest takeaway? Sometimes you don’t learn until you jump in—and those lessons can pay off long-term.

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LLCs, Liability, and Protecting Your Portfolio

One of the most important parts of our conversation centered on LLC structure and liability protection.

Why LLCs Matter

The primary purpose of an LLC is to protect your personal assets if something goes wrong at one of your properties.

Worst-case scenario—if someone is injured or worse at your rental and you’re sued—you don’t want your personal home, savings, or retirement accounts at risk.

Should Each Property Have Its Own LLC?

If you want the highest level of protection, the answer is yes.

Having each property in its own LLC means that if something happens at Property A, Properties B, C, and D are not automatically exposed.

However, there are cost considerations:

• LLC filing fees vary widely by state
• Annual fees can add up
• Each LLC requires separate bank accounts and bookkeeping

If managing multiple LLCs feels overwhelming, one LLC may still be better than none—just understand the risk tradeoff.

The #1 Mistake Investors Make with LLCs

Setting up the LLC… but never transferring the property into it.

If the deed is still in your personal name, the LLC offers no protection.

Other common mistakes:

• Mixing personal and business bank accounts
• Paying personal expenses from business accounts (or vice versa)
• Using the same email, contracts, and signatures across entities

This is how courts “pierce the corporate veil” and treat the LLC as if it doesn’t exist.

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Zoning: The Make-or-Break Factor Most Investors Miss

This is where things get personal for me.

Our Zoning Case Study (aka: Learn From Our Pain)

In 2021, we purchased a stunning 90-acre property in rural Kentucky with the dream of turning it into a wedding venue.

Before purchasing, we contacted zoning officials. We were told they didn’t anticipate any issues—especially since a similar venue already existed in the county.

We closed on the property and immediately applied for a conditional use permit.

What followed was:

• Extreme neighbor backlash
• The longest zoning board meeting in county history
• A permit issued with 18 restrictive conditions that made the business unprofitable

Although there were no actual zoning laws prohibiting the venue, the discretionary power of the board ultimately killed the project.

We later converted the property into a short-term rental (after another zoning process), and it’s been operating successfully for over three years—but the loss of that original vision still hurts.

The Big Lesson

Zoning isn’t just about what’s written on paper.

It’s about:

• Community sentiment
• Local politics
• Who sits on the board
• Whether your use is permitted by right or requires special approval

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Why “Permitted by Right” Is the Gold Standard

Katie explained that any use requiring a special or conditional use permit is inherently riskier.

If a use is “permitted by right,” you can operate without discretionary approval. Once discretion enters the picture, outcomes can change based on politics, pressure, and perception.

This is why Katie often prefers highly regulated markets:

• The rules are clearly defined
• Fewer surprises
• Limited competition due to caps
• More predictable investment outcomes

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What to Look for Before Buying a Short-Term Rental

Ideally, you want:

• Explicit short-term rental ordinances (not interpretations)
• Clear registration and permitting processes
• No HOA or deed restrictions
• Alignment across state, county, and municipal laws

Yes—it’s a lot. And yes—it can feel overwhelming.

That’s why working with a zoning or real estate attorney can save you tens (or hundreds) of thousands of dollars in the long run.

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Katie’s Best Advice for Building a Strong Brand & Market

“You can’t do everything yourself.”

Having the right team—CPA, attorney, trusted advisors—is critical as you scale. While DIY can feel necessary early on, it can also be incredibly expensive when mistakes happen.

I can personally confirm that one.

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Where to Find Katie + Free Legal Checklists

If you want to connect with Katie or grab her legal checklists, here’s where to find her:

• Website: katiejohnsonplc.com
• Instagram: @katiethereattorney
• Free initial consultation available through her website

She also offers:

• An LLC setup checklist
• A short-term rental legal due diligence checklist to help you verify zoning, restrictions, HOAs, and more before you buy

(All links available in the show notes.)

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If this post resonated with you, I highly recommend listening to the full podcast episode for even more nuance and real-world examples.

And if you’re feeling stuck trying to execute everything you’re learning—whether it’s guest communication, branding, or operations—my co-hosting services are designed to help you scale without burning out.

Here’s to building smarter, safer, and more sustainable short-term rental businesses.