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Show Summary
In this episode of the Real Estate Pros Podcast, host Micah Johnson sits down with Katie Johnson, a short-term rental (STR) investor and attorney specializing in STR law. Katie shares how she entered the short-term rental space, scaled her portfolio in Southwest Michigan, and identified a major gap in legal protection for STR owners. The conversation dives into zoning laws, deed restrictions, HOAs, and the increasing regulation of short-term rentals across the country. Katie also explains why proper legal setup—such as LLCs, contracts, and insurance—is critical to protecting investors from significant liability. This episode emphasizes education, risk management, and building the right professional team when operating short-term rental businesses.
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Katie Johnson I STR Law (00:00)
what you definitely want to do because I mean the largest verdict I know of in short-term rental history was about 11.6 million dollars and that person did not do everything right. They didn’t have an LLC, they didn’t have a great rental agreement ⁓ and so they ended up on the hook for that 11.6 million and that’s something I talked about on one of my podcast episodes.Micah Johnson (01:52)
Hey everyone, welcome to the Real Estate Pros podcast. I’m your host, Micah Johnson. And today I’m joined by Katie Johnson, who’s been making some moves in this STR world since about 2015. Katie, welcome in, glad to have you. Absolutely, I’m excited for our call today. I think our listeners are really gonna take something away and some value from just your experience. You’re also an attorney as long as a, as well as a short term.Katie Johnson I STR Law (02:04)
Thank you, Micah. I’m so glad to be here. Thanks for inviting me.Micah Johnson (02:18)
rental investor, and that gives you just an edge that most folks don’t get to see in that industry. So I’m excited to dive in. For folks who may not know you yet, what’s your main focus right now and what markets you operate in?Katie Johnson I STR Law (02:29)
Yeah, so for folks who don’t know me, ⁓ I am in Michigan. I’m locally based in Holland, Michigan, and I do pretty much exclusively short term rentals. We have a couple of long term rentals by happenstance, but we like to invest in short term rentals here in Southwest Michigan, ⁓ really in that Lake Michigan zone. It’s a really long true ⁓ vacation rental place. Like it’s been a vacation rental destination for century. Plus, know, people have beenMicah Johnson (02:57)
Right.Katie Johnson I STR Law (02:58)
reallycoming here for a long time. So that’s where we like to invest. We just continue to expand every year. And that is my favorite place. And then also, I’m also a local attorney here. And I practice primarily short-term rental law and also real estate and business.
Micah Johnson (03:13)
Okay, love that. So take us back. How’d you get into short-term rental investing? Why was that one interesting to you when you got started?Katie Johnson I STR Law (03:21)
So of course, I read RichDad Poor Dad probably in around 2013. And I was like, OK, we all do, right? And I was like, got to buy it. We’re going to buy a house. We’re buying our first house. And I was like, OK. But we have to think of a way we can make this ⁓ cash flow or somehow we can make this where we can live without having to pay rent. So we’re looking around. We lived in Chicago at the time. And we’re looking around Chicago, looking at duplexes, trying to find something that would work. And then we stumbled upon a house that we just absolutely loved. And we’re like, well.
wait, we could lock off part of this and then Airbnb it, because Airbnb was kind of getting popular. just stayed in Airbnb for the first time a couple recently, you know, and so we did that. We bought the house and we locked it off and we’re like, let’s just see how it goes. And then, of course, like for those who have Airbnb’s know when you put a listing up, all of you get bookings. You’re like, oh my gosh, this is working. And especially in 2015, I mean, there just wasn’t as many. And so it more than covered our mortgage and we were kind
of like after that doing it for couple years we’re like I bet you could just buy a house and do this too and that’s when we started investing in Michigan where we’re both from and areas that we had vacation growing up and kept doing it you know by one a year and continue to go that slow and steady route.
Micah Johnson (04:37)
Again, something I love about real estate is you can, there’s your way to invest in it. If you get into it, there’s all kinds of niches that let you be you and do the part that you enjoy doing. Now in your journey, your situation’s interesting because you became an attorney first. ⁓ You have a long family history in real estate with your dad that’s been a real estate attorney for, what’d you say, 30 years now? 40 years he’s been doing commercial? Yeah, commercial real estate. So you come into it then.Katie Johnson I STR Law (04:59)
years. Yeah.Micah Johnson (05:03)
Then you found a gap. So, short-term rentals is I really want to dig in today because with your law background, you started to notice some things about the industry that, okay, this could really apply to. So, tell us a little more about your law firm, why you started it and how it’s helped your own business and others that are in the same industry.Katie Johnson I STR Law (06:08)
Yeah, for sure. So yeah, so I was investing in short-term rentals. And ⁓ I just noticed that people kept asking me for recommendations for attorneys who did this sort of law. And there just aren’t a lot of people who specialize in short-term rentals yet. And so I saw that there was kind of a gap in this area that ⁓ when I was looking for an attorney, when we ran into legal issues, that just people don’t understand them in the same way as those who invest in them. And so I decided that it made sense for me to pivot my law career and start working⁓ as a short-term rental attorney. And I’m so glad I did because it just really has taken off and I’ve become the go-to short-term rental attorney in Michigan particularly. And now I’m expanding that to more of a national reach with my ⁓ legal template business for short-term rental owners where I’ve created legal templates to make it really accessible for folks to have attorney drafted contracts ⁓ that will legally protect you and this big asset that you have ⁓ from if something bad happens.
Micah Johnson (07:07)
I mean, to get the tax implications on STRs, it’s a business. That’s how it’s set up. So making sure that everything is set up correctly is especially imperative in that section of real estate investing because things change. Stuff moves around. I mean, you experienced that a little bit. Tell us about the, you had a property, right, that all of sudden couldn’t even be one anymore. Isn’t that right?Katie Johnson I STR Law (07:29)
Yeah, that’s right. Yeah, especially in Michigan. mean, a lot of states, I mean, the law is just catching up to short term rentals, right? So Airbnb kind of made short term rentals ⁓ a lot more popular. I mean, they’ve been around for a long time, you know, before people would just advertise them on the paper.or there was VRBO HomeAway was like the original before Airbnb. ⁓ For example, I went to vacation rentals growing up. We would go stay at someone else’s house for a week. I’m not entirely sure how my parents found them, but they did, right? ⁓ And so it’s been around for a while, but the law just hasn’t caught up to it and it’s continuing to catch up. So now, ⁓ especially in Michigan, municipalities are just banning them and saying like, their short-term rentals are a commercial activity because it’s a commercial activity.
Micah Johnson (07:46)
ThankKatie Johnson I STR Law (08:12)
⁓that’s what happened to one of our rentals. That’s the gap in law that I’m talking about where I saw that there’s a developing area of law and there’s a need for lawyers who really understand it. ⁓ In Michigan, there’s been this really bad case law where short-term rentals have been determined to be this commercial activity. We continue to battle that one. ⁓ We’re doing a federal lawsuit now with that one. It’s a continual battle.
were hopeful to win since this township particularly told people for a long time that they were allowed and then just changed their mind.
Micah Johnson (08:48)
I mean, usually you get grandfathered when they change something like that. They just pulled the rug, huh?Katie Johnson I STR Law (08:53)
Yes, yes,that was like what I would think would have happened. yeah, but I mean, basically, the reason they’re not going with grandfathering is that they’re saying that they did not allow them at all. They just they just were happening. They weren’t regulated. They ⁓ were not enforcing the current regulations they had that prohibit them is like the argument that they’re making. So they’re not a lawful grandfathered use. And instead, they are were just happening. And the law is pretty consistent where
you know, ⁓ a township can change their mind and start enforcing a law that they’ve never enforced. And so that’s kind of the position they’re taking, if that makes sense.
Micah Johnson (09:30)
thinking about I’m here in August another vacation capital here in Florida. So the STR has been around here a long time, and they’ve heavily been readjusting laws over the past few years. Now it’s now it’s limited, actually, you got to go on a waiting list if you want to get an STR around here or buy. They did grandfather, thankfully, but you have to buy that house to get it right, like it’s not transferable. It’s all these different rules, which is, again, fascinating because before then,it was free for all. Like, city got upset how many started popping up and St. Augustine is not a huge place, but a lot of folks like to come here. So I think it’s very interesting. So for that, I want to dive in a little deeper on what someone should be looking for. So even if they’re a seasoned STR or just getting into it, when they’re looking at a property like this, what should they be paying attention to out of the gate to make sure they don’t run into any issues down the road?
Katie Johnson I STR Law (10:57)
Yeah, so there’s a lot of different things that they should probably, you know, take a look peak at when they’re deciding whether to invest in one. I mean, ⁓ some of the things I like to look for are, you know, in Michigan would be like deed restrictions, these very state by state. But many states have deed restrictions, which are separate and distinct from HOAs. Those would be restrictions that are in your deed that say you can only do certain things with your property. And in Michigan, if it says residential use only, you cannot short term rent.So I actually have a couple clients being sued right now for that prohibition. Your neighbor would sue you. ⁓ Other things that people are going to want to look for is like a regulation that I recommend that you go into a market that’s already regulated, ⁓ particularly in a market in a state like Michigan. But many states, I would say this applies because you want to have clear understanding of what the regulation is and to have that right, that grandfathered right. Like in my situation, if we had a clear regulation that said short term rentals were allowed,
and here is like how you can do it, here’s how you get a permit, all of that, we would be that grandfather non-conforming use. ⁓ So that’s why I think it’s really important that you have that clear regulation that allows that use. So that’d be another thing to look for. ⁓ HOAs, so homeowners associations, if there’s an HOA, I mean, that to me is an immediate red flag. You’re gonna wanna be careful and make sure that that HOA explicitly allows short-term rentals. ⁓
If
you see language like no transient use, residential use only, depending on the state, that’s going to be a red flag for the HOA. And then unfortunately with HOAs, they can be changed. And usually it’s by majority. And so if a majority decides they no longer want short-term rentals, you don’t have that same grandfathering right that you would. So that’s why think HOAs can be a red flag. So those are all just to begin with. There’s a whole checklist, I’d say.
Micah Johnson (12:46)
Right.Katie Johnson I STR Law (12:53)
that I’d recommend for folks, but yeah.Micah Johnson (12:54)
YouI know I lived in an HOA and they wouldn’t allow it for sure. Like there’s rules in there that say that. And you’re right. Like having been the president of an HOA and guiding rules changed, having to get all those votes, it’s easy to get people to say no to stuff. It’s very hard to get people to say yes to stuff at a big majority. So ⁓ I would be worried too. Yeah. Those folks, ⁓ folks like the vote in the negative in that world, ⁓ quite much actually.
I don’t recommend being an HOA president if you have that desire. It’s very interesting. ⁓ I digress though. Okay, I wanna switch gears on that. you’re talking about the one thing you’ve learned and it led to that national business that you’re building is one, entrepreneurs, we do like to do it ourselves, but there’s things that we need that can help protect us. So let’s go into that next layer of, I really appreciate the three things to pay attention to upfront.
Katie Johnson I STR Law (13:30)
YeahMicah Johnson (13:50)
Now what are some things that they need that you’re creating for folks on the backend?Katie Johnson I STR Law (13:55)
Yeah, so I think if you own a short-term rental, know to protect your interest there’s like it’s like a trifecta so another three things you’re going to want to have your property in an LLC and you’re going to want to have a rental agreement and you’re going to want to have really good insurance and so what I’ve built with this these legal template business is a bunch of legal templates which include a rental agreement so when you’re getting yourself started you can have all these attorney drafted contracts to make sure that you’re legally protected and properly protecting your short-term rentalsI point.
point.
what you definitely want to do because I mean the largest verdict I know of in short-term rental history was about 11.6 million dollars and that person did not do everything right. They didn’t have an LLC, they didn’t have a great rental agreement ⁓ and so they ended up on the hook for that 11.6 million and that’s something I talked about on one of my podcast episodes.
Micah Johnson (14:44)
Man, that’s a rough day. 11.6 and you’re on the hook for it. Now what happens when it’s not in an LLC? did he face or they face, I guess, in terms of, okay, now you’re on the hook. Did they lose the property? Just had to pay the bill. Like what all happened from that?Katie Johnson I STR Law (15:42)
I don’t know whether he did or not, but I would imagine he probably had to file bankruptcy ⁓ unless he had a ton of assets because this person, they would have lost their house for sure. ⁓ And they would have also been on the hook personally for any assets they had. So any of your 401Ks, your personal home, things like that, if your property is not properly set up in an LLC, then you’re operating as yourself, which means that if something goes wrong on that property, it can come back on you.versus setting it up in an LLC and doing it proper, then you’re protected and any liability would be limited to that home. You still could potentially lose the home, but at least it’s limited to that asset. Like in an $11.6 million verdict, mean, that’s a tough one because typical insurance policies are one million, maybe you have an umbrella up to five or something like that if you have a lot of assets and you’ve convinced an insurance broker in some capacity, but it’s hard to get those higher limits.
So in that case, you know, that was just a really sad case where, you know, they didn’t do that. And so they were not legally protected. But once you set up the LLC, it’s not just setting it up. It can’t be just a name only. And I’m sure you know this, Micah. But you have to have, your separate bank accounts. You have to act as a separate person. You know, I recommend having a separate email address, just all these different things to make it really clear that you and the LLC are two different people or like two different things. And you’re not the same. You’re not one of
Micah Johnson (17:08)
Right, like it, and you want it as clear as possible, correct? Glaringly so, be obnoxious about the fact that it’s two separate entities, because that even goes into the tax benefits that you get from it. They want it super clear and that protection, yeah, I don’t want to be on the hook for 11.2 million, especially in the fact that you’re short-term renting. mean, I…I get different things happen in long-term rental, but you have a lot more risk exposure just due to the turnover of people you’re putting through the property,
Katie Johnson I STR Law (17:39)
I would think so. if you think about short-term rental owners and short-term rental guests and vacations and what people do on vacation, you’re not always making the best judgment calls. Often people are drinking on vacation and doing things like that. mean, there’s drinking involved in the $11.6 million verdict. The guy was drunk and dived off a dock and became paraplegic. So that’s what happened there. especially when you have water at your property, whetherit’s a lake or a pool, you those are all riskier. If you’re on a cliff, I would consider that riskier. ⁓ You know, but yes, I would say that a short term rental is inherently riskier than a long term rental.
Micah Johnson (18:19)
I see why the list of what to look for is way bigger than three. Like it gets really deep into the minutiae the more you go down that line of, okay, it doesn’t have a pool. What’s the topography of the property? Because the more bad that can happen, simply just the more risks that you’re taking on. And it’s okay as long as you know you’re getting into it. That’s where, to me, education is always number one in real estate, clarity. What is it that you’re exactly trying to do?Without that, you’re just flying blind, which puts you into that position where, know, deals come by all the time. Like there’s always a deal. You get the right thing at the wrong time though, it’s still the wrong thing. You put it under, don’t do all the necessary things to protect yourself. Next thing you know, you’re in a situation where you’re paying out a lot of money if you’re not set up right.
Katie Johnson I STR Law (19:04)
That’s right. It’s like setting it up on the front end can save you a ton of money in the back end, know, one of those things. That’s definitely right.Micah Johnson (19:11)
Right.Well, like they say in real estate anyways, you make all your money on your buy. So just apply it to apply that principle to the same thing where just now it’s a part of your process. And that’s where, you know, I love episodes like this because just knowing the process gives you some comfort, just knowing what to do next. What’s that next step to take? OK, here’s a property, here’s this, here’s that. Now need to talk to this person and this person. Now, if they’re
not in Michigan, let’s say they’re in a different state, what kind of team do they need to make sure they have working with them in their business to have the protection necessary?
Katie Johnson I STR Law (19:43)
Yeah, so for like purchasing a short-term rental, like they’re going out to purchase that.Micah Johnson (19:48)
And running a business that is one, because Imean, I’m sure your clients don’t just use you to purchase. You’re there for them along the way, correct?
Katie Johnson I STR Law (19:54)
Yes, yep, yep, absolutely.Yeah, so I mean, I can help people in other states depending on what they’re looking for. ⁓ I have partnerships with other attorneys in other states, so I’m happy to help folks. But the kind of attorney you’re probably going to look for is like a land use attorney, like a real estate land use, someone who understands how ⁓ land use can be used, ⁓ so the different zoning and that sort of thing, to make sure that what you want to do at that property you can do. Because I think that’s one of the big hurdles that I’ve seen people make a mistake with.
So sort of talking about how you make your money when you buy a property. Well, if you buy wrong and you buy a property, actually can’t short term rent, but you ran the numbers like you can short term rent it. You’re going to have a whole lot of hurt there, especially if it can’t be long term and cashflow, which I’ve seen happen to a number of people.
Micah Johnson (20:42)
It’s not differently with short-term rental numbers versus long-term rental numbers. It’s significant. And you get on the wrong end for sure. Well, Katie, I really appreciate your time and your story, your perspective today. Thanks for being on with us for just sharing the knowledge. mean, there’s nothing like if you’re listening or watching, it’s fun to deal with someone who’s an investor and an attorney because you know, andyou’re in the position, you’ve made the offers, you’ve gone through the research, you’ve bought the properties, you’ve put people in them, you’ve actually gone through it. And being able to talk to somebody like that is one of the most, in my opinion, valuable things. It’s what I look for when I’m working with folks in real estate is who’s actually walked this road before? Doesn’t just talk about it, actually does it. So I love the value in that. So folks that are listening or watching that would want to reach out to you, find out more about you, what’s the best way for them to find you?
Katie Johnson I STR Law (21:35)
Yeah, they can go to my website, strlaw.com. And there I also have a checklist too for if you’re buying a property, you can download there. Or they can go to my other website for my attorney firm, which is katijohnsonplc.com. Either way, can find me there. Would be happy to talk to any of your listeners. Thanks, Micah.Micah Johnson (21:50)
Excellent.And did you, can you share that website for your documents too? I’d love for folks to hear that. Or did you just say it?
Katie Johnson I STR Law (21:57)
it’ll just pop up on either website. You can just download like this kind of like that. We kind of only touched on a few things we’d be looking for before we buy a short term rental. But it’s like, you know how to stop losing sleep over your ⁓ if something goes wrong at my short term rental. It’s a checklist. for the template business. I’m sorry, Micah. Yeah, that’s STRlaw.com.Micah Johnson (22:11)
I was talking about the template business.Yeah, I’d love for you to share that one too. you’re good.
Okay, that one’s still there. I thought you, I wasn’t sure if it was the right one. Okay. Well, thank you so much. I appreciate you sharing that. Folks, again, we’ll make sure her links are below. Go to the websites, get the information, educate yourself before you make the moves. If you feel like you need to, reach out to her. Talk to somebody who does it, has their own law firm doing it.
And again, even in a type of law that doesn’t have a lot of representation yet, like she says, work with specialists, especially when you niche down in real estate. There’s so many fine things there. So again, Katie, thanks for being on with us today. I really appreciate you being here. Everyone listening and watching, if you got value out of today’s episode, please like this episode, share it with someone else you think would get value out of it. As always, don’t forget to subscribe. We appreciate every single one of you that follow along with us. We have more conversations coming up with operators just like Katie.
out there building a real business in the industry. Thanks for joining us. We’ll see you on the next episode.
