This post is a sequenced decision-frame for co-buyers who are about to close on a Nashville STR together. Work through these decisions in order. Each one constrains the ones that follow, and skipping any of them is how partners end up in a Nashville attorney's office at $400 per hour arguing over something that cost nothing to resolve before the deed transferred.
Decision One: Does the LLC Hold Title Before or After Closing?
This sounds procedural. It is not. NOOSTR permits in Nashville are not freely transferable — a change of ownership, including a person-to-LLC conversion, cancels the existing permit, and the new owner must apply on the same parcel under current rules. That rule has a sharp implication for co-buyers: if you close in your personal names and then transfer title to your LLC after closing, you have just voided the permit and triggered a new application.
In most NOOSTR-eligible commercial-adjacent zones, the new application is grantable — the zoning supports the use, so you are re-applying rather than losing eligibility permanently. But in residential zones, a change of ownership voids the permit, and an NOO permit cannot be re-issued, making that loss permanent. The correct sequence is to form the LLC before closing, take title directly in the LLC at the deed transfer, and then apply for the permit in the LLC's name from day one.
One more thing the permit rules will force on your structure: to qualify for an owner-occupied permit, the owner of the property must permanently reside at the property and be a natural person. LLCs, corporations, trusts, partnerships, joint ventures, and other entities are ineligible for owner-occupied permits. If your deal is a NOOSTR — the investor class — none of that applies. But if one partner lives in the unit and was planning to use an OOSTR permit, entity ownership kills that option entirely. Confirm the permit type before you pick the ownership structure, not after.
Decision Two: Member-Managed or Manager-Managed?
The Tennessee Revised LLC Act allows greater flexibility in LLC management, including structures like director-managed and family LLCs. For most two-person STR partnerships, the real choice is between member-managed and manager-managed. Both are legally sound. They produce very different day-to-day dynamics.
In a member-managed LLC, both partners have authority to act on behalf of the entity. That works cleanly when both partners are equally active. It becomes a liability when one partner starts authorizing capital expenditures — a $25,000 kitchen renovation, a new property management contract — without the other's sign-off. Your operating agreement should clearly state the management model, define authority, and set approval thresholds for major actions such as incurring significant debt, admitting new members, or selling substantial assets.
A manager-managed structure designates one person as the operating manager with defined authority. The non-managing member still holds their economic interest and votes on major decisions — they simply do not have unilateral authority to bind the LLC to contracts. For partnerships where one person runs operations and one provides capital, this structure tends to reduce friction. The choice itself is less important than documenting it clearly and consistently in both the operating agreement and the Articles of Organization filed with the Tennessee Secretary of State. Confirm that member- or manager-managed status is consistent in the Articles and the operating agreement — a mismatch between those two documents is a common error that creates legal ambiguity.
Decision Three: How Do Profits and Expenses Actually Flow?
Every co-ownership conversation starts with "we'll split it 50/50." That phrase needs to be broken down into at least four separate questions before it means anything legally or operationally.
First: does 50/50 ownership mean 50/50 on every dollar of gross revenue, or 50/50 on net distributions after expenses? Those are very different numbers in a Nashville STR. A property generating $90,000 annually in gross bookings might produce $28,000 in distributable cash after the mortgage, property management fees (typically 20 to 30 percent for full-service Nashville STR management), Metro hotel/occupancy taxes, insurance, and platform fees.
Second: who is contributing what, and does the operating agreement credit it? If one partner contributes $200,000 in equity and the other contributes $50,000, a 50/50 split on distributions requires a specific agreement — not a default assumption. When forming an LLC, each member puts money into the LLC in exchange for ownership percentage, and both the amount contributed and the ownership percentage get listed in the operating agreement.
Third: who authorizes operating expenses above a threshold? Define a number — $2,500 is a reasonable floor for a single-unit STR — above which both members must approve before the LLC commits funds. Below that number, the manager can act unilaterally. This prevents the scenario where one partner approves a $15,000 hot tub installation and the other learns about it through a Venmo request.
Fourth: how do tax distributions work? For multi-member LLC structures, consider whether profit distribution follows ownership percentages or a different allocation — and special allocations must have "substantial economic effect" under IRS rules. The operating agreement should also address tax distributions specifically: when the LLC passes taxable income to members, those members owe tax whether or not the LLC actually distributed cash. A tax distribution clause ensures the LLC releases enough cash to cover each member's estimated tax liability on their allocated income. Miss this and a capital-short partner faces a tax bill they cannot pay.
Decision Four: Who Can Sell, When, and at What Price?
This is where most operating agreements fail. Co-owners write three thoughtful pages on management structure and profit splits, then close the document with a single vague sentence about "mutual agreement" governing any sale. That is not a plan. That is a disagreement waiting for a trigger.
Transfer and buy-sell provisions should cover transfer restrictions, rights of first refusal, buyout triggers — including death, disability, bankruptcy, divorce, and termination — valuation method, and payment terms. Work through each category explicitly.
Buyout triggers. Define the events that allow one member to force a buyout. Death and disability are obvious. Less obvious but equally important: divorce (a partner's spouse may become a de facto co-owner without your agreement), personal bankruptcy (a bankruptcy trustee could assert a claim on the membership interest), and deadlock — the inability of members to agree on a material decision for more than a defined period, say 90 days. Dissolution events under Tennessee Code § 48-249-601 cover the basics, but custom triggers like manager deadlock are not covered by default. If you want deadlock to trigger a buyout process rather than a dissolution proceeding, you have to write that into the agreement yourself.
Valuation method. "Fair market value" is not a valuation method — it is an aspiration that two disagreeing partners will define differently. Agreeing on at least two licensed appraisers in advance speeds up future buyouts and removes the first point of argument when the relationship is already strained. Alternatively, specify that the LLC will use an independent STR-specific appraisal that accounts for the property's permit status, trailing twelve-month revenue, and current booking pace — not just the real estate value. A permitted Nashville NOOSTR property in SoBro with $85,000 in annual revenue is worth materially more than its bare real estate value implies.
Right of first refusal. If one partner wants to sell their membership interest to a third party, the other partner should have the right to match the offer first. This matters in a Nashville STR LLC because the operating agreement and the permit are both tied to the LLC entity. Allowing a stranger to buy into your LLC without approval creates a co-ownership situation you never underwrote. For STR investors in particular, the incoming member's profile can affect insurance terms, platform standing, and — critically — your ability to demonstrate operational continuity on a grandfathered permit.
Decision Five: What Happens to the Permit If the Partnership Dissolves?
This is the question most co-owners never ask. It is also the most Nashville-specific decision on this list.
The share of active NOOSTR permits held under a business entity — LLC, Inc, LP, trust, and similar — versus a natural person is a tracked metric in Nashville's open data. Owner-occupied permits are excluded because Metro requires an OOSTR holder to be a resident individual. For a NOOSTR held inside an LLC, the permit stays with the LLC as long as the LLC remains the title holder. That is the structural advantage of entity-held permits: a "legacied-in" purchaser can acquire the existing LLC from the seller that holds the STR permit, thereby acquiring the rental license — and these properties can only be sold via an LLC purchase for continued use as an STR.
But here is the conflict that surfaces when partnerships dissolve: if the LLC itself is dissolved and the asset is transferred out — whether to one departing partner personally or to a new entity — entity changes void permits, and LLC restructures, estate transfers, refinancing into a new entity, and person-to-trust moves all trigger a re-file or permanent loss in residential zones. The operating agreement should specify that in any dissolution or buyout scenario, the buyout must be structured as a membership interest transfer rather than a real estate deed transfer. The LLC stays alive. The ownership of the LLC changes. The permit survives.
If your attorney drafts the buyout as a conventional real estate sale with a new deed, the permit dies at closing. That mistake has cost Nashville STR owners six figures in lost revenue potential. Get this clause in writing before closing, not after the partnership breaks down.
Decision Six: What Does Deadlock Actually Look Like for This Asset?
Two-member 50/50 LLCs are structurally prone to deadlock. Every vote is effectively a veto. Because the parties did not have an operating agreement that clearly defined who had the authority to make decisions on behalf of the company or how a deadlock would be resolved, the parties were subject to the default provisions set forth in the Revised LLC statutes — which essentially left the parties in the same position. When Tennessee's defaults govern, co-owners who cannot agree may face a partition action, which can result in a court-ordered division or sale.
A court-ordered sale of a permitted Nashville STR in a residential zone is a worst-case outcome. The permit does not survive the sale. The asset converts from an operating STR to a standard rental or primary residence at whatever price the court process produces. The operating agreement is the only tool available to prevent that outcome before it starts.
Practical deadlock-breakers include: a designated tiebreaker (a named third party both members agree to consult), a mandatory mediation step before any legal action, and a shotgun clause — a provision that allows either member to name a price at which they will buy the other out or be bought out. Voting and deadlock provisions should cover voting rights, special approvals, tie-break mechanisms, and mediation or arbitration options. The shotgun clause is blunt but effective: it forces both partners to price the asset honestly because either party could end up on either side of the transaction.
For a deeper look at how we underwrite Nashville STR deals before a client commits to a structure, see our Nashville short-term rental advisory page. The operating agreement decisions above become much easier when the underlying underwriting is solid. Knowing the property's projected cash flow, realistic occupancy, and breakeven occupancy rate gives both partners a shared financial baseline to reference in every future disagreement.
If you are evaluating Nashville as an STR investment market against other options, our Nashville relocation and market guide covers the broader context of Davidson County's neighborhoods, zoning corridors, and investment dynamics that directly affect where a permitted NOOSTR property can actually operate.
One Thing Most Advisors Will Not Say Out Loud
If the two partners in this deal are not close enough friends to have a blunt conversation about what happens when one of you wants out, that is a signal worth taking seriously before closing — not after. The operating agreement does not fix a bad partnership. It contains a manageable one.
The operating agreement is not a bureaucratic formality. It is the document that determines whether a $600,000 Nashville STR investment remains intact or gets unwound in a courtroom. A well-drafted agreement often costs less than a single contested hearing and gives you more control over the result. At our office at 4025 Hillsboro Pike, Suite 206, we work through the permit structure, the operating agreement framework, and the underwriting in sequence — before the offer goes in, not after the disagreement starts. The 2026 Costigan Group STR Playbook addresses each of these decision points as part of our standard pre-purchase advisory process for partnership deals.
Explore the full range of Nashville neighborhoods where NOOSTR-eligible properties actually exist — because the right operating agreement on the wrong address is still a dead end. And if you want to see how we have approached this work publicly, the Costigan Group press page includes features on our STR advisory framework that may be useful context.
If you are at the offer stage on a co-ownership deal and need a pre-close review of the structure — permit status, LLC formation sequencing, and operating agreement framework — reach out directly. These decisions are a lot cheaper to make correctly before the deed transfers than to litigate after it does.
