Homeowner · Burlington, KY · Member since 2012 · 14 posts · 0 votes
Hello everybody,
I've found several (3) properties which interest me. They all are owned by the same LLC. The person who I've been negotiating with is the principal of the LLC.
She suggested that one avenue to go about purchasing all three together, would be to purchase an equity stake in the LLC and eventually buy her out.
Has anyone purchased property or an LLC this way? The LLC owns all 3 properties.
I would not buy an existing LLC. There could be debts or even insurance liabilities that you would be buying. In many states you have 2 years to file a lawsuit, and here in PA. you also have 6 months to file a mechanics lien.
As a buyer of an LLC you would be liable for tax liens, back IRS liens, judgments, mechanics liens and everything else all of which is bad.
It doesn't cost much to start a new LLC, forget the old one and its possible down sides.
Investor · Perth Amboy, NJ · Member since 2013 · 110 posts · 21 votes
12y
I haven't done it but my good friend has done it both directions. It would be like buying a company and then you take control of whatever it owns. It is cheaper in some states because there is no real estate closing.
Some hard money people use it as a clause so they don't have to foreclose, they can just take the LLC in a default situation.
Consult an attorney that had done this before...many times before.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
12y
As Ann points out, you may be on the hook for some unknown liabilities. Also, you'll be stuck with the current depreciation schedule, and a much lower basis on the actual properties, assuming they paid the same or less for them. Plus, you're walking into a partnership type arrangement, it seems.
I would not buy an existing LLC. There could be debts or even insurance liabilities that you would be buying. In many states you have 2 years to file a lawsuit, and here in PA. you also have 6 months to file a mechanics lien.
As a buyer of an LLC you would be liable for tax liens, back IRS liens, judgments, mechanics liens and everything else all of which is bad.
It doesn't cost much to start a new LLC, forget the old one and its possible down sides.
Hello everybody,
I've found several (3) properties which interest me. They all are owned by the same LLC. The person who I've been negotiating with is the principal of the LLC.
She suggested that one avenue to go about purchasing all three together, would be to purchase an equity stake in the LLC and eventually buy her out.
Has anyone purchased property or an LLC this way? The LLC owns all 3 properties.
Some hard money people use it as a clause so they don't have to foreclose, they can just take the LLC in a default situation.
Marty -- can you elaborate on your understanding of how exactly this was done? (presumably in this case the HML does not have a mortgage against specific real property, but has a lien or security interest on the LLC member interests).
Specialist · Houston, TX · Member since 2012 · 579 posts · 301 votes
12y
I can see both good and potential bad with the process. I'm not familiar with buying an LLC to transfer real estate but very interested in this topic as a portfolio of properties I'm wholesaling just had this option become available for. The LLC is owned by a couple they hold 8 properties in it. I asked about buying the LLC and the owner said he can sell it since he is getting rid of all its holdings. I'm consider buying the LLC myself and using it to apply for business funding in the future as it has GREAT credit history and no outstanding issues (liens/IRS/etc.). I'm very familiar with the owners and their reputation so no real concerns that something is out there lurking.
In @Henry Kicera's case - could he research the LLC to make sure none of those lurking issues are out there? Could he simply write in a clause to the purchase agreement that he is not liable for prior liabilities/issues?
Real Estate Investor · Sioux Falls, SD · Member since 2013 · 415 posts · 84 votes
12y
Also to go off of what is being said is there any sort of insurance out there that gives you protection from a lawsuit or lien etc that pops up if you do purchase a LLC for something that happened prior to the purchase? My thoughts are something along the lines of title insurance.???
Sorry but you can't look into the future and predict a lawsuit that will happen in 2 years or a mechanics lien that will happen in 6 months.
And what if either or both those event occur and the dollar amount is more than the value of the property?
Or what if there is a government lien or IRS lien against the company that has not yet been files, no record of it. You are the new owner of the company would still have to hire CPAs and attorneys to defend the actions of your predecessors.
The absolute best way to prevent those kinds of things is to buy the property not the LLC/corp.
Real Estate Investor · Lincoln, NE · Member since 2013 · 584 posts · 353 votes
12y
If you buy the LLC, you are buying a company, which requires it's own due diligence. So you would have to do your due diligence on not just the properties, but also the company. The only reason I would even consider this is if the existing LLC had some sort of brand value in the area. If not, then there is no reason to do it.
Also, this hasn't been mentioned yet, but you said that you would only buy into the LLC, then eventually buy the other partner out. That also is a complicated endeavor. You are buying a business partner that you may or may not develop a good relationship with. The best way to take a close friend and make them a mortal enemy is enter a business relationship with them that goes sideways.
I would set up your own LLC, buy the properties from the other LLC, and let that company shut itself down.