Purchasing LLC Membership Interests vs. Real Estate: Pros and Con

3 Replies

Hello all, I was wondering if anyone with knowledge/experience on this topic would not mind sharing pros and cons? As well as what to watch out for if I were to purchase LLC membership interests.

Thanks!

Ayo:

There isn't enough information here to provide a detailed assessment but here are some general thoughts.

If you are buying-in to an LLC, you are buying into its history. So, if the the LLC has a lawsuit from some prior action, it doesn't go away because the LLC changed hands. So buying real estate by buying the LLC that owns it exposes you to historical issues. On the positive side, buying the LLC, may allow you to avoid property tax hikes in areas where property tax is capped.

If you buy a property, assuming you get a warranty deed, you are usually shielded from any historical issues with the property.  Of course, you get the property in its current condition, so you may inherit bad maintenance or environmental issues.

@Ayo A.

You also can not 1031 a partnership/membership interest. Only the partnership/llc can do a 1031 making your options limited if you do not have a control over the partnership.

It really depends on the seller and local law. Do some research on sales of controlling interests (will this actually avoid any transfer costs), local bulk sales laws (will there be other taxes due or will creditors appear), and the limitations of seller warranties and indemnities (is my contract worth the paper it's printed on).

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