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.
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.
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).
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing