Buying the Package of SFR vs Buying the Holding LLC?

4 Replies

A package of 9 SFR is available. It is all the properties in someone's LLC (he is military and going overseas, doesn't want to own at a distance, even with a PM). I'm not likely to qualify for a commercial loan of that size, due to debt to income.

Is it feasible to make an offer to purchase the LLC, including the properties and the existing debt, like a large sub-to? Would that trigger agent commissions by the PM the same way a straight sale of the property would? It was suggested that this would mean becoming liable for any past errors by the LLC. Other than the underlying value of the properties, what else should I consider as variables in this situation? If you have bought an LLC holding real estate, I would like to hear your experience.

One other issue is that since you are stepping into his shoes, the basis for the properties remains the same, for both depreciation and cap gains when you sell.

@Amanda G. , you definitely need to consult with a good attorney and CPA on this. My initial concerns:

  • The property titles may be the LLC's name, but what about the mortgages? Is that the sub-to you mean? Unless there's one large blanket mortgage you may be dealing with 9 separate notes/banks. Could get sticky.
  • If you buy the LLC, you may be depriving yourself of a bunch of depreciation. I don't think the depreciation schedule will "reset" unless the actual properties are sold. Talk to your accountant.

There is a ton of risk with purchasing LLC shares. You will assume the LLC liability, who knows what contracts he entered into in the past, what actions he has done, unpaid taxes, etc. Most M&A do asset purchase agreements into a clean vehicle. If you must purchase corporate entities, we suggest large earn out or escrow for potential liabilities.