Buying a company v. Buying the building

3 Replies

Good afternoon,

I have been talking to a property owner for close to a year, made an offer his 12 unit, and it was rejected but now I can do a little better on the offer and I do like the market, the building and the tenants. Long story short, he wants to sell me the business, as opposed to the building, something about getting hit with double taxation and repaying depreciation.

Some more details;

He built it in the mid 1980s and is now in his 70s looking to make life easier on himself, as he manages it. I have no reason to believe he is trying to pull one over on me but it did raise the questions: "Why don't more people do this? And what are the pros and cons of buying the building vs. buying the company that owns it?"

I am having a tough time trying to figure this out but I knew that the collective of BP will get me up to speed!

Hello Seth,

I have heard others buying the entity versus buying the asset. My personal concern is undisclosed liabilities of the LLC/Corp. Buying the asset avoids that issue largely (other than unpaid subs if any).

Food for thought...Its not necessarily a deal killer too me but you have to make a risk assessment.

Personally a real estate business is nothing without the asset! I would not buy the company ! I have found that no matter what the other party says, their priorities are always towards the self first!

Just to close this loop I wanted to follow up on my own question. So I called my attorney to ask him the same question. He told me that it has never made any sense for a client of his to purchase the company that holds the asset, due to a couple of very large reasons;

1. The depreciation schedule does not start fresh. So whatever depreciation that the seller has taken on the property is gone. In this case there would be nothing left as the building was built in 1986.

2. I would be on the hook for any litigation against the property, even if it hasn't been filed yet! If there was an incident 3 years ago and the lawsuit is filled after I purchase the company, I am on the hook for it. This of course would make my insurance sky high.

In conclusion it is a bad deal all around. And I will pass on aquiring the building this way.