Any advantage to buying the LLC that owns the property?

6 Replies

I'm looking into purchasing a 6 unit(2 businesses and 4 residential) that is owned by a LLC that only owns this one property. I was wondering what the advantages/disadvantages were to purchasing the LLC instead of the property in my LLC? Property is in Delaware. Thanks in advance.

Disadvantages, 

You inherit their depreciated basis in the property both for future cap gain taxes and for depreciation.

You inherit possible unknown liabilities lingering out there.

Advantages would be that current financing can stay in place. No record of sale of the real estate as the LLC is what is being sold.

But yeah, prior liabilities/pending legal action (even that which hasn't been filed yet) will all follow the LLC.

The only advantage: likely avoid paying transfer taxes.

I say “likely” because many states are passing laws that close that loophole as well.

Originally posted by @Debra Grumbach :

Advantages would be that current financing can stay in place. No record of sale of the real estate as the LLC is what is being sold.

But yeah, prior liabilities/pending legal action (even that which hasn't been filed yet) will all follow the LLC.

Technically, I think the loan docs/DoT would treat a change in 100% ownership of the LLC as an event of default -- would definitely need a review. There could also be personal guarantees that any seller would expect to be eliminated.

Advantage: in non-disclosure states, the county will have a hard time figuring the sale price. 

Disadvantage: you also buy whatever legal liability thus LLC has.

Consider having the seller quit-claim the property into a new LLC and then you purchase the new LLC. This has a benefit in that there is no record of sale to the city / county so no change in taxes based on the sale. It also means you purchase a "clean" LLC so there are no old lawsuits / liabilities that you are also inheriting.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here