is it possible to retain equity if selling to an LLC?

Question

so if an LLC is buying my property, as part of the negotiation,

what if i were to ask for equity rather than a higher dollar amount?

is this possible? and if so, how would i calculate the value of the equity

relative to the dollar amount?

Nathan Grabau · Answer

As I am writing this response, I would be curious about more details of what you are trying to accomplish. That being said, I think it is important to note that LLC's on their own do not create any value. When you create an LLC, even if you pay a lawyer $500 to set it up for you, but there is nothing in the LLC, the LLC is worth $0. I would try to think of an LLC as a legally created person, which is a pretty broad definition, but instead of thinking of it as a fancy business entity, I would think of it as another person. Let's say Billy(made up person) comes up to me and says hey I want to buy your property and you can have some of what I own for it, and you say "what do you own" and he says "nothing" you are not going to trade half of what you have(if you have anything) for even 100% of his nothing.

You can sell an interest in any property you own to more or less anyone or entity. Owning part of an LLC though that you are also partnered with, generally would make the debt ratio's on the property super messy. Most likely if the LLC and you lets say were to get a loan "together" on the debt, you and the LLC have 100% of the debt costs count against you in the same way that if someone and their friend buy a house together, they cannot say that each is only "half" responsible for the mortgage payment. Instead both friends will have the whole mortgage payment count against their DTI's.

If you are trying to figure out what percent of the LLC you should get for the percent of the property you are giving the LLC. If the LLC has nothing in it, then you should probably get 100% of the LLC for putting equity into it. If the LLC has 250k worth of net value in it and they are given you 250k in cash for the property worth 500k, you are essentially "giving" the LLC 250k worth of equity. In this situation I would ask for half the equity of the LLC.

This feels like someone who owns an LLC is trying to turn there empty/ valueless LLC into something using your property. You do not want to let someone offer you some of nothing, and then give them some of something back.

Bill B. · Answer

Do you mean equity in the property? I don’t think anyone would do that nor would you want to. This would be effectively selling them a percent of the house except they have 100% control.

Do you mean equity in the llc? This could be a horrible idea for you. Say the llc owns 4 properties and this would be the 5th. So they’ll give you 20%. Guess what you have? You have nothing. You might have a 20% claim to distributions but what if there aren’t any? The LLC keeps sending its president on trips to Hawaii to look for property, and buys him a new truck, and pays his health insurance. Suddenly the llc has no income and you get 20% of that. What? You want to sell? They’re so nice to offer you half your money back, since nobody else will pay $1 after seeing the deal you’re getting.