Selling LLC to sell House - What Complications?

Question

I’m thinking about buying a quadplex in an LLC, operating it for a couple months and selling it to another landlord. (Or maybe an owner occupant buyer).

Has anyone bought a (tenant occupied) house in a new LLC and then sold the LLC to another landlord?

Are there issues with additional state realty transfer taxes due?

What about title? Will owner’s title policy convey? (Since deed isn’t changing?)

Do we need to consult lawyers about “securities” like selling the controlling interest in a business?

Is it better to do something in a trust and change the trustee/beneficiary?

or just close twice, selling it from my llc to their llc?

Do any investor loans convey from one llc owner to another, if the llc stays the same?

The goal is to minimize unnecessary transfer costs while providing a great property to the final owner. I may do some rehab and/or raise rents. I am assuming the buyer is paying cash and refinances later as the owner.

In the past when I’ve rehabbed a property, I’ve bought with cash with owners title insurance, and sold with the new investor or owner taking title in their new name, usually with financing.

Thanks!

Wayne Brooks · Answer

Most people would want to just buy the property.  Buying the llc comes with problems.....assuming existing cost basis for the property, lack of financing, potential liabilities, etc.

Tom Gimer · Answer

I can answer a few of these questions.

Most states have "controlling interest" statutes which govern when a sale of a real estate entity triggers transfer and recordation taxes to become due, regardless of the fact that there is no deed recorded. Non-compliance can be addressed by authorities after the fact. Some states have a threshold -- for example MD's controlling interest trigger for requiring transfer and recordation taxes is $1mm.

If there is an existing owners policy and the LLC is the named insured, a sale of the membership interests in the LLC will not affect the coverage. That coverage is an asset of the LLC.

The securities laws issue is an interesting one but generally speaking if you acquire all of the membership interests and they enable you to manage the business, that's not a security but rather an active investment... so exempt from SEC regs. Unfortunately you also need to research the relevant state's securities laws to be sure about the answer here.

Loans remain the obligation of the LLC. Address any issues regarding guarantors before ratifying.

Good luck.