Skip to content
Innovative Strategies

User Stats

514
Posts
282
Votes
Shafi Noss
  • Washington, D.C.
282
Votes |
514
Posts

Buying LLCs Instead of Property

Shafi Noss
  • Washington, D.C.
Posted Mar 7 2024, 18:19

Real estate has high transaction costs. Buying or selling an LLC has less transaction costs than buying and selling property. Aside from lower transaction costs and lack of full title insurance, what are the pros and cons of this technique?

User Stats

3,519
Posts
5,037
Votes
Greg Scott
Pro Member
  • Rental Property Investor
  • SE Michigan
5,037
Votes |
3,519
Posts
Greg Scott
Pro Member
  • Rental Property Investor
  • SE Michigan
Replied Mar 7 2024, 18:29
If you are worried about transaction costs, you are not focused on the biggest benefits in real estate.

User Stats

514
Posts
282
Votes
Shafi Noss
  • Washington, D.C.
282
Votes |
514
Posts
Shafi Noss
  • Washington, D.C.
Replied Mar 7 2024, 18:30
Quote from @Greg Scott:
If you are worried about transaction costs, you are not focused on the biggest benefits in real estate.

 I am a full-time investor. I am interested in input on this strategy please. 

BiggerPockets logo
BiggerPockets
|
Sponsored
Find an investor-friendly agent in your market TODAY Get matched with our network of trusted, local, investor friendly agents in under 2 minutes

User Stats

571
Posts
571
Votes
Derek Dombeck
Pro Member
  • Real Estate Consultant
  • Wittenberg, WI
571
Votes |
571
Posts
Derek Dombeck
Pro Member
  • Real Estate Consultant
  • Wittenberg, WI
Replied Mar 7 2024, 20:15

Cons.

If you buy an entity, you will get all the liabilities along with the assets. Be cautious there are not any pending lawsuits or judgements against the entity. Also, you will assume the Basis in any real estate holdings which could have future capital gains implications.

Pros.

This is a great way to take over an existing loan subject to that would be really hard for the lender to claim due on sale default. Often you can buy entities on favorable seller financing terms. And it gets around any title seasoning issues when using certain loan programs.

I once established a new LLC in order to aquire and quickly resell a house. I had my buyer lined up and we did plan on selling the LLC from day one, so I gave it a fitting name that would compliment my buyers parent company which was Brown Bear Construction. The new LLC they bought from me was Snooky Bear LLC.......LOL

Have fun with your friends when you can!

User Stats

3,519
Posts
5,037
Votes
Greg Scott
Pro Member
  • Rental Property Investor
  • SE Michigan
5,037
Votes |
3,519
Posts
Greg Scott
Pro Member
  • Rental Property Investor
  • SE Michigan
Replied Mar 8 2024, 05:01
Quote from @Derek Dombeck:.

If you buy an entity, you will get all the liabilities along with the assets. Be cautious there are not any pending lawsuits or judgements against the entity. Also, you will assume the Basis in any real estate holdings which could have future capital gains implications.



This is the exact reason my attorneys have advised against this strategy. The accounting aspect is a an additional thought I hadn't heard before.

I know some people have used this strategy in an attempt to avoid triggering a re-evaluation of property taxes. (In Michigan, for example, property taxes uncap upon sale.) Sadly for them, the local authorities found out and decided the sale of the LLC was the same as the sale of the asset so their taxes went up, which was not in their business plan.