Buying through an LLC buyout

[Isaac Sz]

Hi all, Has anyone ever bought a property through an LLC buyout? I'm trying to see all the pros and cons of it, I'll appreciate any input.

[Chase C Henderson]

Hey Isaac,

I have done a couple deals like Greg has mentioned. In our area of Ohio we typically call this a Asset Transfer or Drop and Swap. This involves the seller opening a new LLC and transferring the real estate into this new asset at closing then you simply purchasing this newly formed LLC. This process can be a great way to way to avoid reappraisal on purchase. However, it doesn't always work. For instance a 10 unit that I am an owner in we purchased it in 2021. The school district challenged the sale and the county reappraised us at 95% of the purchase price. We also got hit with 2 years in "back taxes" dating back to the date of purchase. That being said another deal we purchased 52 units in a neighboring county and school district via the same method was not "caught''. So ended up saving several hundreds to thousands on our monthly tax bill.

Now, if you are talking about just buying someone existing LLC that currently owns the properties. I would total agree with Mr. Scott attorneys. The other part of buying the LLC is you buy its liabilities and risk not just its assets. So if there is an old tenant about to sue for the current owner not paying back a deposit, or that tenant got electrocuted by an outlet that the owner refused to fix. The LLC you purchased would still likely be liable to my understanding. (That's why we always form a new LLC when we do a drop and swap or asset transfer).

On a good note if you just buy out their existing ownership in their LLC there should be no purchase recorded with the county and you should be able to avoid any property tax reevaluations. (Just be warned that be careful if you are funding the deal by getting a loan on the properties as crafty school districts and auditor will pull the mortgages and notes to try to obtain a value when they property come up for reevaluation. *** This is how we got "caught" on our 10 unit)

Hope this helps!!!