Purchase the LLC rather than the Real Estate?

[James G.]

Hi BP. I’ve been in contact with a new lender who is telling me that there is a strategy that he uses where he buys out the company, rather than the real estate itself.. he says this way, the lender can give me a loan based on the appraised value rather than the purchase price. Also he says we can treat the transaction as a refinance this way rather than a purchase.. he says this can be very beneficial for me if the seller agrees, and that there can be tax benefits . Has anyone ever heard of this? Is this a legitimate strategy?

[ROB GRIFFIN]

That is a legitimate strategy, but there are definitely some negatives to this strategy.  It can make it easier to finance or refinance, but you are now accepting any and all baggage that come with the company.  There may or may not be some issues lurking out there that happened under the prior owner that you will now be responsible for.  I would be more inclined to use this strategy if the property the company owns is commercial.  In any case, if you move forward get the seller to indemnify you against any claims that were from the time period in which he owned the property.