Advantages / Disadvantages of holding a property in an LLC

[John Trout]

I was once told an interesting "trick" by a seasoned RE Investor. He said if you could find an investment property (say a SFH rental property) that was owned by an LLC, that you could save lots of money on the purchase of the property by simply "Buying the LLC" instead of the property.

I was wondering if anyone hear has ever done this and what other advantages / disadvantages there would be in purchasing a property by purchasing the LLC?

[David Krulac]

John Trout

Here in Pa. some people suggest that as a way to get around the 2% transfer tax. I'm not sure where the Pa. Dept. of Revenue stands on this issue.

There a couple of negatives, one of which would be the ability to get financing, which may be more difficult.

Second negative would be the baggage surrounding that particular LLC. for example if they had judgements, liens, mortgages, pending law suits, or mechanics liens. If you buy a company, corporation or LLC besides buying their assets, you are also buying their liabilities.

There are two Pa. state checks, for "Lien Certificate" and "Good Standing" You would get these from the Pa. Dept of State, Corporation Bureau. There is a cost for both of these and there is a time period to get. since you are close to Harrisburg, you may be able to get in person. These state documents don't guarentee that the corp/LLC is clean as there could be other liabilities.

Mechanics liens can be filed up to 6 months after the event and law suits can generally be filed up to 2 years after an event, so when you buy a corp or LLC you're flying blind for maybe 2 years or longer.

With all the negatives, most investors I know like to start new with a brand new clean LLC, rather than risk buying somebody else's trouble.

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