Rental Property Investor · London · Member since 2018 · 8 posts · 1 vote
Hi. I am a foreigner living in Europe, but wanting to invest in multifamily in the US. I have been looking into the many advantages to buying the entity (the LLC) instead of the property itself. This would serve me in a number of ways:
- Get me a legal entity to hold my asset. Shortcut to set up all systems I need to get a running start in the US.
- A number of advantages with just buying the LLC. No transfer fees, defer property tax re-assesment, etc
- Tax advantages when owning an LLC as a non resident.
- Single member LLCs - for easier closing
- single purpose, preferrably newly formed just for the purpose of selling the property.
- indemnity for unknown liabilities.
I see a few disadvantages. Financing may be harder to get. So I want to focus on motivated sellers and seller financing. Costly due dilligence in some cases.
What do you guys think? Anybody here that has any experience in these matters?
Stian
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
8y
Other than the obvious possible assumption of unknown liabilities....
I don’t believe we’re talking about buying an llc that is just formed for the purposes of selling the property, just before the sale.
-Extremely difficult if you need financing, buying an llc is not nearly as easy as financing a property.
- As mentioned, many states still I,pose the transfer tax when buying the llc as opposed to the property.
-More problematic, if you buy the llc that has owned the property for any number of years you intheirt the llc’s current basis in property (their purchase price less depreciation) so not only do you not get to depreciate the full value but that reduced basis is what determines Your gain when you sell the property, not the price you paid for the llc.
Rental Property Investor · Fort Lauderdale, FL · Member since 2017 · 151 posts · 94 votes
8y
So we are all on the same page. The Property you want to purchase is currently being held in an LLC and you want to purchase the property and the LLC together as a whole? I've never heard of doing such a thing but I assume if it could be written into the deal then you could buy the LLC from the current holder of the LLC.
Side bar - I bought my first Property with an LLC as well, I had to establish it myself, it's a great and safe way to do business.
Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes
8y
I would also add that you may not get out of the Transfer fee, I know in Pennsylvania that does not prevent you from paying transfer fees on the property, the property is still considered sold, not transferred with the LLC.
East Stroudsburg, PA · Member since 2016 · 52 posts · 41 votes
8y
Wholesalers do this sometimes when trying to wholesale an REO. Banks don't do assignments and I know in pa you can't double close so some guys put it in an Llc and just sell the Llc to the end buyer
Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
8y
@Stian Birkeland washington state will get you on the transfer tax either way. Buying the LLC is not advised they are inexpensive and easy to form. If you buy one you own the liabilities too and they may not be determinable at the time of sale-my lawyer advised. But do your own research etc. All the best! Good to see more Vikings on BP!
Rental Property Investor · London · Member since 2018 · 8 posts · 1 vote
8y
@Bjorn Ahlblad
Ahlblad... swedish? Yes, cool to see another from the nordic countries here. Great to e-meet you! I think if you can buy a new, single purpose LLC, newly formed by the seller just for the intention to sell you will be fine. Due dilligence is If course done anyway. Think it might save a guy like me from going through a lot of red tape. I see others are doing just that successfully. Why not me? Anybody out there that has actually done a transaction like this?
Developer · Philadelphia, PA · Member since 2015 · 2k+ posts · 904 votes
8y
The biggest drawback of buying an extablished LLC would be potential litigation which would not come to light for 6-12 months. In large transactions there is sometimes an escrow set aside for this.
If the LLC has a mortgage then there can be some complications as well.
Can you create a LLC with a registered agent?
If so, it should be a pretty easy and straightforward process.
The big issue I see if when purchasing a property or adding additional properties is that the title company will require a notarized copy of certain paperwork.
Not a lawyer, so please seek professional advice before taking action
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
8y
Other than the obvious possible assumption of unknown liabilities....
I don’t believe we’re talking about buying an llc that is just formed for the purposes of selling the property, just before the sale.
-Extremely difficult if you need financing, buying an llc is not nearly as easy as financing a property.
- As mentioned, many states still I,pose the transfer tax when buying the llc as opposed to the property.
-More problematic, if you buy the llc that has owned the property for any number of years you intheirt the llc’s current basis in property (their purchase price less depreciation) so not only do you not get to depreciate the full value but that reduced basis is what determines Your gain when you sell the property, not the price you paid for the llc.
Real Estate Agent · Oakland, CA · Member since 2016 · 37 posts · 33 votes
8y
Very curious about this as well. Just signed and LOI directly with the owner of a 118 unit and they suggested a potential LLC sale rather than a deed transfer. Cited avoiding title costs, transfer taxes and tax assessments. Seems to good to be true...but I dont know. Awaiting some clarification from our lawyer.
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
8y
@Stian Birkeland, yes I have done this before. I would not say it is any easier or cheaper for you. Setting up an LLC is very quick, easy and relatively cheap. A good attorney will set up a single member LLC for well under $1,000 in most cases. When buying an LLC that owns a property, it will likely cost you more than setting up a new one, as you should hire an attorney to do research on the current status of the LLC, change the address, amend the LLC docs, etc. They will also prepare sworn statements for the current owner to sign at transfer that says that the LLC is in good standing with no liens or lawsuits.
The biggest advantage can be the savings in property taxes. I would consult with an attorney that specializes in this to ensure it is something that they feel will work. Some counties keep an eye out for entity transfers and will stick you with property tax reassessment.
The general rule on this is that the seller wants to sell the membership interest while the buyer wants to only buy the assets. There are many tax and liability reasons for this. Note that a stock/membership purchase is generally much more complicated compared to an asset purchase. These complexities are one of the main reasons why M&A lawyers get paid stupid amounts of money to do what they do.
That said, sometimes you have to take creative steps. I'm not sure if I see one in your scenario but maybe there is.
You may want to get state specific about your question. For example, some of the "benefits" you listed don't apply to Pennsylvania. Also there are question about issues like the formation date of the LLC, underlying liabilities, etc.
Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.