Has anyone bought a whole LLC instead of the assets?

Question

I've identified a distressed seller of a multi-family, but I can't quite scrape up the 25% to get the commercial loan. The seller owns the building in the name of XYZ LLC, and doesn't own any other properties.

I was curious if it might make more sense to just buy the LLC instead of the title. I could put a bunch of cash in his pocket now, and pay terms on the remainder. He has the property listed with a bad broker who hasn't done anything right by him, so I'd assume he can just delist the property, and sell the company instead, and could also save himself from paying 6% to someone who has done nothing but keep lowering the price for him in the year he has been trying to sell it.

Would this mean there is no county-recorded sales transaction, since the entity which owns the property would remain XYZ?

Would this trigger a due-on-sale clause with a lender, if XYZ is still the de facto owner of the properties?

Would this save the seller in paying some sales tax?

Are there any implications on depreciation? (He's owned the building for 10 years).

Am I just making this way more complicated than it needs to be?

I realize there are some other gotchas, like I would have to make sure that XYZ didn't have any other liabilities or pending lawsuits, but I'd let the attorney manage all that.

Wayne Brooks · Answer

Yep, not only are you assuming his current basis and depreciation schedule, you’ll be paying cap gain taxes based on His basis(not your purchase price) verses your sales price when you sell the property.

Cody L. · Answer

Much easier to buy it via a wrap. If it’s worth $1m but he owes $700k and you don’t have the $300k then offer him $100k down (or whatever). You’ll have a $900k loan with him which wraps the existing $700k of debt.

I’ve done that 10000000 times. Due on sale clause be damned

Basit Siddiqi · Answer

@Ron ReadWhile in this proposed situation you would be acquiring the LLC's basis in the properties. You will be acquiring "goodwill". I haven't researched much on how this will play from a taxation standpoint. But something you would want to consider when and if you plan to move forward.

Stanley Bronstein · Answer

@Ron Read. Put it this way. I almost NEVER, EVER, EVER see a third party (such as you), buying an LLC from another person that they know nothing about, just so they can take over that LLC's assets.

It happens, but based upon my experience, sophisticated business people almost never do it that way.

Stanley Bronstein · Answer

@Ron Read. Here are some thoughts on your questions.

If you buy the LLC, that probably violates the due on sale clause in the LLC's loan docs. You would need to get an experienced attorney to look at it, but I suspect that would be the case.

Your sales tax issue depends on the state in which the property is located. Talk to a CPA.

Yes there are depreciation implications, as you would basically be stepping into the shoes of the previous owner of the LLC. You would be taking over a property that has already been depreciated for 10 years. Talk to a CPA.

Also, you are correct that there could be liabilities out there that would all of a sudden become yours. Talk to a lawyer.

Good luck. I highly recommend you get a local lawyer & CPA to help you out.

Ron Read · Answer

Thank you for your reply, Wayne.

I hadn't considered that factor. In this particular instance, after a year of slashing prices, the seller has actually marked the property down to slightly less than what he paid a decade ago. His business was grossly mismanaged the building almost went to auction for taxes this month, so I guess the next step is to see if I can get a copy of the returns to a CPA to see if there is any depreciation left, or if he mismanaged those as bad as he did everything else, and left all the meat on the bone.

Ron Read · Answer

Thank-you Stanley.

I figured this is the logical next step. Hoping if there are any gotchas I haven't considered that someone will call them out.

Regards,

Ron

Has anyone bought a whole LLC instead of the assets?

Has anyone bought a whole LLC instead of the assets?

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