Look at the situation in terms of cash flow and asset protection.

If this is too much hassles, do you have any no performing capital loss asset that can offset the gain ? 

The tax collector will obtain the taxes plus interest from the former owner before that happens, and remit that sum of money to you. 

When you acquire these apartment investment properties, you are actually buying a business and not just an asset.

.- We contribute the asset to a joint LLC that we createScenario #2:- He takes out a loan and buys the building for his own LLC.- He then sells me a portion of the LLC for $500K.I see some pros and cons to both scenarios, but I mainly want to make sure that I follow the established process.  

Would you rather have a portfolio of high performers or one filled with underperforming assets? 

Once you do the transaction, you have an asset, the loan.

However, I was speaking with an attorney and he said that a simple single member LLC offers almost no asset protection at all, that if someone decides to sue much LLC it would be quite easy for them to go after my personal assets as well.

You should have or be able to obtain receipts for any and all materials you bought to do the repairs you performed yourself.  

Distressed assets are extremely hard to find in Canada.