Buying the LLC vs Buying the Property


#1

Seller wants to sell the LLC which holds the property instead of simply selling the property FROM the LLC.
This is a MHP in Ohio; and seems to be a good deal overall.

Sounds like structuring the sale this way will keep the property taxes low, and, I assume, help the seller in some way with gains?

Would love you guys’ thoughts as I’ve never taken this path before.
Any potential pitfalls or extra due diligence needed on something like this?
I was thinking I need to verify that there aren’t a bunch of outstanding liens or court cases against the LLC


#2

Above my pay grade but i think there becomes an issue you are assuming their deprecation on it not starting a fresh clock, and potentially assuming the liability of the company and their operations from before.


#3

Great question. I’m not a lawyer, but have worked on deals where we considered buying the entity instead of the property.

My first question would be why are they insisting on selling the entity? Is it to save on the work to close out the LLC or something else.

Generally you can expect that real estate taxes won’t increase at quite the same rate but it isn’t a guarantee if it’s in a muni that’s an aggressive reassessor. Saw some companies in FL fall victim to this (I’m looking at you Polk County).

Risk is exactly what you just mentioned, you’ll typically assume all historical liabilities with the LLC. That could be a much bigger and costlier component of DD than the physical portion however. Might not be as big of a deal if it’s an LLC that created three years ago though.


#4

I’ve seen it before working as a broker for tax reasons like you said. If it sells as an LLC the sale price won’t be recorded with the county assessor preventing a tax raise/ higher assessed value (That’s the idea anyway). As far as the legal implications and what to look out for I have no idea.


#5

Two main issues…

  1. Your are exposing yourself to all liabilities that predated your ownership
  2. Your tax basis in the property is going to be significantly reduced and the depreciation available will be also be reduced if any exists at all. Potentially, your taxable gains on the property when you go to sell are going to be greater than you actual gains.

#6

So the owner can kick you out of his land at some point in the future?


#7

You do not want to buy the LLC. The LLC may have liens, tax issues and other financial problems. Put together a clean LLC to put the property in.