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As a real estate broker, I see it happen often: A savvy investor identifies a prime commercial property, but instead of submitting an offer for the building, they ask to buy the company that owns it.
It’s a sophisticated move. When structured correctly, purchasing the Membership Interest of an LLC rather than the asset itself can save a buyer significant capital at the closing table.
But this strategy is a double-edged sword. For every dollar saved in transfer taxes, there is a potential dollar of hidden liability waiting on the other side.
If you are looking at your next acquisition, here is the "Insider’s Guide" to understanding the difference between an Asset Sale (buying the real estate) and an Entity Sale (buying the LLC).
The “Why”: The Tax Loophole
Why would anyone buy a company just to get the building? In many jurisdictions (such as Florida), the primary motivator is the Documentary Stamp Tax (or Transfer Tax).
When you buy a property directly, you typically pay a tax on the deed recordation. On a multi-million dollar commercial deal, this closing cost can easily run into the tens of thousands of dollars.
However, if you purchase 100% of the LLC that owns the property, the title to the land never legally changes hands—the LLC still owns it; you just own the LLC. In many cases, this allows the transaction to bypass deed transfer taxes entirely.
The “Warning”: The Skeleton in the Closet
If the savings are so good, why doesn't everyone do it? Liability.
When you buy a building (Asset Sale), you get a "clean slate." You are not responsible for what the previous owner did.
When you buy the LLC (Entity Sale), you are stepping into the seller's shoes. You inherit the property, but you also inherit the company's entire history.
Did a tenant slip and fall three years ago? If they sue next week, they sue you (your LLC).
Are there unpaid vendor contracts? You now owe them.
Are there environmental issues from 2015? That’s your problem now.
The “Trap”: The Tax Basis
There is one more hurdle that trips up unrepresented buyers: Depreciation.
If you pay $2M for a building, you usually get to depreciate that $2M purchase price, creating a massive tax shield for your rental income. But if you buy the LLC for $2M, you might be stuck with the seller’s old tax basis (which might be near zero), losing your tax deduction.
The fix? A specific accounting maneuver called a Section 754 Election. If this isn't negotiated into the deal before you sign, you could lose thousands in annual tax write-offs.
The Bottom Line
Buying the LLC can be a powerful tool to preserve capital, but it requires "Forensic Due Diligence." You aren't just inspecting the roof and HVAC; you need to inspect the legal soul of the company.
This is where I come in.
Whether you are looking to acquire a business, a commercial site, or develop land, the structure of the deal is just as important as the location. I can help you evaluate whether an asset sale or an entity sale makes the most sense for your portfolio—and ensure you don't inherit someone else's headache.
Are you looking for opportunities in the market right now? Let’s connect.
Disclaimer: I am a real estate professional, not a CPA or attorney. This article is for informational purposes only. Always consult with your tax and legal advisors regarding specific transaction structures.
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Book Shelf from Brett Vogeler: amazon.com/author/bvogeler
Need a roadmap? Reply in the comments section or send us an email for assistance. 360 Perspective Partners offers Professional Licensed Business, Commercial and Investment Brokerage Services along with providing Professional Licensed Community Management Services in Central Florida: https://my360perspective.com/
Contact me directly at [email protected]. To see our other useful Newsletters on this topic and others: https://realestate-business-broker-guru.beehiiv.com/
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