Selling Residence to LLC

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TJSI
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Selling Residence to LLC

Post by TJSI »

I see an increasing number of sales of home residences to a LLC. Frequently the sale is recorded as: Seller John Doe--Buyer John Doe LLC.
Sales tend to be for more expensive homes--over one million but not always.

Can anyone explain the advantages of this type of transaction?
Stevewc
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Post by Stevewc »

My first thoughts were to protect other personal assets from liabilities, lawsuits etc. That's the main purpose in forming an LLC.
Maybe after the sale to the LLC the property will be rented out. If an accident or somethings happens down the road (liability) the suit would fall on the LLC and not a persons personal property.
I guess this could work in reverse, the million dollar home now owned by the LLC would be protected from personal lawsuits too, would it not? Since your company now owns it? Interesting concept that I never thought of before.
I'm not an attorney or real estate agent (obviously) so take my thoughts/comments with a grain of salt.
Ladies and Gentiles | Monkeys and Reptiles | I come before ya, to stand behind ya, tell you something I know nothing about !!!
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southerndoc
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Post by southerndoc »

Is this possible? I wonder if it would really offer protection from personal lawsuits?
Stevewc
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Post by Stevewc »

I Will not say that an LLC cannot be penetrated but my understanding is that it offers protections.
The strength may possibly be affected by the State you form it in also.
We were advised to form an LLC when buying into a small company (investment) to protect and separate our personal property from that of the company/business.
Hope others with a legal/law background will add their thoughts.
Steve
Ladies and Gentiles | Monkeys and Reptiles | I come before ya, to stand behind ya, tell you something I know nothing about !!!
junior
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Re: Selling Residence to LLC

Post by junior »

TJSI wrote:I see an increasing number of sales of home residences to a LLC. Frequently the sale is recorded as: Seller John Doe--Buyer John Doe LLC.
Sales tend to be for more expensive homes--over one million but not always.

Can anyone explain the advantages of this type of transaction?
My guess would be that it might be a tax strategy of some sort. Maybe something about avoiding capital gains taxes under certain situations, if the tax rules treat exchanging shares of the LLC differently than exchanging the actual property. It could be a state law thing...
Topic Author
TJSI
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Joined: Thu Jan 27, 2011 4:03 pm

Post by TJSI »

Thanks for your responses. Increased liability protection may be the answer. These types of sales are generally on more expensive homes and the owner may have considerable assets that they may well want to shield.

The other interesting thing is that these type of sales have been increasing after the big drop in home prices and there may be some type of tax angle.
grberry
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Post by grberry »

As a general rule, on the liability side moving an asset into an LLC owned by the original owner reduces the risk of liabilities where the liability adheres to the asset, not to the owner. To take the example this thread started with, real property is being moved into a LLC. A slip & fall injury on the real property attaches liability to the owner of the property. If that property is in a single use LLC, then the most that can be lost is the property itself. If separately the owner causes an accident and someone gets injured, the owner is liable - they could lose their ownership of the LLC. Similarly with a business, if the business becomes liable and is owned by an LLC, the loss is limited to the LLC and the things it owns. But if the owner of the LLC is liable, they could lose the business.

Some restaurant owners use a dual LLC structure for this reason. One LLC owns the land and building, the other owns the restaurant. If the restaurant goes bankrupt the real property won't be lost. If there is an accident on the premises, the restaurant can be relocated.
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