LLC Buying Group - Posted by TLK

Real Estate Investing Real Estate Law
1

Posted by Chet on February 07, 2005 at 24:50:37:

  1. Any red lights going off with this? Everything has been extensively set up by lawyers, accountants, etc. They also received a written opinion from the IRS so as not to be considered a “Sham” Company, etc.

A couple things come to mind, what the real it sure is doing is probably the illegal if not at least on ethical.

Just because attorneys and lawyers have reviewed the formation of the Company that doesn’t mean it is an operated as a shame. Take a look at WorldCom, Enron, and other firms that have had accounting scandals. All of them were publicly traded big five audited big law firm approved companies, yet management acted wrongly.

If I understood correctly the financing is going to end up being in you or LLC, so why not just make the escrow little bit longer and simply a signed the contract from the buying LC to you or LLC in consideration for a finder’s fee?

  1. Liability risks from other investors using the same procedure to purchase other real estate not related to mine?

Anytime you share credit or investments are temporary basis with people you don’t necessarily know, that’s not something with which uncomfortable.

  1. Tax issues of the property being temporarily deeded in this Buying LLC. What happens if the property is not refi’d before I get a renter in the property. I want to collect rents, depreciate, etc. with MY LLC.

It sounds like from what you describe you would have the right to use the property despite it being owned by the buying LLC. It seems to me that the same purpose can be accomplished by other techniques.

2

LLC Buying Group - Posted by TLK

Posted by TLK on February 06, 2005 at 21:46:51:

Hello experts-

The agent I get my properties from has a new way of aquiring properties. They have formed a “Buying group LLC.” He finds the properties and locks them up under contract with this LLC. Now he brings property to me or any of his other 80 investors. In order for me to purchase, I make a contribution to become a 1% minority temporary member of the LLC, close on the property and have 90 days to refinance the property out of the Buying LLC that I am a temporary member in, into my existing rental LLC or my personal name. The loan I get will be in the Buying LLC name and I am responsible for everything relating to only this property. Once the property is refinanced, my membership interest in the buying LLC terminates and I get a portion of my LLC contribution back. Supposedly this elimates a bunch of closing costs if the agent tied the property up in his own name and flipped it to me.

  1. Any red lights going off with this? Everything has been extensively set up by lawyers, accountants, etc. They also received a written opinion from the IRS so as not to be considered a “Sham” Company, etc.
  2. Liability risks from other investors using the same procedure to purchase other real estate not related to mine?
  3. Tax issues of the property being temporarily deeded in this Buying LLC. What happens if the property is not refi’d before I get a renter in the property. I want to collect rents, depreciate, etc. with MY LLC.

Thanks,

TLK