Case Study #1 — Lynn & Denise W.

Sell ten (10) single-family rental properties and reinvest through a coordinated IRC 1031 Exchange the proceeds into a 44-unit apartment building and 30,000 square foot office building.

Starting Situation:

• 11 single-family rental properties
• Total combined value of $2,750,000 +/-
• Total combined current equity of $1,600,000 +/- (hence, $1,150,000 in existing loans)
• Annual Return on current invested equity-capital of $1,600,000 was as follows:
  
  

  Pre-Tax Cash Flow	= $40,000 +/- or 2.5%
  After Tax Cash Flow	= $43,000 +/- or 2.7%
  Total Leveraged Return	= $197,000 +/- or 12.3%
  Pre-Tax Cash Flow PLUS Income Tax Implications PLUS Yield from principal pay down on loans PLUS Projected appreciation @ 5.0% annually

After sale of ten (10) single-family rental properties and reinvestment of proceeds into new/replacement properties:

• Acquired $2,825,000; 44 rental unit apartment property (41% Ownership)
• Acquired $4,785,000; 30,000 square foot office building (90% Ownership)
• Used the net sale proceeds as the down payment and secured new loans for the balance
• Annual Year-1 Combined Return from the two new properties was as follows:
  
  

  Pre-Tax Cash Flow	= $108,000 +/- or 7.2%
  After Tax Cash Flow	= $111,000 +/- or 7.4%
  Total Leveraged Return	= $384,000 +/- or 25.6%
  Pre-Tax Cash Flow PLUS Income Tax Implications PLUS Yield from principal pay down on loans PLUS *Interest only loan years 1-3; hence no principal pay down Projected appreciation @ 5.0% annually