Case Study #2 — C. Family Trust

Sell 38-unit apartment property and reinvest through an IRC 1031 Exchange the proceeds into a 104-unit apartment building.

Starting Situation:

• One (1) 38-unit apartment building
• Value of $3,500,000 +/-
• Total current equity of $2,100,000 +/- (hence, $1,400,000 +/- in existing loans)
• Annual Return on current invested equity-capital of $2,100,000 was as follows:
  
  

  Pre-Tax Cash Flow	= $44,000 +/- or 2.1%
  After Tax Cash Flow *Varies slightly by LLC Member	= $37,000 +/- or 1.8%
  Total Leveraged Return	= $212,000 +/- or 10.1%
  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

After sale of 38-unit apartment building and reinvestment of proceeds into a 104-unit new/replacement property:

• Acquired $7,150,000; 104-unit apartment property
• Used the net sale proceeds as the down payment and secured a new loan for the balance
• Annual Year-1 Return from the new property projected as follows:
  
  

  Pre-Tax Cash Flow	= $117,000 +/- or 5.6%
  After Tax Cash Flow *Varies slightly by LLC Member	= $112,000 +/- or 5.3%
  Total Leveraged Return	= $326,500 +/- or 15.6%
  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 @ 3.0% annually