Syndicating a deal AFTER I acquire it through a 1031

[Christopher Brown]

Hi all.  I've got a self storage deal under contract on a property I ID'd on my 45 day letter.  To put hard numbers on this, let's say it's a $1m acquisition, and I'll put $250k 1031 proceeds into it and finance the other $750k.

I've got some interest from investors who want to get in on the deal. I'm brainstorming how to acquire the property with my 1031 escrow funds and, sometime AFTER acquisition, raise equity for the deal that would "take out" most of my equity. The syndication would be a partnership between me, the general partner, and however many limited partners I end up with. Let's say the equity raise would be for $240k, and I leave $10k in the deal, and the GP/LP equity split on the back end is 50/50 and the LP get a preferred return on cash flow. One thought I had was that I'd initially acquire the property through a single member LLC (a pass through/disregarded entity to maintain my status as the tax payer on the new property) and then the new syndication partnership would acquire an ownership interest in the first LLC. Though I gather that the IRS can treat any sale of a disregarded entity as if it's the sale of the LLC's assets?

You can see the obvious upsides for me here: I'd get my property; I'd spread out a lot of the risk; I'd keep a pretty big upside on the deal; and I'd end up with a lot of cash.  Anybody ever done anything like this before?  How'd you set it up?  What were the hurdles?  How'd your accountant handle it?  Dave Foster has generously shared some feedback with me offline already; love to hear some perspective from other folks as well.