Hello BP Community! Active Duty Army Engineer about to retire after 22 year of service. Pursuing REI fulltime now, about to close our first syndication -- 41-unit Senior apartment complex in Iowa, PP $3.7M, raised $800K.
Need advice on an exit strategy:
Apartment is completely renovated so no traditional value add. But it does have two vacant acres we plan to develop and build a 36 unit assisted living center by Year 5.
Original exit plan was cash out refi at Year 5, return 75% equity to investors, then sell in Year 10.
However, we (and many investors) want a full exit a Year 5. However, based on projected income, five years is not enough time to build enough equity to pull out enough cash.
Structure: 8% pref ret, 60% equity
PP: $3.7M
Loan: $3M
Investor Capital: $1M
Year 5 Projected Value: $5M
Year 5 Loan Balance: $2.5M
Year 5 Cash Out Refi Avail: $1.5M (80% LTV @ $5M = $4M)($4M - $2.5M = $1.5M)
Selling at Year 5 will easily meet this mark--but we do not want to sell. Rather, we want to expand this into a "Senior Campus" with the second building .
Question then: In Year 5, can we "sell" the property (i.e. "Senior LLC") to another LLC we own, say it's called "Senior Campus LLC"? Senior Campus LLC will already be set up in Year 2 with a construction loan for the new build. This way, we can realize the full market value gain of the original building and have enough capital to cash out investors.
Understand that "Senior LLC" would be responsible for capital gains tax based on sale price. But we could avoid the 3-5% broker/agent fee since we are selling it ourselves. At an approx $5M value in Year 5, that's not insignificant!
So is this a viable and legal plan or not? Am I missing anything or perhaps there is another alternative? Thanks in advance!
