I am going to keep this one short… Everything you explained is correct! You do need to transition existing entities to the demolished group. This is easy for objects like doors and windows, cut and paste in place works well. A little trickier for walls, try the zorro plugin on the extension warehouse.
You could also build a drawing set that mimics the old way. You would have to run one export out of the existing conditions model, to create a dashed plan. You would then need to run another export out of the proposed conditions model that only shows existing to remain. You would then stack these two exports from separate models manually in LayOut. It would work though!
Let me know if that makes sense… If you are struggling with it I could probably whip up the drawing sets this week. Thanks!