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Benefits of Cost Segregation with David Deshotels & Jodi Nielsen - CREPN #219

Commercial Real Estate Pro Network

Release Date: 10/24/2019

Attract & Connect With Commercial Real Estate Investors on Linkedin with Yakov Smart - CREPN #266 show art Attract & Connect With Commercial Real Estate Investors on Linkedin with Yakov Smart - CREPN #266

Commercial Real Estate Pro Network

Today my guest is Yakov Smart. Yakov is considered to be the leading expert when it comes to attracting A  list investors and raising capital using LinkedIn.  He is the author of Disrupting LinkedIn and a sought after authority by top business owners and sales leaders worldwide. Yakov has shared the stage with Samantha DeBianchi of Bravo's hit TV show Million Dollar Listing.

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BIGGEST RISK with Yakov Smart show art BIGGEST RISK with Yakov Smart

Commercial Real Estate Pro Network

It's a great question. It's not something that I you know, honestly think about on a daily basis. I guess I'm you're a little more. You know, you see, you see A lot more different scenarios as being an insurance than I probably do when it comes to risk. But I'm gonna I'm gonna give a bit of what might be a bit of a surprising answer here. I think the BIGGEST RISK is a combination of plagiarism and misinformation because in the space, let's call it mentorship or online programs or coaching, consulting.

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Commercial Real Estate Investing With a Self Directed IRA with Jason DeBono - CREPN #265 show art Commercial Real Estate Investing With a Self Directed IRA with Jason DeBono - CREPN #265

Commercial Real Estate Pro Network

Today, my guest is Jason De Bono. Jason is the NuView Trust Company, Vice President and in a little bit he's going to share with us the benefits of using a self directed IRA.

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BIGGEST RISK with Jason DeBono show art BIGGEST RISK with Jason DeBono

Commercial Real Estate Pro Network

I think the BIGGEST RISK for a self directed account is that you take responsibility for all the investments, and it's a risk of personal accountability, right? If you keep your IRA in the stock market, one really nice benefit is that when it goes up and goes down, you know, you can kind of finger point your way around around it. Risking in a self directed account means you're taking on all the risk.

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Cash Flowing Short Term Rentals with Jon Bell _ CREPN #264 show art Cash Flowing Short Term Rentals with Jon Bell _ CREPN #264

Commercial Real Estate Pro Network

Today, my guest is Jon Bell. Jon is an IT professional turned real estate investor. He's a he specializes in vacation rentals, and today we're going to speak with him about Airbnb. He's also got a podcast he hosts the podcast Vacation Rental Machine Podcast. And he's also the co founder of the Vacation Rental Machine Formula an online training.

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BIGGEST RISK with Jon Bell show art BIGGEST RISK with Jon Bell

Commercial Real Estate Pro Network

I'll answer it and maybe the most common risk that people assume when they think of short term rentals or specifically Airbnb s and that is major parties. People messing up your your place. With my experience, it's not the major risk, it is something you can hedge off. And this is how you do it. 

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Forever Cash Through Real Estate with Michelle Bosch - CREPN #263 show art Forever Cash Through Real Estate with Michelle Bosch - CREPN #263

Commercial Real Estate Pro Network

Today, my guest is Michelle Bosh. She and her husband are real estate investors, entrepreneurs. They have multiple businesses and they have taken businesses multiple businesses they've built from scratch to seven and eight figure income revenue streams. And their business platforms include land auctions, rental portfolios, they've all authored a an Amazon number one bestseller called Forever Cash. And also, they host together the podcast Forever Cash. And Michelle also hosts the podcast In Flow.

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BIGGEST RISK with Michelle Bosch show art BIGGEST RISK with Michelle Bosch

Commercial Real Estate Pro Network

You know, the BIGGEST RISK that we have right now is that for the percentage of the tenant base that is unemployed, or that has lost their job because it is worked for housing, we buy c properties and B neighborhoods you know, that that if they've lost their job and unemployment you know, kept gets cut down, that they might not be able to To make their rent payments, so though, that's a big risk right there.

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Lease Purchase Real Estate Deals with Zachary Beach - CREPN #262 show art Lease Purchase Real Estate Deals with Zachary Beach - CREPN #262

Commercial Real Estate Pro Network

Today, my guest is Zachary Beach. Zachary is an Amazon best selling author and of the book The New Rules of Real Estate Investing. And he's also the co host of the Smart Real Estate Coach Podcast. And he's also a partner and COO and coach at Smart Real Estate Coach.

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BIGGEST RISK with Zachary Beach show art BIGGEST RISK with Zachary Beach

Commercial Real Estate Pro Network

Yeah, it's a fantastic question.  The truth is we've we've transferred a lot based on your description, we've actually transferred or deferred a lot of the risk based on how we actually buy and sell real estate because the sellers still typically on title, and we have the ability to renegotiate based on our contracts. You know, we're collecting a non refundable deposit from our buyer. So that's limiting the risk.

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Cost Segregation is a tool given by the tax code to real estate investors that improves cash flow instantly. 

Jodi Nielsen, National Senior Account Manager & David Deshotels, Executive Vice President of Cost Segregation Services Inc provide real estate investors with the how and why they can utilize the tax code to lower their taxes, save money, improve cash flow.  

FREE: TAX SAVINGS COST ANALYSIS 

Cost Segregation Study

Cost Segregation Study takes an engineering approach to determine what the components of the building are.  Then, it breaks the whole building into its components parts. These component parts are then categorized as personal property, and assigned a life expectancy of 5, 7 or 15 years.  

Depreciation

Depreciation is the accounting of a portion of the whole that has been used up, and is loss.  This loss reduces its value and is accounted for annually when filing income taxes. It is an expense against income.  Subtracting this depreciation expense from income reduces your taxable income.  

Straight line vs Accelerated 

Start with a value of $100,000

Pre Tax income of $20,000

 

Straight line:

27.5 years: $100,000 / 27.5 = $3,636 annual depreciation expense.

 

Taxable income: $20,000

Depreciation: - $3,636 

Taxable Income: $16,364

 

Accelerated Depreciation:

5 years: $100,000 / 5 = $20,000 annual depreciation expense.

 

Taxable income: $20,000

Depreciation: -$20,000

Taxable Income: $      0

This shorter timeline accelerates the depreciation and increases the depreciation expense, which lowers the Taxable Income and increases cash flow.  

The net result can be tax free income for the real estate investor.  This is especially true in the early years of ownership. This is one of the primary incentives for investors to hold real estate.  

Bonus Depreciation

Bonus Depreciation used to be available only for buyer or builder of a new property.  The new tax laws allow you an additional 100% depreciate any eligible property if it is new to you.  This adds to the value of a cost segregation study.   

Partial Asset Disposition

Partial asset disposition allows you to take into account and write off the loss of the unused property when you replace elements of your building.   For instance, if you buy a building and have to replace the carpet. If you expense the cost of the new carpet, you will get to record the expense of the new item, but will not get the benefit of the unused property that you tossed in the dumpster.  

Additionally, if you have not done a Cost Segregation study, you will miss out on the additional depreciation allowed in the 2017 tax act.  Bonus Depreciation provides an additional amount of depreciation for qualifying property in year one of purchase.  

Tax Payor Status

Your tax payor status will determine how much depreciation you are allowed to use.  

Real Estate Professional

For those investors who are full time investors and do not have a W2 job, they can utilize the depreciation against 100% of their gross income. 

Passive Real Estate Investor

If you are a passive investor, and have a W2 job, you are allowed to deduct up to the amount of passive income received.  If you have more deductions than you can take, the deductions will be carried forward for future use. This can be used to offset the taxable gain when you sell the property.

Misconceptions of Cost Segregation

There are some common misconceptions around cost segregation.  Following are a few:

Misconception: I can’t do a cost segregation study on my old building.  

FACTS: This is not true.  As long as the building is new to you, you are eligible to utilize cost segregation.

Misconception: My building is not worth enough to utilize cost segregation.

FACTS:  As long as your building is worth $150,000, cost segregation may be of benefit to you.

When Not to Use a Cost Segregation Study

A cost segregation study will not work for you if you are a non profit that does not pay taxes.  Additionally, if you are looking to flip a property in less than 3 years, it may not be worth doing a study.  

The recapture rate of Personal Property can be negated if planned for properly.  If you exchange into a new building, the Personal property recaptured, will be calculated at a higher rate than the permanent structure.  However, if you do a cost segregation study on the new property, you will have a new schedule of depreciation plus the bonus depreciation in year one.  

BIGGEST RISK 

Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”  

BIGGEST RISK:  

Per Jodi:  The biggest risk is you're sitting basically if you own a building you definitely owe it to yourself op to look at. Because you're sitting on cash that you don't have to sell another widget. You don't have to make another widget. You don't have to find another contract. It's your money that you're just basically sitting on by owning a building that you could use now. And so why not at least look at the look at the numbers to see if it makes sense for you at this time instead of letting more time go by just straight lining. And then also with the partial asset disposition I would say it's very important to take advantage of it.

Per David:  We've had plenty of companies that have called us back years after having done their study. And they suffered catastrophic loss be it a tornado or fire or whatever it is and they won't say, do you guys still have those 500 pictures of my building that you took when you did the study? It's like sure we've got those and it's so we have they're building just completely documented from top to bottom one in the other. We'll come out and take hundreds and hundreds of pictures depending on the size of the property to completely document that. So if there is catastrophic loss it's it's a documentation to say hey here's what the building was. Here's all the furniture fixtures and so forth. And it's been very helpful to people in times of crisis.

For more go to:

Jodi Nielsen

Phone: 651-210-1921

Email: jodi.nielsen@costsegregationservices.com

David Deshotels

Email: david@costsegregationservices.com