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Commercial Real Estate Pro Network

Commercial Real Estate Professionals who work with Investors, Buyers and Sellers of Commercial Real Estate. We discuss todays opportunities, problems & solutions in Commercial Real Estate.
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Now displaying: 2019
Nov 26, 2019

Darrin: [00:00:08] Brian Schaffer, what is the BIGGEST RISK? [00:00:10][2.4]

Bryan: [00:00:12] To me, I mean, you know, we are in the risk reward business. I mean, people get loans based on the level of risk. If it was a very risky loan, you pay twelve percent. If it's not such a risky loan, you pay three or four percent. So we're always looking at risk. 

But if I look at a more global risk to my business and really to the market as a whole, I think you've got to think about the economy and what causes a real estate downturn and what influences a market to go from being a very hot market to a very cold market. And really its activity. So when activity dries out, when people stop buying properties, people stop selling properties and people have fear when people are thin or they don't move 

And as you said, like the insurance provides a level of safety for those people so they can sleep at night and say, you know, if my property burns down while I'm sleeping. I'll be OK because the insurance will cover that. And then I think when you look at the real estate market, the risk is really people becoming too fearful that that is no longer good to buy, that there's there's no upside in buying. And that can happen really quickly. It's you know, 2008 was probably the best and the worst real estate market in the last 40 years. So, you know, you had everything peaking out and reaching its height. And then all of a sudden people's attitude changed and they decided that there was too much risk to keep buying properties and keep growing their portfolios. And that risk, the impact of lenders who then took a step back and said there's too much risk to lend. And then once they said there's too much risk to lend, it froze the entire market. So I think everybody's got a plan for and know that there will be a day again where risk outweighs reward. And you have to plan for that, just like you buy insurance. You've got to have a margin of safety. People that are well capitalized, I've never seen lose a property. But people that buy on a whim and, you know, aren't sure what's going to happen tomorrow and don't have the money if there is a bad year, get burned when there is a bad year. So to me, the BIGGEST RISK is that that that change in the marketplace, that freezes everybody. But the solution to it is just like buying insurance is a solution and knowing that if there's a buyer, you'll be saved. The solution to being a real estate investor is balancing your capitalization with the amount of your outflow. You should never be at a point where if something goes wrong tomorrow and it can't be fixed for six months, that you're out of business.

Nov 21, 2019

Passive Income is the goal of all investors seeking wealth creation.

Lior Gantz is the founder and editor of the number one rated financial newsletter, Wealth Research Group

At 12 years of age, Lior had to go to work out of necessity.  His father’s business was struggling, and there was no money. He hustled, babysitting, teaching basketball, and delivering goods to others.  By the age of 16, he had saved $20,000.

His banker suggested he invest his money to earn greater returns.  In order to do so, Lior needed his parents to sign a waiver, which they gladly provided.  His grandfather gave him two books on investing, and Lior was hooked on passive income. 

In 2015 his friends urged Lior to publish his thoughts and ideas, which was the creation of Wealth Research Group.  This is where Lior publishes his thoughts and observations for readers who want to learn  about wealth creation.

Global Economy

Lior’s father’s business was furniture and upholstery.  It’s demise was due to the changing global economy that is full of new, cheaper goods from foreign countries.  His failure to adjust forced Lior to learn a new way early in life. The blessing to experience this at an young age helped Lior create an expectation based on global competition rather than tradition ready for disruption.  

Peak Open Borders

Western corporations have taken advantage of cheap labor overseas.  This cheap labor provided a greater profit spread for investors. The downside is loss of traditional jobs and trade in balance.  The ultimate question that needs to be answered: are cheaper goods more valuable than the loss of jobs? While cheap goods are good for consumers, the loss of jobs depletes the consumers needed to consume the cheap goods.

Transition

The price of progress is the pain of change.  Consumers like cheap goods. Within an economic system, wages only go up.  So, how does a system convert from a traditional economy to a nimble world economy? 

There are 48 countries that produce for less than China.  You cannot regress to compete against cheap labor. Change requires skills.  Workers need to be trained for the jobs in the new economy so that they can contribute to the new economy.

Competing in a Global Economy

Governments have a few tools available to change the course of the economy; lower interest rates or impose tariffs on foreign imports.  Historically, the US has preferred low cost foreign goods and chosen to lower interest rates rather than impose tariffs.  

The challenge with any governmental use of its tools, is whether or not the desired results will happen.  When the US lowers interest rates to make borrowing money less expensive, the hope is to make low cost capital available for companies to borrow.  This allows them to make additional purchases.  

Millennial Outlook

Millennials are gainfully employed and paying down their student debt.  As they progress professionally, they are inheriting higher paying positions vacated by retiring baby boomers.  Millennials income is projected to peak in 2030. At the same time, they are coupling up and looking for suburban housing to raise a family.  

This momentum will continue and will shift the demand for housing from the multifamily to the single family.  This will be the new wave of housing demand. 

Private Equity Funds 

Private Equity is flexible.  Where they see opportunity with a positive return, they go.  It is projected that these funds that acquired huge real estate portfolios in the crash will look to sell these as the millennials become buyers. 

If the cost to acquire a home is beyond the cost to rent, millennials may continue to rent.

Neighborhoods access to good schools, safe neighborhoods will continue to attract parents of small children. But, home ownership is no longer sacred.  

BIGGEST RISK 

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

BIGGEST RISK: You have to know what you are investing in and who you are investing with.  If you invest in large proven companies, you are investing in the culture more than the people.  You can trust that the culture will continue to drive profits. However, when you invest in small companies, this is speculative, because it is not proven.  In this case, it is important to know the who.  

For more go to:

Wealth Research Group

Nov 19, 2019

Darrin:  Lior, the BIGGEST RISK question there, but I appreciate you, you kind of taking us through it.

Lior: If you asked me what risk is, risk is not knowing what you're doing. That is that is the BIGGEST RISK. The second biggest risk is not knowing the people you're investing in. The smaller the business, the more you need to know about the people running it. The bigger the business, the less you need to know about the people running it because the the culture is already set for growth. So when you invest in Google, you don't need to know the 40,000 employees and how their life are going, etc. You need to know that, hey, this is a culture of a company that is growing at such and such. This is the industry that it's in. These are their competitors. But you don't need to know like everything about the CEO. When you invest in a small cap company or in one particular house, you need to know all about it because the risk is huge. So when you asked me a risk, when the more you go towards I'd say safer investments, the less research you need to know about the actual people. The more you dove into a speculative areas where you can make much more money. That is true. You need to know all about what you're doing. So it's a function of how much time you have and what is your capability to self assess yourself. Can you even, Is your research worth something? In other words, do you know what to ask? Do you know what to look for? And if you don't, then look, there is there is a machine out there that makes you about 8 to 9 percent your money every year if you do nothing but invest in one thing and just stay the course. So 8 to 9 percent a year, you double your money in every five to six years. I think if you have a good career, which is always the number one thing to take care of, then, you know, investments can be very profitable for you.

Nov 14, 2019

Mindset is the first thing Real Estate Investors have to get right to become successful.  

Rod Khlief is an experienced investor, author, podcast host and mentor.  He has owned over 2000 single family residents and hundreds of apartments.  He also lost millions in the crash and has since recovered. His ability to rebound is directly attributed to the power of mindset.  

Real Estate

Rod immigrated to the US from The Netherlands with his mother and brother.  They were poor, ate expired food, and wore clothes from thrift shops. To make ends meet, his mother babysat the neighbor kids.  Over time, she was able to save up enough money to purchase the house across the street for a rental.  

One day she explained to Rod that the home had doubled in value overnight.  That’s when Rod made the decision to get his brokers license as soon as he graduated high school.

Year one was slow, he made only $8,000. Year two, he made $10,000.  But by the end of year three, his income had grown to $100,000. How was this possible?

Mindset

How is it possible to grow your income 10x’s in one year?  Truly 80 to 90 percent of your success is anything is attributed to mindset.  

Rod focuses on mindset with his podcast, live events and his students.  The framework he uses to help others design their life requires that you take some time, an hour when you will be uninterrupted.  Take this time to focus on what you want your life to look like, design your life. If you want a private island, write it down. List the income you want.  What do you want to learn? Who do you want to help? Write it down. Do not limit your thoughts and don’t analyze.

Timeline

To make it possible, you have to attach your goal to a timeline.  Set a timeline for when you will have accomplished each goal. People overestimate how much we can accomplish in one year and underestimate how much we can accomplish in ten or twenty years.

Focus on the Goal

Pick your top goal and the two or three goals you want to accomplish in one year.  Under each, write a paragraph using emotionally charged words, why this is so important.  Next write what pain you will experience if you fail to reach your goal.  

Why is it important to attach your goal to pain if you fail to reach them?  Humans will work harder to avoid pain than reach pleasure. This will motivate you and get you out of your comfort zone.  Go for it! Live a life of no regrets!

Visualize 

Visualize your goal.  Immerse yourself in the goal.  Find a picture, go experience the goal, to inspire you for when you reach your goal.  Put the picture on your phone, screen saver, or in your wallet. You need a constant reminder of your goal.  

Professional athletes practice visualizing the event, and the success.  When you practice visualizing, the exercise prepares you similar to the physical practice prepares you.

Life Seminar 

What do you call it when you loose $50,000,000?  In the crash of 2008 Rod loss $50,000,000 in real estate.  Instead of crying, Rod considers this a seminar. This is because not only did he lose money, but he learned a valuable lesson.  What was the lesson?

Q: Why did his single family properties struggle while the multifamily did well during the crash? 

 

A: Logistics.  The logistics of multifamily make multifamily much more efficient to operate compared to single family houses spread out all over the city or cities.  

In an apartment complex, each unit has the same type of systems.  This allows your team the luxury of learning once and having multiple opportunities to repeat the lesson learned.  This saves time, allows you to buy in bulk and save money.  

In single family homes, each one is different.  Different plumbing fixtures, faucets, lighting, appliances, etc.  Each home is its own lesson, never to be repeated just like the last one.  Every lesson learned can be drawn from, but not replicated for efficiency. Each home has its unique fixtures and appliances, which prohibit purchasing in bulk.  Don’t forget that each home is located in a different location which requires travel, time and money.  

Summary: Multifamily allows for systems and you have less of a downside when considering vacancies.  They are easier to scale and purchase. Lenders look at the property’s cash flow to approve the loan rather than your balance sheet when buying single family homes. 

BIGGEST RISK 

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

BIGGEST RISK:  Irrational exuberance.  In today’s market, people are overpaying for properties that do not support the price.  You have to communicate with your team, and look under every rock. Double check your numbers.  Don’t overpay for a property.  

For more go to:

Website: rodkhlief.com

Podcast: Life-time cash flow

Nov 12, 2019

Darrin: Rod Khlief, what is the BIGGEST RISK?

Rod: [00:00:12]In my life? I will tell you my BIGGEST RISK as I see it, and I thought about this before we started this podcast. Is we are right now in the inner stage of the market called irrational exuberance. And I just told you, I've got, I don't know, 220, 230 coaching students. And my biggest risk is, is communicating to them, they damn well better not buy a property without running it through our system first and making sure that it's been stress tested and and and they're not taking people's money. And and so that's my biggest you know, and I talk to my team about all the time, because we we walk our students through their deals, we evaluate them, we respond and and tell them, you know what, rocks to look under and questions to ask. And some of them, you know, some people think they can do it without any help. And there's some mistakes being made right now. There's deals, you know, that we bid on. And and I'm. And we find out what they traded for. And I'm scratching my head thinking, how did they make those numbers work? It's just astounding to me that they got that they were able to get financing as well. And it's just reminiscent of 2006 and 2007 to me. And so that's I think that's my biggest risk is just protecting my students and making sure that those mistakes are eliminated or mitigated. Because, again, what I went through, it's it's really top of mind for me. But we do a pretty darn good job. So but it's just it's just that communication and making sure that that they're asking for help.

Nov 7, 2019

FEMA is the agency within the Department of Homeland Security that controls the National Flood Insurance Program.  

 

Scott Van Hoff is the Flood Insurance specialist with FEMA.   Real estate investors need to know, now more than ever, how to determine if a property is in a flood zone that will require flood insurance.  

FEMA

FEMA stands for Federal Emergency Management Agency and is responsible for the National Flood Insurance Program, NFIP.  Communities enroll in the FEMA which makes the NFIP available to its residents.

 

In exchange, the community agrees to actively manage new construction in the floodplain by not issuing building permits below the base flood elevation related to the 100 year floodplain.  This agreement makes insurance available to people in the floodplain who would not be able to purchase flood insurance, and keeps additional people from building in an area likely to flood. 

Flood Map Revisions 

FEMA is required to periodically update the flood zone maps based on priorities set by Congress.  The path of water changes due to natural causes such as erosion and development. And the mapping technology continues to improve, which provides for more accurate maps.  

 

When a map is revised, and the property zone changes, from flood insurance being not required to required, it may not be realized by the seller.  This scenario typically comes to light when a seller who has owned a property for many years and has either a private or no mortgage.   

 

Unfortunately, this happens all the time.  The seller does not know, and the real estate brokers do not ask, nor want to know.  A buyer may assume, by omission, that the sellers information is correct. Then the bank provides a closing estimate the day before funding.  On it you learn the requirement for Flood Insurance needed to close the loan.  

 

You have invested all this time, and money into the purchase.  Are you going to walk away from your earnest money? 

 

To protect yourself from this scenario, check the FEMA Flood Maps in the beginning of your due diligence.  It can save you a lot of time and money.  

 

Base Flood Elevation

The Base Flood Elevation is the required height above the one hundred floodplain needed to avoid the requirement for flood insurance.  If a property has a stream or body of water that runs through or adjacent to it, it is likely that the entire parcel will be designated within the flood zone.  

 

Removing Property From Flood Zone

In order to remove the structure on the parcel from flood zone, it will be necessary to prove that the structure is elevated above the base flood elevation.  FEMA provides a process to do this called, “Letter of Map Amendment”, LOMA. This is a process that requires an elevation certificate be produced by a surveyor and submitted to FEMA with application for LOMA.  Upon approval, FEMA will file and provide you with a Letter of Map Amendment. When you show this to your lender, the requirement for flood insurance will be dropped. 

 

If your property is truly in the flood zone, it is possible to lift your building and raise the first floor above the base flood elevation.   There are companies that specialize in this type of work and can raise the building and build a taller foundation then set your building upon the new foundation. 

Flood Insurance Zones

Flood insurance is required by any lender when lending on a property located in a flood zone with a greater than 1% chance of flooding.  The zones are rated as follows:

 

 

  • Zone “A” - The Special Hazard Flood Area 1% chance flood plain or the 100 year floodplain and are located near a river or stream.

 

  • Zone “V” -  V is for velocity and references the wave action for coastal water.  Coastal property can have either an “A” or “V” zone rating. 

 

  • Zone “X” is for the 500 year flood zone.  Properties in this zone are not considered to be at risk for flood and do not require flood insurance. 

 

Other zones: 

  • Zone D these zones have not been studied, and typically do not have any population nor structures in the area. 



Flood Insurance

Historically, Flood insurance was only available through the National Flood Insurance Program, NFIP.  Recently, the market of available insurance companies has grown to include private carriers. The private companies will likely only insure less hazardous zones, for less than the NFIP program.  

Declared Flood Disaster

When an area suffers wide area flooding, FEMA shows up to help the local residents and coordinate relief.  A common misconception is that FEMA hands out money to help you rebuild. FEMA will make available to those who suffer great loss, small grants from $2,000 to $4,000.  FEMA does not make low interest loans, but the Small Business Administration, SBA does, and works with FEMA to help you if you are in need.

 

BIGGEST RISK 

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

 

BIGGEST RISK: The rising sea level, especially in our coastal areas. From the perspective of a homeowner or somebody who's making a long term investment, you might be, you know, in this location, in this home or owning this property for a few decades. There certainly may maybe a likelihood, certainly an opportunity that there's going to be greatly increased risk in increased cost to the homeowner as a result of changing flood and changing risk conditions.

All too often I see that especially retired people living in a retirement home, working and literally be priced out of their homes because of the cost of covering or covering that risk, the cost of insurance. This is something it does concern me private, because we have so many people in that situation in these coastal areas. Coastal areas attract people, especially in their retirement years, it seems. And I'm concerned about that increasing risk in people's ability to adapt to that financially.

For more go to: 

Website: www.Floodsmart.gov

Maps: FEMA Map Service Center

Nov 5, 2019

Darrin: [00:00:08] Scott Van Hoff what is the BIGGEST RISK? [00:00:10][2.9]

Scott: [00:00:14] Well, the biggest risk. Well, what concerns me, looking looking forward when we're talking about the issue of flood insurance is this this changing of the sea level rise and the changing of the risk, especially in our coastal areas. This especially thinking from the perspective of a homeowner or somebody who's making a long term investment, you might be, you know, in this location, in this home or owning this property for a few decades. There certainly may maybe a likelihood, certainly an opportunity that there's going to be an greatly increased risk in increased cost to that homeowner as a result of changing flood and changing risk conditions. Certainly you see that at the time that FEMA updates a map. You often see people move from one zone to another zone because the boundary lines of change or the flood elevations have gone up and they've suddenly faced with a greatly increased cost of ownership from that from property. And and all too often I see that especially retired people living in a retirement home, working and literally be priced out of their homes because of the cost of covering or covering that risk, the cost of insurance. This is something it does concern me private, because we have so many people in that situation in these coastal areas. Coastal areas attract people, especially in their retirement years, it seems. And I'm concerned about that increasing risk in people's ability to adapt to that financially. And unless they think about it ahead of time and taken some steps to try to mitigate that risk and mitigate that potential for cost increase in the future with map changes and changes in flood risk.

Oct 31, 2019

Wealth Creation is all about mindset.  

Dovid Preil has worked in all different aspects of real estate, from mortgage brokering to multifamily syndication.  The through line he has found in all successful real estate investors is mindset.  

Importance of Mindset 

Mindset is based in knowledge and experience.  Without either, you are left with fear. The fear is a recognition of the risk, and risk is rooted in the probability of loss.  Fear of loss is powerful. It will keep you from the ability to take action. 

Risk 

That’s risky!  Investing in something you do not understand, is very risky.  Real Estate is not rocket science, but if you do not understand it and how you can lose, your likelihood of success is low.  When you don’t know what you are doing, and you follow the herd, you are waiting to lose. The solution is get educated.

Investor Mindset

The investor mindset is focused on how to invest and create wealth rather than spend an increase in income.  This is not limited only to people with a large salary. If your focus is to make more so you can spend more, your mindset is not focused on wealth creation, rather you are focused on consumption.  

Investors take the time to study a market so that they understand the market and the risk.  No asset is immune from loss, but real estate has historically been a great hedge against inflation.  Over time, it trends up, and unlike the stock market, it is not easy to push a button and sell. If you have a long enough runway, real estate will work out.

Wealth Creation

Wealth creation starts with a plan.  This plan has goals and with each goal accomplished, a new goal is set.  

Keys to Wealth Creation

  • Budget: When you live within your means and your budget, you create habits.  Habits become discipline. When you create a habit of saving, you can set goals, and save so that you have the ability to invest.  Once you have $10 to $20k, you can invest. But if you never have the savings, you will never have the resources needed to invest.
  • Focus: Learn one asset at a time.  There are an unlimited number of options to invest in; Stocks, Bonds, Currency, Real Estate, Precious Metals, etc.  To experience the upside of any market, you have to focus and learn the asset, and how you can make money without a high degree of risk.  Budget your time to learn the asset.  
  • Action: In order to gain experience, you have to take action.  Once you have learned the asset, built a plan that you can execute easily, you have to take action.  Without action, all of the efforts are for not.  

BIGGEST RISK 

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

BIGGEST RISK: Investing with the wrong people.  If you work with good honest people, you have the best chance of coming out ahead.

Technology is changing real estate.  Amazon has totally changed the retail real market.  3-D printing is changing construction. How will it change the cost and opportunity to build a building?  What about the goods that are currently manufactured, and warehoused waiting for you to order? Will the demand for warehouse space decrease due to the use of 3-D printing?

For more go to:

Linkedin: Dovid Preil

Website: www.ydlpinvestments.com

Email: dovid@ydlpinvestments.com

Oct 29, 2019

Darrin: [00:00:08] Dovid Preil, What is the BIGGEST RISK risk? [00:00:11][2.9]

Dovid: [00:00:11] In what, real estate? [00:00:14][2.8]

Darrin: [00:00:15] Real estate or investing, real estate investing? [00:00:18][2.4]

Dovid: [00:00:19] Real estate, again, this is real estate investing in real estate itself. I think the more interesting answer or practical answer is, is, is investing. And that's the BIGGEST RISK is going in with the wrong people. You know, anything can happen. And if you're working with good, honest people, you're the best chance of coming out ahead. I think the more interesting answer, though, is, is what what the biggest risks real estate is. That's a topic, which I find to be fascinating, because I think the answer is technology and all the advances we've had in technology and we're having. I think that that poses a very, very interesting longer term thesis to see how it plays out with real estate. It's fascinating to me. Just for example, you don't live very far. The fact that everyone thought as of a couple of years ago or even their people that I speak to today, they think that retail is going to die because of Amazon. That's just an example how where technology like completely upended an entire major sector and it's transformed it. And I think I have I have a lot of faith in retail. I think the numbers speak to that faith. And they they back it up. But it but it's changed. Retail had to really adjust and change how it operates because of that. And I'm seeing stuff coming down the pipeline technology and I'm very into technology by day. I work for a very advanced fintech company. Doing some pretty groundbreaking stuff. And I think that by training on a program are actually and I think technology is incredible what it's doing. And the advances that are being made in things like autonomous vehicles and 3D printing, both in terms of 3D printing, housing and 3D printing goods. You know, I'm going to go out I'm going to be a little bit futuristic here. But, you know, if you can 3D printer house next to a town that you want to live in for. To with all in with the land and everything, for two thirds the cost and existing units, what's that going to do to the cost, the value of real estate? And you can you know that that's that's I mean, it's not happening tomorrow. But those are the kind of questions that I ask myself or like what happens to warehousing when I can just buy a 3D printer and just print the product? You know, I'll just go. And that's kind of like this is super futuristic, but I just like go to a company and I press a button and like their specs, go to my printer, just prints out the device for me that I want to buy. You know, there's a lot of interesting things happening here. There are things that are going to be that they're going to be talking about in 10 years that don't even exist today. You know, it is changing the market. It is so interesting. [00:00:19][0.0]

[8.0]

Oct 24, 2019

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

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