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Leveraging Cost Segregation to Maximize Wealth in Real Estate · The Academy Presents podcast

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  Did you know that 90 % of the world's millionaires
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  invest in real estate? Well, I'm Angel with the
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  Academy Presents, Real Estate Investing Rocks.
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  And I'm here to help you if you want to go for
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  your piece of that pie. Are you new? Are you
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  new to this? You just don't know where to start.
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  It's okay. Are you someone that has invested
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  but you feel stuck? You feel like you've lost
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  momentum. You don't know where to really head
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  from here. Are you a seasoned real estate investor
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  who is doing great, but maybe you just want to
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  hone a few skills here and there? This is the
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  place for you. The Academy Presents Real Estate
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  Investing Rocks podcast will connect you with
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  industry experts so that you can save time, avoid
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  costly mistakes, and begin living the life you've
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  dreamed of all through real estate investing.
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  You're already taking the first step. just by
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  joining us here today. Hey guys thank you so
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  much for being here you know this is well how
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  many bazillion times have I said it these are
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  my favorite six days of the year because I get
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  to spend one on one time with experts in the
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  space that I mean a lot of people they don't
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  get those options so I'm kind of lucky. and I'm
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  going to basically collect information and share
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  it with you because that I feel is my job and
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  that is my desire and it's just what I want to
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  do. So we're going to be talking to Mark here.
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  Mark Rose is a cost seg specialist and really
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  what I'm focusing on right now is the short term
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  rental. So for those of you that thought hey
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  there are short term rentals And that's a possibility
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  for me. There are ways to do it through arbitrage.
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  I mean, there are so many ways to get into the
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  short -term rental market. But if you want to
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  do cost seg, you're going to have to own the
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  property. So that kind of pushes out the arbitrage,
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  but that is still an absolutely amazing way to
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  make money. Don't push it aside. But for those
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  of us that are looking for ways to potentially
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  get a vacation home that pays for itself. This
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  is the guy you want to talk to. I am super excited.
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  Mark, I'm going to let you intro yourself, give
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  us a little bit of background, and then we'll
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  get going. Sure. Thank you, Angel. I really appreciate
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  this opportunity. I'm Mark Rowson from CSSI,
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  which is Cost Segregation Services, Incorporated.
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  Over the last 20 years, we've completed tens
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  of thousands of studies across the country, not
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  just short -term rentals, but all property types.
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  And I've been doing that for over 10 years with
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  them and really enjoy it, like saving people
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  money. Absolutely. Yeah, and if you've passively
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  invested in anything in the last few years, you
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  have benefited from that negative K1. You have.
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  I'm never going to play with you because we have.
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  Our own personal experience says those negative
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  K1s are amazing. And my take on the 231 is that
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  we are continuing to defer the tax liability
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  and we're moving into a new property, even though
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  there was recapture from the last, we're moving
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  into a new property that will also have cost
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  segregation, bonus depreciation, because this
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  is the last year for it. Well last year for 100
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  % I should yes, I should specify the last year
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  for a hundred percent and so even though we're
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  moving into a new property that recapture I guess
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  follows us and The K1 will It will look at the
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  fact that we had the recapture, but then we have
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  the new depreciation or the new bonus and that
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  should have some cancellation effect Yes, I'm
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  going to head on this a little bit because the
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  answer is kind of it. It depends. And to be able
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  to put out a blanket statement as to. No, I know,
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  I know so many different variables and I don't
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  want to. I'm not trying to hedge the question.
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  It's just that because there's so many different
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  variables, we want to look at what the unique
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  circumstances are for one and it may not be applicable
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  for everybody. So and I'll put it out there for
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  you. This is a TYA answer. So you are covering
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  your butt, but CYB isn't as cool as CYA. But
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  that's just the way it works. It's how much you're
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  recapturing, how much you're getting on the next.
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  And that's why I say that if you've heard me
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  anything else, it's investing is a job. You need
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  to be of the sound mind and of the sophistication
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  to understand. that you have to be able to line
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  these things up so that you don't find yourself
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  in a tax laden situation. You want to be able
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  to line up your investment so that as one comes
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  up, you've got enough to cancel that one out.
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  And that's my own experience. I am not giving
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  you experience or advice as an accountant, as
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  a lawyer, as anything. I'm just saying, from
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  my own experience, you got to make sure you got
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  those things timed out right to where when comes
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  up, you got enough to cancel it out. Because
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  if you can't cancel it out, that is tax liability
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  for you. And that's why I say investing is a
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  job. It really is. You bring up an interesting
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  thing talking about time because sometimes people
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  will ask, well, when's the best time to do a
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  cost segregation? Well, you can get the maximum
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  benefit the first year of acquisition, especially
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  with bonus depreciation. If you wait other years,
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  what's going to happen is the CPA is going to
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  do a straight line depreciation on it for the
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  years that you do it. For the whole property.
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  That includes your faucet. your toilet, your
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  tile, it includes everything. Right. So your
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  basic year, we can still do properties that you've
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  owned for five or 10 years. However, the savings
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  are going to be significantly less than if it
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  was done the first year of acquisition. But then
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  some people will say, well, let's say, for instance,
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  I want to do it for a property that I'm acquiring
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  in 2022. When do you need to do that? You need
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  to do the study before the end of the calendar
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  year 2022. And the answer is no, you don't. You
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  need to have the study completed prior to when
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  you file your taxes. Now, if you were to wait
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  until January, you're pushing the envelope on
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  when the study can be completed for your business
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  taxes in March and your personal taxes in April.
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  CPAs don't like getting the reports that's 11th
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  hour just before you submit the taxes. In our
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  experience, CPAs don't even like it in Cossack.
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  I get referrals from a lot of CPAs and they love
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  it because they realize it helps their clients.
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  But I also, not necessarily for syndicators,
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  but for personal people, for people on properties
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  themselves, frequently they'll do tax extensions.
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  I guess what I'm busy working on right now are
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  people that don't have to do it until the fall.
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  October. Yeah, so this summer we were actually
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  doing studies for properties that people acquired
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  the previous year and they were still able to
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  get it done because they were on a tax extension.
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  Now absolutely and I think it's really neat to
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  just think about these things. If you sit down
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  as a normal person and you think about it, you're
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  like, wait a second. My toilet's not going to
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  last 30 years. All those little knobs in my kitchen,
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  my kids stand on those because my kids are little.
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  My Jacqueline is small for her age and literally
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  broke off one of the handles on one of the bottom
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  drawers because she was standing on it to get
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  up into the cabinet. That's not abnormal. That
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  is the norm. Things don't last. And so the things
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  that don't last should be able to be depreciated
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  out in front. If you want to straight line it
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  fine. But a lot of people do straight line. Great.
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  But if you want to get the benefits for the things
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  that are going to wear out before that 27 and
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  a half or 39 year grouping. You should be able
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  to do that. And there's nothing wrong with that.
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  The IRS code is set up to benefit people that
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  think like that. Yes. That's a good analogy that
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  I'll use, but some people will say, well, is
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  this legal? Well, I'll say, let's say you own
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  a house and you have a mortgage on it and you've
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  interest on it on the mortgage and you have real
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  estate taxes. Now, do you deduct the real estate
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  taxes and the interest on your mortgage, on your
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  personal taxes? Yes. Why do you do that? That's
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  because it's in the IRS tax code. Well, similarly,
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  if you own a commercial property and you do a
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  cost segregation, that's in the IRS tax code.
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  There's nothing wrong with it. Yeah. Now, and
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  I just think there's people that don't know.
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  There are people that just don't know. And they
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  think their only option is straight line over
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  the 27 or 39 years. And that's just not the case.
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  And I had no clue. We've been in this game. So
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  we've been on the residential side for two decades.
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  We had no clue. And we're like, well, could we
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  cost like them now? Well, we could, but we've
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  owned them since 2003. So probably not worth
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  it if it's been that long. Right. Because we've
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  already we've already gone beyond the buckets
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  that would have held us. Not calling buckets
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  because that's where that's the easiest way for
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  me to think of it. Like if it's a five year bucket,
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  things that really have to be replaced within
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  five years, they all go in that bucket. And the
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  70 or 50, you got buckets. So you're putting
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  things in those buckets that don't last as long.
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  And so for me, it's easier to envision it. in
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  the buckets. Yeah, no, that's a good analogy.
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  And another thing I'll bring up too is that talked
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  by different property types. We actually do a
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  number of single family rentals. Hey guys, it's
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  Angel. In case you didn't know, I put on a three
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  day virtual summit twice a year. It's the Real
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  Estate Investing Rocks Summit, and I've been
• 11:33
  hosting it since March of 2020. The next one,
• 11:36
  number 11, is March 25th, 26th, and 27th. Three
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  full days. No cost to you. My friend Sandy is
• 11:44
  speaking, and she's supported me at every single
• 11:46
  summit since I started. Joe Fairless, Kathy Fedki,
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  a Tony Award winner, another friend who's raised
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  literal millions from people met on LinkedIn,
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  and the list goes on. You have to join our Mighty
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  Networks community to gain access. And that link,
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  it's in the show notes. Not just residential,
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  you know, fourplex or apartment building. And
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  we can actually do a lower threshold of those.
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  And especially, I mean, it might be $200, $250
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  ,000 might be the minimum on that, especially
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  if there's I've done some portfolios where the
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  number's been less than that, but it might be
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  a dozen or more properties that are in close
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  proximity to each other so that we can, based
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  on volume, be able to do that. Okay, so that
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  brings me to another selfish question. We got
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  four houses here where we live, and two of them
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  are well over 100 ,000. The other two are like,
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  I don't know, 50 to 75 a piece. Would that be
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  a worthwhile study to try, even though, I mean,
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  they're in the same town. They're probably all
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  within 10 miles of one another. Is that a worthwhile
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  study to pursue? Probably not. Okay, you're breaking
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  my heart, but that's okay. I'm just being honest
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  with you. I mean, we can run the numbers, but
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  I'm going to tell you, it's probably not going
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  to be a worthwhile venture. And especially, considering,
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  you know, are they new acquisitions or have you
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  owned them for a while? Two of them we've had
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  for probably, God, it's so hard. This is 2022,
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  right? We got them probably in 2013. So we had
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  them for probably 10 years. And then two of them
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  we bought in the last couple of years. Probably
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  not. No. Yeah, well, that sucks. Sorry to bust
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  your bubble bubble, but that's the way it goes.
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  OK, I got another question. What about if we
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  refi 'em? It doesn't matter. It's based on the
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  purchase when you acquired it. It has nothing
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  to do with refinance. It has nothing to do with
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  when a property appreciates. Let's say you buy
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  something at $100 ,000, but now it's worth $500
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  ,000. Can you do a cost seg on the $500 ,000?
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  No. It's based on what your acquisition cost
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  is. Okay. Well, you burst all my levels. We don't
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  want to be audited and have to give up money.
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  Well, and you know what? Thank you for keeping
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  me out of the orange jumpsuit. Even though you
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  look good in it, but no. Well, I look good in
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  everything. But that's the point. But that's
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  the point. It's really, it comes back too. you're
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  protecting the investor. You're making sure that
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  they're not going to be in a position where,
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  hey, you're about to find yourself in the orange
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  jumpsuit. And really, I ask the questions I asked
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  just to put it out there for everyone. I mean,
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  if you've got properties that you've had for
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  20 years, sorry, this kind of sucks for you.
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  But as you're acquiring new properties, God,
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  keep this into consideration. Even over the next
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  five years, as it is phasing out, 80 % is way
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  better than zero. 60%, 40%, 20%, all of those
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  percentages are still way better than zero. Yeah,
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  plus taking into consideration the fact that
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  because it's political, what is Washington DC
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  going to do in a few years? We don't know, but
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  we suspect that some element of that's probably
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  going to come back. Wait, because all it takes
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  is a vote. All it takes is a vote to get it back
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  in. And there are plenty of people riding both
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  sides of the political fence that are investing
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  in real estate. And they want to benefit as well.
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  And for them to benefit, they have to pass the
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  laws. Yeah, and I'll bring up another thing we
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  were talking about the site visits and let's
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  say you have a 20 unit multifamily property and
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  all the 20 units are identical or a mirror image
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  of each other. They have two bedrooms and one
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  bath. So when we go out and do the site survey,
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  take the photographs. We'll obviously take a
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  lot of pictures exterior the common area. We
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  do not have to go into every single unit. We
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  know that let's say one unit will represent all
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  20 and all we need to do is go into one unit
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  and then and that's something that's really defendable.
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  So just what that does is it helps out that let's
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  say you're looking. you're the landlord it's
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  not going to be less invasive for your tenants
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  to do one of them versus you know every single
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  one. Now obviously if you have something where
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  you're going to have a different footprint in
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  some of them you might have some two bedroom
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  uh two baths some which are one better one bath
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  we would need to go in and take a representative
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  sample of our pictures of each of those individual
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  samples. Yeah but it's still I mean The idea
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  of being able to do this is amazing. And you
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  know, I've talked to friends about house hacking
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  and they're like, well, I can't cause that because
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  I'm house hacking and I'm like. I think. I just
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  don't know all the specifics of it. Does it still
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  have to be a home that is worth 300 ,000 plus
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  or getting into a gray area because one of the
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  pre qualifying questions will ask is. do you
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  live on this property? And if you're living there,
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  you cannot cost sag what it is that you're living
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  in. So it's kind of a greater, again, I'm going
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  to hedge on it. We want to know what the particulars
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  are in a particular situation. What if it's a
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  new flex? Yeah. Yeah, that's a good example of
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  one you can do. So you're living in one of the
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  units. So do you only cost sag the unit you're
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  not living in? Yes. How does that work? Well,
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  let's say you buy it for $300 ,000, assuming
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  that $150 ,000 is for each unit. And then what
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  you would do is take that cost basis for the
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  one that you are running out. OK, so you've got
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  my mind going. I'm thinking of like a bazillion
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  different things right now. And I just want to
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  thank you. Thank you for being here, because
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  the ideas you have given me, I can share with
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  people. Even though we've got our family, we're
• 19:15
  not going to buy a duplex and live in half of
• 19:17
  it and cost the other half. That's not going
• 19:19
  to happen anymore for us, because our family
• 19:22
  is too large. But for other people that are listening,
• 19:27
  that is absolutely a possibility for them. whether
• 19:31
  it's quad or triad, you know, a duplex, whether
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  it's a small apartment complex. I mean, there's
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  things you can do. Oh my gosh. Like to anything
• 19:45
  you can do to reduce your tax liability is insanely
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  amazing. Yes. Don't leave money on the table.
• 19:56
  Absolutely. And God, it. It doesn't mean you
• 20:00
  don't want to help people. It just means that
• 20:04
  you don't want to pay more than you have to.
• 20:07
  Would you legally have to? Absolutely. I mean,
• 20:11
  we help people all the time, whether it's through
• 20:14
  tithing or charity or whatever it is, we give
• 20:19
  to other organizations. Reducing your tax liability
• 20:24
  does not mean you're a jackass. Um, it just means
• 20:31
  that you want to care for yourself and your family
• 20:35
  first. I don't think there's anything wrong with
• 20:39
  that. No, the reason is it's all based on IRS
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  tax code. So we're very stringent on that. Make
• 20:45
  sure, you know, just like we don't want you to
• 20:48
  be an orange jumpsuit. We don't want to either.
• 20:51
  No, absolutely. You know, my thing for being
• 20:54
  here and well, entertaining all of my ideas.
• 20:58
  And all my questions because they're a little
• 21:00
  insane sometimes and you know, but ultimately
• 21:03
  just thank you for being here and for sharing
• 21:07
  information with the people that are here listening.
• 21:09
  And for those of you out there, I really hope
• 21:13
  that you've considered joining us on the live
• 21:14
  side because it is amazing and it is awesome
• 21:19
  to be a part of those live conversations. There
• 21:22
  is a ton of information here. if that's not something
• 21:25
  that you want to do. So don't feel obligated,
• 21:29
  but absolutely know that the live side is amazing
• 21:32
  and we would love to have you over there. And
• 21:35
  if you don't join us, until we see you again.