Latest / The Academy Presents podcast / Maximizing Tax Savings on Short-Term Rentals & Beyond

Transcript

Maximizing Tax Savings on Short-Term Rentals & Beyond · The Academy Presents podcast

• 0:01
  Did you know that 90 % of the world's millionaires
• 0:05
  invest in real estate? Well, I'm Angel with the
• 0:08
  Academy Presents, Real Estate Investing Rocks.
• 0:11
  And I'm here to help you if you want to go for
• 0:15
  your piece of that pie. Are you new? Are you
• 0:18
  new to this? You just don't know where to start.
• 0:21
  It's okay. Are you someone that has invested
• 0:25
  but you feel stuck? You feel like you've lost
• 0:27
  momentum. You don't know where to really head
• 0:30
  from here. Are you a seasoned real estate investor
• 0:33
  who is doing great, but maybe you just want to
• 0:35
  hone a few skills here and there? This is the
• 0:38
  place for you. The Academy Presents Real Estate
• 0:41
  Investing Rocks podcast will connect you with
• 0:44
  industry experts so that you can save time, avoid
• 0:48
  costly mistakes, and begin living the life you've
• 0:52
  dreamed of all through real estate investing.
• 0:56
  You're already taking the first step. just by
• 1:00
  joining us here today. Hey guys thank you so
• 1:06
  much for being here you know this is well how
• 1:09
  many bazillion times have I said it these are
• 1:12
  my favorite six days of the year um because I
• 1:15
  get to spend one on one time with experts in
• 1:18
  the space that I mean a lot of people they don't
• 1:22
  get those options so I'm kind of lucky. and I'm
• 1:25
  going to basically collect information and share
• 1:28
  it with you because that I feel is my job and
• 1:31
  that is my desire and it's just what I want to
• 1:35
  do. So we're going to be talking to Mark here.
• 1:38
  Mark Gross is a cost seg specialist and really
• 1:42
  what I'm focusing on right now is the short term
• 1:46
  rental. So for those of you that have thought
• 1:49
  hey there are short term rentals And that's a
• 1:53
  possibility for me. There are ways to do it through
• 1:56
  arbitrage. I mean, there are so many ways to
• 2:00
  get into the short -term rental market. But if
• 2:04
  you want to do cost seg, you're going to have
• 2:07
  to own the property. So that kind of pushes out
• 2:10
  the arbitrage, but that is still an absolutely
• 2:12
  amazing way to make money. Don't push it aside.
• 2:16
  But for those of us that are looking for ways
• 2:18
  to potentially get a vacation home that pays
• 2:23
  for itself. This is the guy you want to talk
• 2:27
  to. I am super excited. Mark, I'm going to let
• 2:31
  you intro yourself, give us a little bit of background,
• 2:35
  and then we'll get going. Sure. Thank you, Angel.
• 2:38
  I really appreciate this opportunity. I'm Mark
• 2:41
  Grossman from CSSI, which is cost segregation
• 2:44
  services incorporated. Over the last 20 years,
• 2:48
  we've completed tens of thousands of studies
• 2:50
  across the country, not just short -term rentals,
• 2:53
  but all property types. I've been doing that
• 2:56
  for over 10 years with them and really enjoy
• 2:59
  it like saving people money. Now, absolutely.
• 3:03
  I know that my husband and I and our team, we
• 3:06
  are adamant about making sure that our our taxes
• 3:10
  and our CPA stuff is all in order because there
• 3:14
  is gonna be more audits. And in this golden era
• 3:18
  that we've been in the last 10, 20 years, there
• 3:21
  hadn't been a whole ton. And that's going away.
• 3:27
  The expectation is now that you will be audited.
• 3:33
  What are you doing to protect yourself? If I
• 3:35
  could, I'll bring up one scenario that is a real
• 3:38
  red flag to the IRS and we might be getting off
• 3:41
  track a little bit here, but let's say there's
• 3:45
  somebody who says that they are a real estate
• 3:48
  professional. They say, what's the definition
• 3:51
  of real estate professional? Well, you have to
• 3:54
  work at least 750 hours a year doing that. There's
• 3:58
  a whole lot of other detail. If you claim to
• 4:01
  be a real estate professional and you have a
• 4:05
  W2, That's a huge red flag for the IRS, which
• 4:10
  you've got much higher likelihood of being audited
• 4:14
  in that particular case. And if you may legitimately
• 4:19
  be able to do that, but you better have the documentation
• 4:23
  to support that. This is showing these, this
• 4:26
  is the log of all the hours that I work. This
• 4:28
  is everything. I mean, I heard of one instance
• 4:31
  where someone got audited and the IRS says, you
• 4:34
  know, I'm looking at your logs here. And everything
• 4:37
  is written in the exact same pen for the entire
• 4:41
  year. What's the likelihood of that? Well, obviously,
• 4:45
  you know, it is replicated after the fact. So
• 4:48
  I mean, it's something to watch out for. No,
• 4:52
  absolutely. And you know, just thank you for
• 4:55
  bringing that up because it's guys, this is no
• 4:59
  joke. I mean, it's it's a big deal. I know that
• 5:02
  my husband and I, neither of us have W2 anymore.
• 5:06
  And I'm not 100 % sure we're going to claim real
• 5:10
  estate professional designation because it kind
• 5:14
  of puts you out there for an audit. More audits
• 5:18
  happen if you go ahead and claim that designation.
• 5:21
  But if you legitimately are, then you should
• 5:25
  claim it because that's what is there for. I
• 5:29
  hear it. I hear what you're saying. Dude, I watched
• 5:33
  my grandparents get audited. It sucks. I don't
• 5:38
  want to be audited. And if that means that I
• 5:41
  give up a little bit here and there, I mean,
• 5:45
  is that the easier road? I don't know. Do what
• 5:52
  you think is best, but be cautious. Yeah, no,
• 5:59
  absolutely. And you know, I'm going to bring
• 6:01
  in for something else here. So I got a friend
• 6:03
  that he recently purchased an industrial property,
• 6:07
  which those are a little bit different. So you
• 6:11
  may be thinking industrial is kind of like self
• 6:14
  storage. It's just four walls and there's really
• 6:17
  nothing you can depreciate. But we told our friend,
• 6:21
  we're like, hey, you realize you can cost that
• 6:23
  thing, right? It's like, what do you mean? So,
• 6:28
  I mean, Mark, I'm going to throw this back at
• 6:30
  you, but how can you cost sag an industrial that's
• 6:34
  just like this big open space with four walls?
• 6:38
  What is there left? Yeah. Well, I've done them,
• 6:42
  so I know. And one of the questions that we ask
• 6:46
  is, especially with industrial, because it could
• 6:50
  be a warehouse, manufacturing, distribution,
• 6:53
  whatever the case might be, is that typically
• 6:56
  it might be like 80 -20, which 80 % is going
• 7:00
  to be the industrial space, and 20 % is going
• 7:03
  to be the office space. Obviously that varies
• 7:06
  depending on the property, but there are going
• 7:08
  to be some portions of that property that you
• 7:11
  can do more acceleration on in the office area,
• 7:15
  as opposed to the lane, vanilla concrete area
• 7:18
  out in the industrial space. However, there's
• 7:21
  other things, which for instance, parking lots
• 7:24
  are 15 -year property. Now these places are going
• 7:28
  to have parking lots. They're going to have landscaping.
• 7:31
  They're going to have other elements that we
• 7:33
  can depreciate as well. So don't disregard and
• 7:39
  say, oh, what's industrial doesn't make sense
• 7:41
  to do it. No, that's not the case. I mean, we
• 7:44
  need to go in there, especially initially have
• 7:47
  a better idea as far as what's the breakout going
• 7:50
  to be of the office versus the other space. be
• 7:53
  able to provide a fairly accurate estimate of
• 7:56
  what their potential savings are going to be.
• 7:58
  But I've done a number of them, and believe me,
• 8:01
  it works. Well, I'm thinking about our friend's
• 8:03
  place that he just bought. I'm like, you could
• 8:06
  cuss out the die cutters. You could cuss out,
• 8:10
  I mean, the actual equipment's in operation.
• 8:14
  I mean, there are things that could be cussing.
• 8:19
  You need to take in consideration all the different
• 8:22
  aspects of it. Again, that's why we provide a
• 8:25
  preliminary free preliminary analysis so they
• 8:27
  can look at the numbers and decide what to do.
• 8:31
  That's the beauty of who you are and who you're
• 8:33
  with is that it's not just short -term rentals.
• 8:37
  It's not just multifamily. It's everything and
• 8:41
  everything can be cost -segged. Well, give you
• 8:44
  a prime example, a lot of people think, OK, you
• 8:47
  can't depreciate the land, which is true. But
• 8:51
  do you know what you can do a cost say gone?
• 8:53
  Look off course. Hey guys, it's Angel. In case
• 9:00
  you didn't know, I put on a three day virtual
• 9:03
  summit twice a year. It's the Real Estate Investing
• 9:06
  Rocks Summit, and I've been hosting it since
• 9:08
  March of 2020. The next one, number 11, is March
• 9:12
  25th, 26th, and 27th. Three full days, no cost
• 9:16
  to you. My friend Sandy is speaking, and she's
• 9:19
  supported me at every single summit since I started.
• 9:22
  Joe Fairless, Kathy Fedki, a Tony Award winner,
• 9:26
  another friend who's raised literal millions
• 9:28
  from people met on LinkedIn, and the list goes
• 9:31
  on. You have to join our Mighty Networks community
• 9:34
  to gain access. And that link, it's in the show
• 9:37
  notes. Like, how can you do a golf course? Because
• 9:45
  of the grass? Well, what do most golf courses
• 9:50
  have? They have a clubhouse, right? Yes. They're
• 9:54
  going to have a parking area. for they're going
• 9:57
  to have landscaping, there's going to be other
• 10:00
  structural elements throughout it that you can
• 10:03
  do it on. So I say basically you can do a cost
• 10:08
  segment virtually any property type. Now the
• 10:11
  savings may vary significantly depending upon
• 10:14
  let's say like a medical facility which has a
• 10:16
  whole lot of infrastructure and something like
• 10:19
  that versus a plain vanilla warehouse. But still,
• 10:23
  we can probably make the numbers work instead
• 10:25
  of getting maybe a 10 to 20, 30 times your return
• 10:30
  on investment. It might be maybe, you know, 5,
• 10:33
  10. But would you spend $5 ,000 to get 25? Is
• 10:39
  that a good ROI? I mean, yeah. I mean, it's not
• 10:42
  a sexy number. It's not hundreds of thousands
• 10:45
  or millions of dollars, but it still may still
• 10:47
  make sense to do. No, it does and I think that's
• 10:51
  something people overlook that they overlook
• 10:54
  the $15 ,000 savings they overlook the 20 and
• 10:58
  Friends the reality the situation is is that
• 11:01
  any money that doesn't have to go out is Savings
• 11:07
  right and so you you kind of have to think about
• 11:10
  that too is like opportunity costs like if you're
• 11:13
  saving money that's money that doesn't have to
• 11:17
  go out and Any money that doesn't have to go
• 11:20
  out is money in your pocket. Right. And what
• 11:24
  we do with each study, too, is we provide what
• 11:26
  the net present value is. If you take that money,
• 11:30
  let's say 20, 25 ,000, and we all know that,
• 11:34
  especially in today's inflationary time, what's
• 11:37
  the dollar today? It's going to be worth as much
• 11:39
  as it was going to be, you know, a year or 27.
• 11:43
  Yeah. So and we work with a lot of savvy investors
• 11:48
  and what they typically get are, you know, double
• 11:51
  digit returns on their money because we're out
• 11:53
  buying another property to do other things. So
• 11:55
  the opportunity cost of having that money and
• 11:58
  reinvesting it and the return that you can get
• 12:01
  on that is very significant. Yeah, well, and
• 12:05
  I mean, from our own personal experience, me
• 12:08
  and Jason are ecstatic when we get those negative
• 12:11
  K ones. because they are a beautiful thing. So
• 12:18
  you really want to be in investments that give
• 12:23
  you those negative K1s because even if you can't
• 12:26
  use it all up in that first year, it rolls over.
• 12:32
  Absolutely, until it gets used up. Yeah. And
• 12:35
  yeah. So number one, I'm not an accountant. I'm
• 12:38
  not a lawyer. I'm not anyone that should be advising
• 12:41
  you on what to do with your money. I have no
• 12:43
  legal standing on any of that. But I know what
• 12:47
  has worked for us. And it's worked really well
• 12:50
  for us. So I just, I just keep telling you, I
• 12:56
  mean, like, do these cost sags, do the, do the
• 12:59
  stuff that's going to help you out, do the stuff
• 13:01
  that's going to help your investors out. because
• 13:04
  you have a fiduciary responsibility to those
• 13:06
  investors. And you want to help them out as much
• 13:09
  as you can because without your investors, none
• 13:13
  of this is even possible. Right. And I'll bring
• 13:17
  up another thing, which 1031 exchanges. For those
• 13:26
  of you, I'm not going to get in. We only have
• 13:29
  so much time this afternoon, so I'll assume that
• 13:31
  people know what 1031 exchange is. But some people
• 13:35
  say, can you do cost segregation and do a 1031
• 13:38
  exchange? And the answer is yes. And I do them
• 13:42
  all the time. In fact, I'm working on one right
• 13:44
  now where someone sold a portfolio of single
• 13:47
  family homes. They went out and they bought a
• 13:49
  single triple net lease retail property with
• 13:55
  that. Now what we need to do is it takes an extra
• 13:58
  level of detail. We need to find out what are
• 14:02
  the details about the properties that they sold?
• 14:05
  How much did they acquire it for? How much did
• 14:08
  they sell it for? What type of improvements did
• 14:10
  they do to it? And then we have to look at the
• 14:13
  cost basis of each of those properties and then
• 14:16
  roll that into the new property and then be able
• 14:19
  to determine what you can do with it. That was
• 14:23
  so complicated. It is but you know when you have
• 14:28
  to look at what are the potential savings or
• 14:30
  if savings you're going to have a result of doing
• 14:32
  it you know it's it's it's complicated to the
• 14:35
  fact that you have to provide that information
• 14:38
  to us but we do we do the groundwork on it. Okay
• 14:42
  so I'm going to put this out there because my
• 14:45
  husband and I are actually in the situation we
• 14:47
  were in a deal and the opportunity to 1031 from
• 14:53
  that deal into the next deal presented itself.
• 14:58
  So we hit the button. That's what it was. It
• 15:01
  was like, do you want to do this? Yes, click
• 15:02
  this button. We hit the button. And so we chose
• 15:06
  to 1031. So we did the rollover from one deal
• 15:09
  to the next. How are we able to benefit from
• 15:14
  the cost seg? Because, okay, so we 1031 to over.
• 15:18
  So we have tax deferral. Do you still have that
• 15:23
  recapture in that 1031 group from the move to
• 15:27
  the next deal, even though we're cost sagging
• 15:30
  the next deal too? You're not going to the same
• 15:34
  type of recapture as you would with the normal
• 15:36
  recapture, but it is. We're probably going to
• 15:42
  get into more detail than we probably are able
• 15:45
  to. Okay, so what about the fact that it's me?
• 15:49
  So somebody is $1031 from a deal to a deal. How
• 15:53
  does that work with the costs that involved?
• 15:56
  Yeah, well, as indicated earlier, what we need
• 15:59
  to do is get details about the property that
• 16:03
  was sold for the $1031. And that is, we need
• 16:07
  to look, we have a whole litany of questions
• 16:09
  that we ask. It will include things as, when
• 16:14
  did you buy the previous property? How much did
• 16:17
  you pay for it? When did you sell it? How much
• 16:21
  did you sell it for? What type of improvements
• 16:23
  did you put into it? And then what we do is we
• 16:26
  take a look at all those calculations and we
• 16:29
  take that into consideration for the property
• 16:32
  being acquired and then we have to be able to
• 16:36
  allocate the right cost basis for the property
• 16:39
  being acquired based on what was done with the
• 16:43
  1031s before that. I know it's complicated, it
• 16:47
  is complicated, but just realize that we can
• 16:54
  do it and we do do it on a very regular basis.
• 16:57
  I'm doing it on one project right now. So we
• 17:00
  just need to get that additional information.