Latest / Financial Survival Network / How the Latest Tax Cuts Affect Bonus Depreciation for Real Estate - Sean Graham #6142

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How the Latest Tax Cuts Affect Bonus Depreciation for Real Estate - Sean Graham #6142 · Financial Survival Network

• 0:00
  Speaker 1: I think it'll have an impact. I think it doesn't change.
• 0:03
  Speaker 1: You know, interest rates are still one thing, so I
• 0:06
  Speaker 1: think those have to change in the economy has to
• 0:10
  Speaker 1: kind of level outcome to terms with like what the
• 0:13
  Speaker 1: cost of debt right now, but the BOTUS appreciation what
• 0:17
  Speaker 1: you're referring to, and like the tax cuts and Jobs
• 0:19
  Speaker 1: Actor that was implemented in twenty seventeen.
• 0:22
  Speaker 2: And you're listening to Carrie Let's's Financial Survival Network where
• 0:26
  Speaker 2: you get valuable information. You just can't find anywhere else
• 0:30
  Speaker 2: to thrive in today's trying times. You need the Financial
• 0:33
  Speaker 2: Survival Network now more than ever. Go to Financial Survivalnetwork
• 0:38
  Speaker 2: dot com and get your free newsletter and gift. Financial
• 0:42
  Speaker 2: Survival Network now more than ever.
• 0:49
  Speaker 3: And welcome. You are listening to and watching the Financial
• 0:53
  Speaker 3: Survival Network. I'm your host, Carrie Let's. Hey, we're in
• 0:56
  Speaker 3: the beginning of September, never too late to start to
• 1:00
  Speaker 3: reevaluating your investment Prospect's best place to be now market
• 1:05
  Speaker 3: highly volatile. Do you go to real estate? Well, Sean
• 1:09
  Speaker 3: Graham is with us now Mayven Equities and it's also
• 1:14
  Speaker 3: a CPA, but we won't hold that against him. And hey,
• 1:19
  Speaker 3: Sean built up quite a real estate empire. There is
• 1:25
  Speaker 3: now a good time to get into real estate with
• 1:27
  Speaker 3: all the volatility and the uncertainty, recession and all of
• 1:31
  Speaker 3: that good stuff. What are your thoughts?
• 1:34
  Speaker 1: Wow, that's ah, that is a good question. I think,
• 1:39
  Speaker 1: as Robert Kiyosaki might say, it's always a good times.
• 1:43
  Speaker 1: More just what you are getting into, and you know,
• 1:46
  Speaker 1: getting into the right deal at the right numbers. So
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  Speaker 1: I'm in self storage, you know, I invest in self storage.
• 1:53
  Speaker 1: I don't like to force anything, so I haven't. Last
• 1:56
  Speaker 1: deal we closed on was end of twenty twenty two,
• 2:00
  Speaker 1: Q four of twenty twenty two, and that's just because
• 2:04
  Speaker 1: sellers seem to still want the same same numbers that
• 2:08
  Speaker 1: they did in the middle of COVID in twenty twenty one,
• 2:11
  Speaker 1: twenty twenty but cap rates, they want to say cap rates,
• 2:16
  Speaker 1: but interest rates have increased dramatically, So the cost of
• 2:20
  Speaker 1: the same acquisition is it's much higher from a cash
• 2:23
  Speaker 1: flow standpoint. So I think, yeah, there's definitely opportunity. There's
• 2:27
  Speaker 1: people that are doing deals, are doing self storage deals,
• 2:30
  Speaker 1: are doing you know, residential deals. I think it's always
• 2:35
  Speaker 1: a good time. I also think that some people there's
• 2:39
  Speaker 1: gonna be a lot of people who were their debt
• 2:42
  Speaker 1: is no longer fixed, the interest rates no longer fixed,
• 2:45
  Speaker 1: and that's being reset here and in coming years, so
• 2:48
  Speaker 1: there will be some opportunity. I think there will be
• 2:51
  Speaker 1: some you know, blood in the water where people need
• 2:55
  Speaker 1: to get out and they need to sell. So I
• 2:58
  Speaker 1: think the people who are are continuing to underwrite and
• 3:02
  Speaker 1: continuing to network and talk to respective sellers, those are
• 3:08
  Speaker 1: the ones who are who are going to win. So
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  Speaker 1: I don't believe in forcing anything just to do a deal,
• 3:15
  Speaker 1: but I think it's a good time to keep connecting
• 3:19
  Speaker 1: and you're going to be ahead of the pack once,
• 3:22
  Speaker 1: you know, interest rates drop a point or anything like that.
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  Speaker 3: Yeah, so before we get into the interest rate to
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  Speaker 3: forecast for the future, how'd you wind up getting into
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  Speaker 3: self storage? I mean, there's so many different sub markets
• 3:37
  Speaker 3: in real estate to a residential, single family, all these things.
• 3:45
  Speaker 3: What led you to self storage?
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  Speaker 1: Honestly, it's simple. It's a very simple business. It's simple, straightforward,
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  Speaker 1: Like to say we're renting sheds, you know, we're not
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  Speaker 1: people aren't living there, you're not dealing with plumbing, you
• 3:58
  Speaker 1: don't have to deal with evictions. There's lean laws which
• 4:02
  Speaker 1: are different, right if people don't pay for their storage space.
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  Speaker 1: But it's a simple business. It's not overly complex. And
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  Speaker 1: so what I was looking to make the jump from
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  Speaker 1: residential into commercial. It's just a matter of, Okay, which
• 4:16
  Speaker 1: asset class do you want to jump into? And I
• 4:18
  Speaker 1: think you can be successful no matter what asset class
• 4:21
  Speaker 1: you focus on, whether it's apartment buildings or mobile home
• 4:26
  Speaker 1: parks or self storage or retail space, it doesn't really matter.
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  Speaker 1: I chose self storage because of the simplicity and because
• 4:35
  Speaker 1: of the availability for debt or capital. So the government
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  Speaker 1: looks at self storage as a business. They don't look
• 4:44
  Speaker 1: at it as a real estate investment person. And really
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  Speaker 1: it's both, right, like you're investing in real estate, but
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  Speaker 1: it is a business. And so when I started, I
• 4:54
  Speaker 1: used SBA loans, and SBA loans are pretty high leverage.
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  Speaker 1: You can get in or you know, little money down,
• 5:02
  Speaker 1: ten fifteen percent down, and you have the SBA guarantees.
• 5:08
  Speaker 1: So banks are more willing to do that. You can't
• 5:10
  Speaker 1: do that with apartment buildings or mobile home parks. So
• 5:13
  Speaker 1: it's a little bit different, and that's really why I
• 5:17
  Speaker 1: decided to go with self storage.
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  Speaker 3: So what kind of cap rates are we're looking at
• 5:22
  Speaker 3: in self storage.
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  Speaker 1: That's a great question. Uh, you know, I think you
• 5:28
  Speaker 1: have different classes of self storage. You have Class A
• 5:30
  Speaker 1: facilities that are multi story, they're climate controlled, they're indoor,
• 5:35
  Speaker 1: their top of the line, right, that's like when you
• 5:37
  Speaker 1: drive by and you see a public storage or an
• 5:40
  Speaker 1: extra space storage. And then you have small facilities that
• 5:44
  Speaker 1: maybe aren't even fenced in, and they are you know,
• 5:48
  Speaker 1: they may have a gate, they may not have a gate,
• 5:49
  Speaker 1: they're just outdoor roll of doors there, they're gravel. Those
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  Speaker 1: things are different. So cap rates on Class A facilities
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  Speaker 1: are could be say six percent, maybe sometimes it's five percent,
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  Speaker 1: six percent. I don't really see going above that much.
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  Speaker 1: Class C, Class D facilities you're looking at like eight percent,
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  Speaker 1: so seven eight you know, a percent something like that.
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  Speaker 1: So then you have everything in between. So I think
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  Speaker 1: the value of self storage is really the size of
• 6:22
  Speaker 1: it and the type of tenant that it attracts, the
• 6:26
  Speaker 1: type of customer it attracts, because all that, you know,
• 6:29
  Speaker 1: goes into economies of scale and to how you can
• 6:32
  Speaker 1: run it. If you have a portfolio, and uh, as
• 6:35
  Speaker 1: well as just rental rates, do.
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  Speaker 3: You manage your own facilities or you rent them out
• 6:41
  Speaker 3: to an operator.
• 6:42
  Speaker 1: We do both, so it did it. We don not
• 6:45
  Speaker 1: rent them out to the operator, So we don't use
• 6:47
  Speaker 1: a you know, publicly traded name or anything like that.
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  Speaker 1: We don't use a reate to to manage our facilities.
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  Speaker 1: So we manage them in house. Some of them are
• 6:55
  Speaker 1: just solely in house. Uh. Some of them we have
• 6:58
  Speaker 1: a third party manager that just focuses on self storage
• 7:02
  Speaker 1: to help us. And some of them it's like, okay,
• 7:05
  Speaker 1: we just outsourced the call center, but then the actual
• 7:07
  Speaker 1: management dealing with the tenants to turn over the auctions,
• 7:10
  Speaker 1: all of that we keep in house. So a lot
• 7:12
  Speaker 1: of my team is overseas. We use a lot of
• 7:15
  Speaker 1: people overseas to to run the facilities and to manage
• 7:19
  Speaker 1: them and manage the call center. They're not overly complex,
• 7:22
  Speaker 1: but it really just depends on the size of the facility.
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  Speaker 3: So I bet you have some crazy stories there, especially
• 7:28
  Speaker 3: with the auctions and what people wind up storing in
• 7:31
  Speaker 3: your storage facility.
• 7:34
  Speaker 1: Man, I don't. I don't have any like, uh, you know,
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  Speaker 1: crazy crime stories or anything like that. No dead bodies, nothing,
• 7:41
  Speaker 1: nothing that's gonna you know, make a TV show or
• 7:44
  Speaker 1: anything like that I think disappointing. Yeah, you just try
• 7:50
  Speaker 1: to avoid there's there's always I think, like every area
• 7:53
  Speaker 1: of the country, you know, you you have certain a
• 7:55
  Speaker 1: certain amount of population has issues with with drugs and
• 7:59
  Speaker 1: so that's get involved. But nothing too nothing too exciting.
• 8:03
  Speaker 3: I heard of people actually living in them.
• 8:06
  Speaker 1: They do, they try sometimes they try to living them.
• 8:09
  Speaker 1: I have luckily knock on wood here that hasn't happened
• 8:12
  Speaker 1: to me so far, but yeah, people will try to
• 8:15
  Speaker 1: live and live in them for sure.
• 8:17
  Speaker 3: Wild Wild. Hey, so we're looking at, you know, an
• 8:23
  Speaker 3: interesting section submarket of real estate. So tell us about
• 8:29
  Speaker 3: cost seg studies, cost segregation studies and how that's beneficial
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  Speaker 3: in in self storage for sure.
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  Speaker 1: So on the CPA, that's my background and so I
• 8:40
  Speaker 1: have a cost segregation firm and we just focus on
• 8:45
  Speaker 1: helping investors in real estate owners and operators break down
• 8:50
  Speaker 1: the depreciation benefits of their investment property. So you know,
• 8:55
  Speaker 1: we do everything from large commercial like self storage. We
• 8:58
  Speaker 1: do detailed studies on on these down to more streamlined
• 9:02
  Speaker 1: versions what we call modeling studies for residential investors. So
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  Speaker 1: I think there's a gap in the market where a
• 9:08
  Speaker 1: lot of people they have a rental property. They just
• 9:11
  Speaker 1: have a couple of rental property, single family homes or
• 9:13
  Speaker 1: maybe a small multi family but they don't they don't
• 9:16
  Speaker 1: want to pay thousands of dollars for a cost aggregation study.
• 9:20
  Speaker 1: So that's where we come in and we have what
• 9:22
  Speaker 1: we call a modeling study, which is more streamlined. It's
• 9:25
  Speaker 1: focused on like the big ticket items. It's not going
• 9:27
  Speaker 1: to get every single detail out of the property, but
• 9:30
  Speaker 1: it's kind of getting eighty percent of the benefit for
• 9:33
  Speaker 1: twenty percent of the of the cost. And that's what
• 9:36
  Speaker 1: we're looking to do. So I think when you when
• 9:40
  Speaker 1: you look at cost aggregation, the irs right, she's taking
• 9:44
  Speaker 1: step back. The IRS is, well, you bought a building,
• 9:46
  Speaker 1: you bought this investment property. You can depreciate it over time.
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  Speaker 1: You can write it off right if it's commercial thirty
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  Speaker 1: nine years, if it's a residential type of property, twenty
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  Speaker 1: seven and a half years, and so little by little
• 9:58
  Speaker 1: over thirty or forty years, you're expensing out the cost
• 10:04
  Speaker 1: of the property less the land value, butch is the
• 10:06
  Speaker 1: cost of the actual building and taking those deductions on
• 10:11
  Speaker 1: your tax returnd right. And that's why you see a
• 10:15
  Speaker 1: lot of real estate investors they don't pay any taxes.
• 10:17
  Speaker 1: Most of this is because of depreciation. They have a
• 10:19
  Speaker 1: lot of depreciation right off, and it can offset most
• 10:22
  Speaker 1: of their income. What we do is we come in,
• 10:26
  Speaker 1: we say, hey, well, not everything is going to be
• 10:28
  Speaker 1: depreciated over twenty seven and a half years or over
• 10:32
  Speaker 1: thirty nine years. We can actually accelerate a lot of it,
• 10:35
  Speaker 1: expends a lot out in year one, push a lot
• 10:37
  Speaker 1: of it towards the first five years or the first
• 10:39
  Speaker 1: fifteen years, and we lower the life spans of the
• 10:44
  Speaker 1: different components of it. And our job is to get
• 10:48
  Speaker 1: the investor or the owner as much of a depreciation
• 10:53
  Speaker 1: expense upfront as possible. So this helps them off set
• 11:00
  Speaker 1: their their really you know, their their income. So the
• 11:04
  Speaker 1: irs kind of looks at income in two buckets and
• 11:10
  Speaker 1: there's a lot obviously I'm speaking from a high level,
• 11:12
  Speaker 1: there's a lot more detailed than this, but uh, they say, okay,
• 11:15
  Speaker 1: path you have passive income, passive income from inventing, investing
• 11:18
  Speaker 1: in real estate, and you have depreciation, which is part
• 11:22
  Speaker 1: of real estate is a passive loss right, and so
• 11:25
  Speaker 1: it allows you to offset your passive income from real estate,
• 11:30
  Speaker 1: or it could be from other things like capital gains
• 11:32
  Speaker 1: from selling a long term buy and hold, or it
• 11:35
  Speaker 1: could be investing in the stock market. Whatever it is,
• 11:38
  Speaker 1: it helps you offset those passive gains. On the other side,
• 11:42
  Speaker 1: you have active income or what I call active income.
• 11:44
  Speaker 1: They call it ordinary income, right, And that's your W
• 11:46
  Speaker 1: two income, that's zero business income, and that's tax at
• 11:50
  Speaker 1: ordinary ordinary tax rates. Depreciation, which is a passive loss,
• 11:54
  Speaker 1: typically cannot offset that active income or able to do
• 11:57
  Speaker 1: is like talk to a lot of people and see
• 11:59
  Speaker 1: if there are oppert The sou is that there are
• 12:01
  Speaker 1: some things where you can get into certain there are
• 12:04
  Speaker 1: certain things that you can do to use depreciation to
• 12:07
  Speaker 1: offset your ordinary income. So we help people of those.
• 12:11
  Speaker 1: Couple of those I don't know you might have heard,
• 12:12
  Speaker 1: but like short term rentals, right, those are considered ordinary
• 12:16
  Speaker 1: income ordinary businesses if you follow the if you meet
• 12:18
  Speaker 1: the qualifications. There's also the real estate professional status, like
• 12:22
  Speaker 1: if you're in real estate full time. All those things
• 12:24
  Speaker 1: can help you use your passive depreciation losses to offset
• 12:29
  Speaker 1: your ordinary income.
• 12:30
  Speaker 3: So okay, and so originally you could like write off
• 12:34
  Speaker 3: all the other than the structure. You could write that
• 12:38
  Speaker 3: off like instantly under Section one seventy nine the day
• 12:42
  Speaker 3: you bought it, but now that's like phasing out. So
• 12:46
  Speaker 3: obviously this election for real estate investors is going to
• 12:49
  Speaker 3: have a big impact because if if the Trump tax
• 12:53
  Speaker 3: cut gets reinstated, we're going to see a boom in
• 12:57
  Speaker 3: real estate, aren't we.
• 12:58
  Speaker 1: I think so yes. I think kill haves the I
• 13:02
  Speaker 1: think it'll have an impact. I think it doesn't change.
• 13:05
  Speaker 1: You know, interest rates are still one thing, so I
• 13:08
  Speaker 1: think those have to change in the economy has to
• 13:12
  Speaker 1: kind of level out and come to terms with like
• 13:15
  Speaker 1: what the cost of debt right now. But the bonus
• 13:18
  Speaker 1: appreciation what you're referring to, and like the tax Cuts
• 13:20
  Speaker 1: and Jobs Actor that was implemented in twenty seventeen and
• 13:24
  Speaker 1: really said from two thousand full year twenty eighteen through
• 13:27
  Speaker 1: the end of twenty twenty two, a lot of the
• 13:29
  Speaker 1: life anything that was like less than twenty year life
• 13:31
  Speaker 1: so five year life class or fifteen year life class,
• 13:35
  Speaker 1: those items could be expensed out in year one one
• 13:38
  Speaker 1: hundred percent their bonus appreciation. So we still have that,
• 13:41
  Speaker 1: like in twenty twenty four, it's it's actually sixty percent
• 13:44
  Speaker 1: of it, and that's slowly being being phased out right,
• 13:49
  Speaker 1: it is going down twenty percent every single year. But
• 13:53
  Speaker 1: even besides that, like you are able to push a
• 13:57
  Speaker 1: lot of it towards the five year life and towards
• 13:59
  Speaker 1: the fifteen your life, we're seving year life class, and
• 14:02
  Speaker 1: those things allow you to expense it out quicker. So
• 14:06
  Speaker 1: it's not as beneficial as if the bonus appreciation was
• 14:10
  Speaker 1: implemented right away, but you're still getting a lot of
• 14:14
  Speaker 1: benefit there as opposed to waiting, you know, close to
• 14:17
  Speaker 1: thirty or forty years. So yeah, it'll be interesting to
• 14:21
  Speaker 1: see what happens, see what passes. I Nope, they were
• 14:26
  Speaker 1: looking at extending the bonus appreciation earlier this year. It
• 14:31
  Speaker 1: didn't pass, and pretty much was one of those things
• 14:33
  Speaker 1: where it's like, hey, let's just wait till after the election.
• 14:36
  Speaker 1: So we'll see. I try not to get tied down
• 14:39
  Speaker 1: into it too much. It's you know, it's I think
• 14:43
  Speaker 1: botus appreciation. It comes and goes in at different times,
• 14:47
  Speaker 1: and so there's been around for decades, and there's plenty
• 14:51
  Speaker 1: of times they've incentivized people to buy real estate now
• 14:54
  Speaker 1: and incentivize the bonus appreciation. So we'll see what happens here,
• 14:58
  Speaker 1: all right, it's.
• 14:59
  Speaker 3: Going to be interesting. Well, hey, I appreciate you coming on,
• 15:02
  Speaker 3: and I guess it always is a good time and
• 15:05
  Speaker 3: a bad time to buy real estate, and sometimes it
• 15:09
  Speaker 3: all depends on those imponderable intangibles about what's going to
• 15:13
  Speaker 3: happen in the future that none of us know. Hey,
• 15:16
  Speaker 3: if we want to find out more about you, connect
• 15:18
  Speaker 3: with you on the web. How do you do that?
• 15:20
  Speaker 1: Yeah, so I had my teammate make a link just
• 15:23
  Speaker 1: for your listeners. So if they go to Mavencostsegg dot com,
• 15:27
  Speaker 1: forward slash Carry, I'll give them a discount. There is it,
• 15:31
  Speaker 1: you know on any cost egg studies We do any estimates,
• 15:34
  Speaker 1: So either go to mavencosts egg dot com, forward slash carry,
• 15:38
  Speaker 1: or just go to or just email me Sean at
• 15:41
  Speaker 1: Mayvincostsegg dot com. And that's the best way to get
• 15:44
  Speaker 1: a hold of me.
• 15:45
  Speaker 3: Great link is in the show notes to this interview
• 15:48
  Speaker 3: on Financial Survival Network dot com. Just go there, click
• 15:52
  Speaker 3: it when you're there. Please sign up for free newsletter.
• 15:55
  Speaker 3: Got a lot of interesting tips to make you money,
• 15:59
  Speaker 3: like what Shawn's doing it to save you money, and
• 16:03
  Speaker 3: just sign up. And if you've got a question for
• 16:04
  Speaker 3: Sewan myself, always as always, send me An email to
• 16:09
  Speaker 3: Kateltcarriets dot com sewn thanks for stopping by all right,
• 16:13
  Speaker 3: Thanks Kerry, appreciate you having.
• 16:15
  Speaker 2: Me, Thanks for listening to Carrie lets. This Financial Survival
• 16:19
  Speaker 2: Network your solution to today's trying times. For the latest,
• 16:23
  Speaker 2: go to Financial Survivalnetwork dot com. Financial Survival Network now
• 16:29
  Speaker 2: more than ever,