Category: Blog

Cost Segregation & Bonus Depreciation – Jacob’s Version

Have you ever found yourself browsing endlessly online to simply know more about Cost Segregation to save on taxes without all the superfluous tax talk? Search no more!

As a real estate investor, imagine using Cost Segregation as a real property investment strategy that will grant you tax free cash flow from fixed assets and allow you reinvest even more (and possible lower your ordinary income).

House blowing smoke out of chimney rolling on wheels past bushes.


Start Your DIY Cost Seg

What is Cost Segregation?

This is one of the easiest and fastest ways to squeeze a little extra profit out of an investment. If you have ever played those racing video games where you modify your car (like Gran Turismo) it’s like paying for that cheap computer chip upgrade to get an extra horse-power boost, it’s a no-brainer. 

For those of you who aren’t ex-gaming nerds like me, it’s “low-hanging fruit”.

A cost segregation study gives a tax benefit to the taxpayer to take advantage of current bonus depreciation laws (starting to phase out slowly in 2022) in order to depreciate their assets by taking a loss on paper. 

The cost segregation specialist/engineer analyzes the components of a commercial real estate asset to create a cost segregation report to equip the tax accountant or CPA the needed breakdown of the asset in order to make the depreciation determinations.

To better understand the benefits of performing cost segregation, you must first understand depreciation.

Depreciation is where you reduce the value of your assets (in this case, your real estate properties) due to natural wear and tear over time. There is a type of depreciation wherein the value of your fixed asset (real estate properties) depreciates faster than it should be. This speedier depreciation or most commonly known as accelerated depreciation.
Let’s look at it in detail: If you own commercial or residential real estate investments, you can depreciate your real estate holdings. A commercial property establishes a 39-year depreciation schedule and a residential property establishes a 27.5-year depreciation schedule. These are the numbers we will use to calculate the rate of our depreciation deduction.

Real K1 from a past deal
Real K1 from a past deal
Real K1 from a past deal

Envision a 3 bedroom single-family home in Birmingham, Alabama that is worth $100,000. Of that, approximately $65,000 is determined to be the building value and $35,000 is determined to be the land value. Each year you can deduct 1/27.5th of the building value, which is about $2,363 a year that can offset income gains. $2,363 can be taken for the next 27.5 years until all the value on paper is depleted.

Is there a catch?

Unfortunately, you cannot deduct the value of the land unless you have made a land improvement, granting that the improvement you made has a “useful life” that is depreciable. Only the improvement will be depreciable, not the land itself.

House with a long, flowing charts coming out of the front door

When you sell the asset you will need to recapture the depreciation. This is the major disadvantage to a cost segregation.

We pay $8000-12,000 on our larger commercial assets to do a cost segregation and our advisors tell us that the general rule is to do a cost segregation if we intend to hold onto a property more than 3-5 years because if we sold quicker than the time benefit to the passive losses we got as investors you be less and might not be worth the price of the actually cost segregation study.

But, guess what?

There are some exciting new benefits to passive losses since Mr. Trump enacted a tax law where 100% Bonus Depreciation creates substantial benefits on your taxes for the acquisition year. In the future, us investors are crossing our fingers that this part of the tax code sticks around.

Passive losses from ten single family homes resulting in $47,760 of passive losses
Paper losses from single family homes
Message conversation with investor about their effective tax rate lowering from 22.7 to 8.7%

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Think about this: My $3M, 52-unit apartment, is looking to get more than $266K in tax savings (at 37% tax rate) in the first year of ownership by doing a cost segregation.

Cross sections of a building

If you are interested in learning more about how to best utilize your passive losses, you can learn more here.

Cost Seg Tips and Best Practices

https://www.youtube.com/watch?time_continue=2&v=fjlUugCApaI&feature=emb_title&ab_channel=SimplePasiveCashflowdotcomhttps://www.youtube.com/watch?v=revK1FkH6-Y&ab_channel=LaneKawaoka

What is a Cost Segregation Study?

Companies and investors who have constructed, purchased, expanded, or remodeled any kind of commercial real estate (including 1 to 4-unit residential rental properties) since 1987 can use cost segregation studies for maximize their tax savings.

The study allows the owner to take advantage of accelerated depreciation deductions and defer federal and state income taxes on the reclassified building components mentioned above. 

A team of real estate investors evaluates several personal properties, residential rental property, and land improvements that can be upgraded to improve the value of the property. Those improvements are assessed with the assistance of a Cost Segregation specialist. After completing this cost segregation analysis, the property owner may deduct the depreciable life of the individual fractional interest (IFI) through a cost segregation study, with or without depreciation. If the taxpayer is eligible and has not failed to take advantage of the tax rebate, the taxpayer may claim the expense directly within the given year of the seller’s ownership.

To elaborate more on Accelerate Depreciation Deductions, it is a deduction of the cost you pay to a person if you own your personal property assets. The accelerated depreciation deduction provides significant tax savings but it is not another type of benefit. The exchange of property owners whose benefit is primarily from cost segregation is a limitation in tax savings. The depreciation expense is deducted at the source rate in another year.

What are the Benefits of Cost Segregation?

  • Lower Property Insurance Premiums

    Since it generally costs less to insure personal property, versus real property, building components reallocated as personal property should reduce your insurance costs as well which will yield potential benefits in the end.

  • Capture Retroactive Savings

    Since 1996, taxpayers could capture immediate retroactive savings on properties added since 1987. Previous rules, which provided a four-year catch-up period for retroactive savings, have been amended to allow taxpayers to take the entire amount of the adjustment in the year the Cost Segregation is completed.
    This alone is huge!
    This opportunity to recapture unrecognized depreciation in one year presents an opportunity to perform retroactive Cost Segregation analyses on older properties to increase cash flow in the current year.

What Components Can I Reclassify?

Components of a specific property or qualified leasehold improvement are identified and reclassified for depreciation over a shorter time (5, 7, or 15 years). For example, 30% to 90% of the total electrical costs in most buildings can qualify for 5 or 7-year depreciation.

  • 5- year tax-life components

    Non-structural elements: carpet, decorative lighting and trim, HVAC systems, dedicated electrical and plumbing, and security systems​.

  • 7-year tax-life components

    All telecommunication related systems: cabling, telephone, etc.

  • 15-year tax-life components

    Exterior land improvements: landscaping, curbs, sidewalks, fencing, and signage​.

 

As a Passive LP investor the details of this is not needed as all you need to ensure is that your sponsor is aware of cost segregations to optimize tax benefits.

What is required to have a study done?

You need to provide as much of the original documentation pertaining to planning, construction, and current tax depreciation as you can.

This could include a complete set of:

  • Construction plans
  • Current tax depreciation records such as tax returns, building cost budget information, final AIA (American Institute of Architects) appreciation
  • Document of certification of payment or other cost information, change orders, direct or indirect costs paid by the owner that are not included in other documents
  • Other information depending on the project

How much does a Cost Segregation Study cost? 

On average, the total fee will generally fall between 5% and 20% of the estimated net present value tax saving. You can often get a free preliminary analysis to help determine this. This can be impacted by how large or small the real estate project is.

In addition, the location, accessibility, and quality of the records and documents will impact the entire cost (costs typically range between $8,000-$12,000). Minimum fees can be as low as $2,000 for small projects, and some firms GUARANTEE a minimum of 500% ROI (fee vs. tax recovery) on projects over $500,000.

Cost segregation studies are typically cost-effective for larger syndication buildings purchased or remodeled at a cost greater than $100,000. A cost segregation study is most efficient for new buildings under construction, but it can also uncover a retroactive tax deduction for much older buildings as well.

What are the steps involved in the process?

First off… if you are a Passive Investor (LP), your sponsor should be taking care of cost segregation for you so you will have one less thing to worry about.

If not, the cost segregation process can be broken down into the following steps from start to finish:

Step 1
Vet Cost Segregation Firm

Engage a reputable Cost Segregation firm that utilizes engineers and architects trained in Cost Segregation and it’s application to the proper allocation of assets. If you need a referral go here.

Step 2
Document Review

The engineer determines what documents are available (e.g. planning, construction, invoices, appraisal, and current tax depreciation) for reference and referral.

Step 3
Schedule Property Survey

The engineer then sets a schedule for surveying the subject property and gathering the available documents for review prior to arrival at the subject property.

Step 4
Document Recreation

For those documents that are unavailable, time is then scheduled into the Cost Segregation process for document recreation using known industry standard costing data (Marshall & Swift and/or RS Means costing publications). The process takes about 4 to 6 weeks after all necessary documents are acquired. The time that a Cost Segregation Study takes depends on the size of the project and the completeness of the documentation that you can supply.

Step 5
Conduct Site Survey

The site survey is executed and completed. Surveys can be completed within as little as an hour, but it varies between each survey. Measurements are taken and all areas are photographed for IRS verification and substantiation of asset values during the survey.

Step 6
Calculations

The engineer returns to the office and crunches the numbers. The number crunching process is when all documents are reviewed in detail, assets are verified, and measured against known costing data, and asset reallocation is applied.

Step 7
Review

A review committee then examines the results of the analysis completed by the engineer of record to verify its veracity and confirms it meets and exceeds IRS guidelines per the Cost Segregation Audit Techniques Guide.

Step 8
Compile Report

Once approved, the study results are compiled into a final report that includes: all IRS tax code to substantiate the reallocated assets, spreadsheets identifying all assets categorized according to their building codes, representative photographs of the reallocated assets, and the engineer’s credentials for IRS review.

Step 9
Issue Report

The final report is issued. The client and CPA of record receives digital copies via email, for application to the client’s tax return.

Cost Segregation Example #1

Depreciation is distributed to investors on the K-1 Form in syndications.

Not making any promises as depreciation amount is primarily based off building specifics and the amount of leverage used in a deal, but here is a real-life example from a $50K LP investment in a Class C apartment syndication in the first year K-1 in 2018 which yielded a $36K paper loss by utilizing a cost segregation. Extract 10-20x what you normally able to deduct in the first year alone! Take these passive losses and employ the “Simple Passive Cashflow Gravy Train” strategy where you offset your ordinary/W2 income with real estate professional status. For more details on that check out our Master Tax Guide.

K1 tax form showing -$36,739 in passive losses
K1 form showing $50,000 capital contributed deducted by the -$36,735 in passive losses, resulting in $9,533 in capital gains
I paid 4% in taxes in 2018. All because of the passive losses that real estate gave me.
I paid 4% in taxes in 2018. All because of the passive losses that real estate gave me.
2018 Tax Payment 2 (2)

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If this is a new concept to you, you may be able to go back to previous years taxes and get back some benefits this year. Oftentimes, getting a quote is free and quick.

A recent quote I got back for a few properties:

Table highlighting the cost of doing three cost segregations and the tax savings produced from those cost segregations.
A table showing how much bonus depreciation was made from a cost segregation and the increased cashflow amount from the increased depreciation.

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Cost Segregation Example #2

We purchased a $20M apartment and are about to write off $6M in the first year! The total capital raised from investors was $5.5M, that meant almost a dollar for dollar deduction in year one!

52-Unit in Des, Moines Iowa Case Study:

Overview of Des Moines Iowa cost segregation detailing the property type, purchase price, and land value. The chart shows depreciation in years 1 through 6.
Chart showing full breakdown of cost segregation.

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Other FAQ’s

Are cost segregations something new?

Cost segregations are not new. On the contrary, they have been in existence since 1954, when the IRS allowed for certain personal assets to be accelerated into a shorter life class. However, it wasn’t until Hospital Corporation of America sued the IRS in 1997, and won, that the IRS revisited the issue of accelerated depreciation. The IRS ruled that property qualifying as tangible personal property under the former Investment Tax Credit (ITC) rules, would also qualify for purposes of federal income tax depreciation under MACRS (Modified Accelerated Cost Recovery System).

The IRS Chief Attorney wrote a memo saying, “. . . Cost Segregation, for it to be properly applied, had to involve those with competencies in architecture, engineering, or construction and/or construction techniques, in order for personal property assets to be accurately identified and segregated.” As a result of this memo, cost segregation became a viable tax-saving strategy allowed by the IRS.

Can’t my CPA do a study for me?

CPAs are not qualified according to the IRS guidelines. However, most Cost Segregation firms will gladly work with them on a consulting basis to complete the work for you. Remember, the IRS Chief Counsel issued a memo that made it clear what constitutes proper “methodology” in applying Cost Segregation, and it must be done by people who are competent in architecture, engineering or construction and/or construction techniques. You will want to ensure you are working with a cost segregation specialist to follow correct protocols. See ” Is Cost Segregation something new? ” above. 

Why bother do a cost segregation to accelerate the depreciation? I’ll eventually get the deduction.

As investors, we like paper depreciation to occur earlier because that offsets gains earlier and gets more money in our pocket earlier. Just like how you give a mouse a cookie…. Give an investor a dollar early and… they will turn em’ and burn em’.

In other words, you are not creating more depreciation, you are shifting it earlier to take advantage of the time value of money concept.

On the project-level in a single asset LLC arrangement, the more you can lower your tax liability, the more you can significantly increase your passive income and create more value for investors.

A cost segregation study, in effect, gives you an interest-free loan from the government for the first 15 years, which you will then repay interest-free over the remaining 25 years. Wouldn’t you rather have your money now? There are also advantages in doing a study if the building is going to be sold (via 1031 exchange) or if the owner of the building dies.

Does the cost segregation study need to be completed this year (for example, Dec 2020) or do we just need to acquire the property this year (2020)?

For bonus depreciation, we just need to acquire. The cost segregation study can be completed in the next year (in this example, 2021).

How much will I save on taxes?

Most cost segregation firms will perform a free analysis if you provide your basic property information and tax rate. From the information you provide, they can calculate a conservative estimate of the accelerated benefits you can expect, as well as their fixed fee proposed for the final study.

Typically, tax savings from 5% to 10% of the building’s original tax-basis are generated, but there are instances where it can be substantially more. Each property and circumstance is unique, so it requires a case-by-case approach to give you a definitive answer.

How much accelerated depreciation can I get for different commercial properties?

Certain types of commercial properties can be grouped together to give us an idea of the percentage of those types of buildings eligible for accelerated depreciation. Your results may be greater, or less than those quoted here, but in general, property that falls into one of the following categories is most likely to result in accelerated depreciation within the specified ranges.

Commercial Property Types:

  • Apartment Buildings 15 – 25%
  • Dental/Medical 30 – 60%
  • Health Care 25 – 65%
  • Heavy Manufacturing 30 – 80%
  • Industrial 25 – 70%
  • Light Manufacturing 20 – 45%
  • Office Buildings 15 – 25%
  • Research & Development Facilities 30 – 75%
  • Restaurant 15 – 30%
  • Retail Centers 10 – 25%
  • Senior Living Facilities 15 – 30%
  • Warehouse 5 – 15%

Will a study increase the chance of an audit?

A study conducted by a reputable Cost Segregation firm should strictly adhere to the IRS Cost Segregation Audit Techniques Guide . The type of study most firms perform places you in Internal Revenue Code Tax Compliance, which actually decrease your chances of an audit. However, you should be aware there are six different Cost Segregation methods allowed by the IRS, and not all are of equal merit. There is currently no standard method, and there is still some ambiguity about which method is best. If you have heard conflicting information about what is, and is not possible regarding Cost Segregation, it really depends on which method is being used.

Will I be assisted in the event of an audit?

A reputable Cost Segregation firm can assist you in the event of an audit. They will focus on doing the Cost Segregation Study to create documentation and support for conclusions so that these are easily communicated and resolved with the IRS. In fact, you should expect a final report that is “all inclusive”. The report should quote specific Internal Revenue Codes related to the reallocated assets. Additionally, it should provide photographic evidence of these same assets for complete substantiation of the assessment. A properly documented Cost Segregation Study helps resolve IRS inquiries at the earliest stages.

What if I lack some of the needed documents?

A cost segregation study can still be performed even if you lack some of the necessary documentation. Construction, engineering, and other specialists will do an extensive site visit. They will measure and estimate using currently accepted costing techniques and pricing guides (such as the IRS-recommended costing publications Marshall & Swift and RS Means ) to determine the costs that qualify for shorter recovery life periods.

Who do I contact for additional info?

For more information on Cost Segregation or a free analysis, contact me for a referral Lane@simplepassivecashflow.com

Reward Yourself

Combine cost segregations with an Opportunity Fund Zone deal and wow!

Why Syndication Investors do no do 1031 Exchanges?

I paid 4% in taxes in 2018 because of the passive losses that real estate gave me.
Bonus depreciation has made 1031 Exchanges obsolete, group your passive losses on non-participatory deals as a real estate professional – more info.
(Here is a cheaper service for cost segregations for single family homes or under $2M assets, but I am personally a little skeptical). 

The video below shares some of my thoughts against a 1031 exchange because you are a distressed buyer.

 

Additional Resources


Cost Segregation Basics


Depreciation Examples


Investor who received $98,000 in Passive Losses from investing $100K


Why Real Estate Became Better Than Gold


Do KPs or Loan Guarantors Receive Depreciation?


Nate Busch Tax Company


Sample K1 Form


Dental Office Case Study


Pre-Construction Case Study


Ranch Resort Case Study

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Never Invest in Real Estate Based on an Internet List

https://youtu.be/NPHXCfRR7lE

And this is an extreme example that 10 90 premium split. In some cases, some of the people in the family office group have found that the 70, 30 premium split is actually better. That’s an, I actually. And this is just more of the extreme about that example, where you’re still complying with those mech limits.

So you’re getting the tax free treatment, but you’re stuffing as much money into the cash value and you’re minimizing your fees. One unique way that someone explained. To me, as far as understanding the premium keyway relationship was relating it to your house, the base premium is like your mortgage. So that’s an expense or a cost that you have to for your house by slowly paying down the principal.

So base premiums does add a small amount of cash value. Just like how paying down your mortgage slowly pays down the principle. You can think of your paid up additions as if you were to do that. Renovation where you spend $50,000 to renovate the kitchen at $50,000 spent on the kitchen, basically increase the value of your house.

Hopefully, almost exactly the same or even more so that’s the home relationship. As far as the base premium, paid up additions to mortgage and our renovation, again, different ways to understand this and it to me personally. And it really took me about a year and a half to. The school and the differences between typical whole life insurance, configuring it in a way and using it in a way that the wealthy do have for some of you guys use that strategy where you’re taking a hilar out on your mortgage and paying down your mortgage with simple interests versus amateurs interests.

It operates in a very similar way. And in fact, when you’re using a whole life overfunded or infinite banking or whatever you want to call it, simple, passive cashing, it is superior to using a heat. In my opinion. And I actually think that this is a lot better than using a 5 29 plan for your kids’ college savings too. .

What to Tell Your Lender When Applying for Mortgage Loan

https://youtu.be/RvQ3t9TrZro

I always tell my clients to give me the full story. I don’t want to have any surprises while we’re in escrow it’s oh, so you own a house with your parents and you forgot to tell us. And we always ask for the full story up front, then we can know how to what’s going to come our way and how we can prepare you when we submit your file to the underwriter.

And try to rent them out

For you guys, this is how the industry is made, right? Like you have lending brokers, you have the people on the sales side interacting with you, but there’s a person in the back office. Maybe it’s an agent at a different company. Whereas the. Now, this is where you need to have a good broker or front office person to take your story to that, that if you have just some bureaucratic idiot on both ends, you’re going to run into all these types of problems, but you need to have somebody to Excel your story the right way.

See, even if you do have a bureaucratic idiot as the. You can pass all these barriers. I always tell my clients to give me the full story. I don’t want to have any surprises while we’re in escrow. Oh, so you own a house with your parents and you forgot to tell us. And we always ask for the full story up front, then we can know how to what’s going to come our way and how we can prepare you when we submit your file to the underwriter.

Benson’s a licensed loan officer. So he has no comment on this. I’ve had clients where they change jobs the last second and let it slip on they’re on email and their lending broker kind of kibosh as the loan I had. So my guys will, if anything like that happens, use the full. We’ve had lungs where we call.

So a lot of people, then you’re a couple of times where they submitted their stubs. We’ve got into ESCO, got loan approval and they quit. I quit my job and my wife can cook my job for jobs so we can get real professional status or some other random tax schemes. Yeah. We actually do a final verbal verification of employment three days before you close.

Meaning you sign documents a lot of lenders. They wait until that last minute. When you think about it, Hawaii or California, we close escrow in 21 days, 30 days. It’s very typical. But when we’re in the Midwest, other states, they might take 60 or 90 days to close an escrow. Heck their appraisal process.

Probably two months right now. There’s appraisals shortage right now. So like in two months, who knows if you’re still going to be employed. So they always do a verbal verification of employment right before you close. Sometimes Fannie Mae picked about 10% of loans. So sometimes they will call after the loan is closed to see if you still work there.

It’s okay. If you don’t work there, you just don’t want to make sure they want to make sure there’s no loan from, I think they’re just in the back office there, the Johnny Walker, red DayQuil and checks with people over at the very last second. And we’re talking a lot about like primary owner occupied houses.

How does this change for you? If you’re buying a rental property, non owner occupied, first of all, If you’re talking about conventional owner, non-owner occupied, no gift is allowed. No gift is allowed at least in the last two months, we look at your bank statements and there shouldn’t be any gifts in the past two minutes.

And if you’re looking to do some DSCR loan and for those who don’t know, DSCR, it’s a debt service coverage ratio. It’s a terminology that’s often used in the part mid and loan world. They have it for one to four unit for people who don’t want to show their tax returns. And we base it off of the income of the property that you’re buying to qualify you.

And a lot of those programs will allow a gift letter or will allow gift. But what is that debt service coverage ratio, that magic number that they’re looking for. One that managing numbers one can do less than one. You just need to take. That’s actually not hard that it like for the larger apartments, it’s usually like we’ll fight to fight.

Yeah. So commercial loans, Fannie Mae, Freddie Mac, the multifamily home loans, they asked for 1.2, five. And the one to four is private investors so they really only ask for one or even less than one, depending on the LTV.

This website offers very general information concerning real estate for investment purposes, every investor situation. Always seek the services of licensed third party appraisers inspectors, to verify the value and condition of any property you intend to purchase. Use the services of professional title and escrow companies and licensed tax investment and or legal advisor before relying on any information contained here in information is not guarantee as in every investment there is.

The content found here is just my opinion and things change. And I reserve the right to change my mind above all else. Do your own analysis and think for yourself because in the end, you’re the only person who is going to look out for your best,

Want to Get a Loan? Do It the RIGHT Way

https://youtu.be/zoaZOzv4-m4

I typically suggest there are two ways of sending money into escrow. You can have the donor write a check and deposit in the borrower’s account, but you would need a lot of documentation showing how the money is deposited. We’ll ask for a canceled check or check image and the transaction history.

 

Sometimes it takes three, four days for it to clear. So depends on where you are in the contract. You might not have that luxury. The cleanest way. I always tell people is just have the donor and wired directly into the escrow’s account.

 

try to rent them out and

 

Let’s get to some of the problems you’re seeing through transaction. Maybe we’ll break it down. Order occupied it, non owner occupied too. But the first one is when I was buying a lot of these rental properties, of course I was using my own money. My parents never give me anything. Nobody gives me.

 

But some people when to buying their primary residence, shoot, what kind of 20 something year old kid can afford to $300,000 down payment. A lot of these guys are getting it from their parents. What’s the best back to sit there, like work that in a lot of people, when they come to me, obviously there’s some gifts.

 

But for gift letters, for the most part, conventional loans are pretty easy. They make it really easy for us lenders and also the borrowers. I typically suggest there are two ways of sending money into escrow. You can have the donor write a check and deposit in the borrowers. But you would need a lot of documentation showing how the money is deposited.

 

We’ll ask for a canceled check or check image and the transaction history. Sometimes it takes three, four days for it to clear. So depends on where you are in the contract. You might not have that luxury. The cleanest way. I always tell people is to have the donor and wired directly into the escrow’s account.

 

So this way there is a receipt and there’s no way the money is going wrong anywhere. But for FHA loans do know that we will ask for the sourcing of the donors funds. So meaning I will ask for two months of bank statements from the donor, I’m trying to sharp shape this. If I get a random check for my friend, Two and a half months prior to when I throw this money into escrow.

 

Nobody checks or there’s nothing I need to write that this is when the real estate industry, I hear a lot of real estate agents would say, oh, you need to have two months of bank statements, clean bank statements, or seasoned funds really that’s a myth, but it really depends on what the deposit is for. We call them large deposits.

 

So large deposits definition is basically any positive. That’s more than 50% of the total gross income used on the loan application. So let’s say if you and your wife combined $10,000 gross ran knowing gross income on the loan application. So anything higher than $5,000 deposit into your account, we just have to know what it is then.

 

Why is it deposited? We just want to make sure. You’re not loaning a $5,000 to go buy this house and now you have to pay back and we need an attitude that we can come or get, or it can’t, it gets, it’s a gift. And we just need a documented source and explain, I just got it from my block five or crypto deposited from Coinbase.

 

We can use a crypto as down payment. I’ve got this other, wasn’t he wasn’t annoyed, but the bank was being really at the way. They’re like, oh, we see her in these private placements. And we amount to make sure, like LPs don’t both sign on debt. They’re the best investors, but they’re asking all these questions.

 

Any thoughts on that? Other than finding a VA letter, you can explain all you want. If you met with an underwriter that won’t let go. Sometimes it’s just easier for you to change lenders to someone who can get that scenario ran by their underwriter. And if you get the, okay, then resubmit that application over there, that’s what we do as brokers.

 

Sometimes we run into cases like that. Yeah. Lender aid doesn’t work out. So we quickly, we have your application. We it’s so easy for us to go to the second lender, go to the next lender that can get this done ASAP.

 

This website offers very general information concerning real estate for investment purposes, every investor situation. Always seek the services of licensed third party appraisers inspectors, to verify the value and condition of any property you intend to purchase. Use the services of professional title and escrow companies and licensed tax investment and or legal advisor before relying on any information contained here in information is not guarantee as in every investment there is.

 

The content found here is just my opinion and things change. And I reserve the right to change my mind above all else. Do your own analysis and think for yourself because in the end, you’re the only person who is going to look out for your best in.

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https://youtu.be/0E52ZFk-jTs

How to Structure a Syndication With Development?

https://youtu.be/1q-Q_Z8slXU

You figure out what your asset allocation or time horizons are, and money is money. Try to rent them out.

What do you think about the syndication and the laddering with the development at county line? Developments, I would personally go to more of a stabilized cash flowing asset, especially if you’re new to this type of world. You think of deals in terms of risk adjusted returns, right? Stabilize assets it’s like buying an existing lemonade stand with existing profit and loss statements.

You can see what it runs or development is a shot in the dark in a way. Technically, if you could build it, there’s more room for error, but you have to wait a lot longer to see the egg hatch. The way I did it and the way I preached general wealth building to people is start off with singles and basics.

And in the syndication, that is the more stabilized assets that give cash flow quickly and have lighter value add or in the rental property world for people under half a million dollars net worth , just go buy rental properties like how I did.

Yeah, I think in my situation though, I need to be a little bit more passive. I’m not going to go out and buy individual properties that’s what makes your multifamily deals attractive to me ‘coz I can be passive.

I just have to say it because something Dawn who was a young kid is going to listen to this podcast and then think they’re going to go on an apartment deal and they have no money. And so I have to say that, but yeah, if you’re an accredited investor, in my opinion, people joke about this all the time in my groups usually tell me any good reason.

To own a rental property, that in your name, the headache, the fact that you’re getting abused as a robot rental, that’s not get started with all this BRRRR stuff. Right? I think that general strategy is going into intermittent deals, spacing it out and just dollar cost averaging, same technique. They taught you with stock market investing.

So my biggest challenge now is just negotiating it with my spouse because the conventional way to invest is just through these 401ks and these other vessels to invest. I’ve got to convince her that this is going to pay off and be able to produce some passive income. But the current deal is two years lag.

You screwed yourself you shouldn’t have done that, man!

I screwed myself, but I think that county line project is going to be fun to watch to be a part of. This is why I’m going back to the 401k, because I think it’s a good strategy with Horton negotiating with her that it’s, if I want to retire early, let’s use some of my retirement and not really hit the family.

Which is just an emotional thing, right? Whether it’s retirement or money in your wallet, it’s all the money at the end of the day.

I think where people get gummed up, they emotionally feel like 401k Roth, IRA, that’s your retirement! And I even have sophisticated investors, earmarking things in their own mind that way too. So I get it. They think one is more long-term, one is more short term. But to me, it’s all the same. You figure out what your asset allocation or time horizons are and money is money.

This website offers very general information concerning real estate for investment purposes, every investor situation. Always seek the services of licensed third party appraisers inspectors, to verify the value and condition of any property you intend to purchase. Use the services of professional title and escrow companies and licensed tax investment and or legal advisor before relying on any information contained here in information does not guarantee as in every investment there is.

The content found here is just my opinion and things change. And I reserve the right to change my mind above all else. Do your own analysis and think for yourself because in the end, you’re the only person who is going to look out for your best in.

Today’s Real Estate Condition: Good or Bad?

https://youtu.be/-9qqMO57pSg

But in the commercial world, we haven’t had that big run up yet but you’ve seen rents rise the first half of 2021. It’s obvious what’s happening in cap rates are dropping. You’re having cap rate compression.

Try to rent them out.

And do you see the fluctuation or the opportunities to tailing off or increasing? What do you see as far as the market conditions?

Right now the getting’s good, right? Because in the residential market has gotten really overheated in my opinion because of low supply. I think demand has even gotten lower, but because supply has dropped so much, that’s what dictates the prices.

Which is very emotional driven and that’s why I don’t like residential properties. But in the commercial world, we haven’t had that big run-up yet, but you’ve seen rents rise the first half of 2021. It’s all completely obvious what’s happening. And cap rates are dropping. You have a cap rate compression, but it’s not to a place where your average internet investors like jumping into commercial properties quite yet.

Maybe this time next year, for sure. There always be deals because what makes for investment banks lend money at X and the cap rates are Y and there’s always a difference between X minus Y. There will always be a differential or always be a difference in then you apply leverage and that’s how you make yield.

Your big cap rates will always be making yielding more than interest rates. In a world where gravity works. I’m sure it could go backwards for a little bit. I don’t think it ever has, but that’s what makes the world run. I think what you’re getting to is like, “Hey, what if I wait”. If you wait the best time to do anything was yesterday, they always change.

Like for example, infinite banking, they always change the rules. Best time was yesterday, best time to buy another one was yesterday. It’s just constantly going to be that. You guys are just like making it tough for your guys. Just be prudent, stoic, and just constantly dollar cost average into stuff that makes sense.

And it’s difficult now because you’re getting started. But to me, that’s the outlook that you have. You don’t need to be like me and have a hundred percent of my stuff in alternative investments. That’s for sure. I totally respect if you want 20 to 50% into paper assets, that’s fine. But over time, the kind of the percentage definitely goes to the alternative assets size and look at, I seen as group tiger, 21, it’s all $10 million families and above all paper assets.

They don’t own like mutual funds and stuff like that.

I do think that we’ll always try to be conventional in some manner from our perspective, but I have a job to do and just convince my spouse that this is legit. And try to jump into one of these more conventional deals you do.

This website offers very general information concerning real estate for investment purposes, every investor situation. Always seek the services of licensed third party appraisers inspectors, to verify the value and condition of any property you intend to purchase. Use the services of professional title and escrow companies and licensed tax investment and or legal advisor before relying on any information contained here in information is not guarantee as an every investment.

There is. The content found here is just my opinion and things change. And I reserve the right to change my mind above all else. Do your own analysis and think for yourself because in the end, you’re the only person who is going to look out for your best in.