Anyone taking great advantage of cost segregation and depreciation?

Question

Newbie here and looking to start investing in Reno, NV or some other easily drivable area close to the Bay Area in CA that has properties not expensive as in the Bay Area.  I cannot afford to start here.

BRRR is what I want to do.  Also want to take advantage of the tax strategies in Tom Wheelright's book regarding doing cost segregation and taking depreciation on properties and items inside the property that can be a great tax benefit increasing overall cashflow even if your rents are cash flowing minimally.

Also wondering if I should create the business LLC as a first step in the state I will be investing in.

Nathan Gesner · Answer

Don't worry about an LLC. Don't worry about cost segregation studies. You need to focus on buying a property and managing it properly. Then buy another and manage it properly. When you have a few properties or $1 million in equity, then you say that you have a business and start refining it to save a few percentage points or protect your assets better.

Too many people are building websites, setting up an LLC, buying business cards, and walking around in suits acting like Grant Cardone when they haven't done anything. Figure out if you like basketball, and if you have any skill, before you start shopping for the best flooring for your indoor court.

Dustin Turner · Answer

You should absolutely plan to do cost seg studies on your properties. One of the biggest advantages to investing in real estate is the tax benefits. Those aren't quite what they used to be, with the changing laws, but still worth it.

Alexander Yates · Answer

Hi Priscilla,I haven't read the book you're talking about but have attended a meetup with someone who does cost segregation studies and, from my understanding, you need to have a certain amount upside from a tax perspective for the study to be worth it. I believe it costs a few thousand dollars to have a professional complete this for you. Not sure if it is worthwhile on a single family rental/BRRRR (unless you plan on purchasing a multi-unit) but am very interested to hear how it goes for you. Please post an update when you're further along in your journey! As a side-note, I live in Reno and invest out-of-state; my partner and I recently purchased a 6-unit and a cost segregation study isn't worth it based on the financials of this deal. So it may be case-by-case that the strategy works for you. It looks like you own and run a separate business too, so perhaps you're looking for tax breaks to help with that side of your life. I can't speak to that of course but again wish you the best of luck!Regarding LLCs, I agree with Greg's response on your other post about this. Not necessary to get started and if you end up deciding you need one, they are very easy to set up quickly. I can recommend a local RE lawyer if you don't already have one, just shoot me a message.Cheers,Alex

Priscilla Avery · Answer

The point of cost segregation and good tax strategy is for me to be able to scale more quickly. I am not interested in building a website or having business cards or anything of the sort.  Definitely dont intend to walk around in a suit or act like Grant Cardone...? That's hilarious.  I cant even stand listening to that guy.   Just interested in smart tax strategies from the get go to save money.  Very simple.

And I'm also confident in my knowing that I will love doing this.

Priscilla Avery · Answer

Thank you, Dustin!

Priscilla Avery · Answer

Hi Alex, Thank you for your thoughtful response. I spoke with Sean from the BP community and will be doing more research.  Definitely read Tom Wheelrights book, Tax Free Wealth.  It's one of the best books I have read. When you read the chapter on the "magic of depreciation", you may find that even though the cost to do a cost segregation is a few thousand dollars, it will pay for itself very quickly and then begin to save you significant money over the long haul.  In order to take the losses of depreciation you have to make sure that you meet certain requirements as Sean was explaining to me.  So, you need to know if you meet the requirements before launching in.

I think I will start a business for real estate investing but start with a "sole proprietorship" before starting an LLC.  The reason is because if I at least start a sole proprietorship, I can write off all of the expenses I will be incurring while looking for a property, etc.  For example, I am going to David Greene's Scottsdale retreat next week.  That is no small expense!  I would like to be able to write that expense off as a tax saving strategy regarding real estate.  Not to mention, any time I travel to Reno or any other location to look for property, meet real estate agents, or do any other work related to building a business in REI, these expenses will be tax write offs.  I believe that just a Sole Proprietorship will accomplish this in the short term and I can start an LLC later when it's necessary.  I will be discussing these things with Sean coming up.

I would love your recommendation for a RE lawyer.  Thank you!

My mantra right now is "If you fail to plan, you plan to fail."   I want to shore up my financials with smart planning and smart people around me to ensure success.  I am trying to fill in the gaps of the things that I know I dont know.

Read the book when you have time.  Fascinating!   :).

Maybe I'll meet you in Reno sometime.

Thanks much, Priscilla

Anyone taking great advantage of cost segregation and depreciation?

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