Looking for Cost Segregation Study insight

[Ryan Knapp]

A key component of my real estate strategy involved cost seg studies, claiming REPs and accelerated depreciation to shelter a large amount of active income. However, I've been speaking with a couple companies and getting varying responses and cost differences. One company didn't feel it was very beneficial on my smaller 4 multifamily properties unless I was REPs etc (they obviously didn't know my whole situation I guess) and when I pushed back gave me a pretty low cost (~500 per property) to perform. The other company was around ~$7k to perform the studies but presented "conservative estimates" and comparisons up front with closing documents and addresses I provided.

I'm now a little nervous on what to do. Will the less costly company provide the same value the more expensive will? They both seem to be fairly legitimate and perhaps trying to land a bigger commercial project I have in the coming year but it's hard telling. Any thoughts? Who have you all used with success?

[Bonnie Griffin Kaake]

Quote from @Ryan Knapp:

A key component of my real estate strategy involved cost seg studies, claiming REPs and accelerated depreciation to shelter a large amount of active income. However, I've been speaking with a couple companies and getting varying responses and cost differences. One company didn't feel it was very beneficial on my smaller 4 multifamily properties unless I was REPs etc (they obviously didn't know my whole situation I guess) and when I pushed back gave me a pretty low cost (~500 per property) to perform. The other company was around ~$7k to perform the studies but presented "conservative estimates" and comparisons up front with closing documents and addresses I provided.

I'm now a little nervous on what to do. Will the less costly company provide the same value the more expensive will? They both seem to be fairly legitimate and perhaps trying to land a bigger commercial project I have in the coming year but it's hard telling. Any thoughts? Who have you all used with success?

When it comes to cost segregation studies, you get what you pay for. What will an audit cost you? The IRS' preferred methodology is engineering-based which costs more. An engineering-based study requires a site visit (inside and outside) and a thorough review by an engineer and someone experienced in construction. 

Read the fine print in any estimate. Some companies offer no audit defense, others add fees for defense if audited, others cover you at no cost for a certain length of time. The best is a company that offers audit defense free of charge as long as you own the property plus 3 years (the IRS has the right to audit you for as long as you own plus 3 years). Some companies do their studies off-shore. Some never step foot on your property. Others charge you extra for transportation. The online very basic options are more likely to be too basic to stand up to audits...no two properties in real estate are the same. And, you don't have to be a REP to benefit from cost segregation studies, most owners are not REPS. 

If you purchased a property for less than $200K, a $500 study may be all you need. Anything over $250K is worth getting an estimate on a more audit secure engineering-based study. An engineering-based study can be very cost effective. Do your homework. There is a big difference between what you are being quoted. I don't know what companies you have received your estimates from or anything about your properties.