All Forum Posts by: Allen S.

Hello everyone... calculator question here:

I have been trying to figure out the difference between the Pro Forma Cap Rate and the Purchase Cap Rate on the calculators and the only difference I can see is in how financing is handled:

Purchase Cap Rate - treats the deal as if it were a cash purchase, and ignores any financing

Pro Forma Cap Rate - uses the P&I payment as an expense, lowering the cap rate from the Purchase Cap Rate

Is this correct?  Am I missing something?

-Allen

Wow!  Many thanks to all of the replies and opinions today.  This is exactly why I joined BP!  The turkey was good, the second slice of pie was not a mistake, and I’ve gleaned more substance and additional things to think about and plan for from this discussion than from the orig8nal CPA.  The search continues!

@Bill Brandt Your questions are exactly the kind of discussion I had expected to have on this topic with a CPA. Needless to say that I was surprised when the idea was summarily dismissed. The cost segregation might not be a big deal now with only one relatively inexpensive property, but as we grow our portfolio I want to make sure that we are making smart tax decisions alongside our investment decisions. Finding the right CPA for our situation is the first of these decisions...

Thanks @Basit Siddiqi! At what point would you need two (or more) specialists for your situation? We will be starting a family farm this year, so I am interested in finding someone who specializes in ag. With our ambitions in owning rental and investment property, a real estate CPA is also desirable. I really don’t think that our situation is terribly complicated, and these are all good problems to have, but at some point a CPA can’t specialize in everything or he’s back to being the jack of all trades you mentioned ...

Thanks for the input @Yonah Weiss an @Brandon Hall! Currently, our only investment property is in the Midwest, and is worth ~$200k. I can’t write off the losses on my yearly taxes, but we don’t plan to own that house for 27.5 years so I do want to depreciate it as much as I can while we have it. Looking forward though I definitely want to find someone who is well versed in real estate issues like this. I’m sure cost segregation is just one of a thousand topics we could go over, and I am even more concernd about the questions i dont k ow to ask than the ones I know to ask. On another note, how important do you think it is to have a local CPA? We have no state income taxes unless I set up a C-corp and we’re a long way from that point.

Wow, thanks for the quick response. There were a few other things that had me wondering, but I’m not a CPA.   I guess I will keep looking...

Hello everyone...

I just sat down with a potential CPA to discuss my taxes and potential real estate issues.  She told me that she had plenty of experience with real estate and that many of her other clients have investment property, but a few things that she said stuck out to me as contrary to what I was expecting to hear.  Wondering if some of the CPAs who specialize in real estate can chime in.  (For reference, I currently own one single family home as a rental in addition to the condo that I live in.  My wife and I are looking at investing in medium size multi-family properties in the near future but don't own any yet)...

1- Cost segregation.  She said that you have to hire a specially certified company to do a cost segregation analysis.  This can run upwards of $25,000 and so she's never seen a situation where it's worth it.

2- 1031 exchanges.  She said that she doesn't typically like them.  They're rarely good for her clients.  She will run an analysis and they usually end up deciding to pay the taxes now rather than defer them to later.  Her main point with this is that capital gains taxes are extremely low right now and no one knows what they'll be in the distant future whenever we decide to pay the taxes on the final sale of whatever property we are holding.  

I understand a lot of this "depends", but I appreciate your thoughts!