All Forum Posts by: Bonnie Griffin Kaake

@Ashly Doran Crunch the numbers with a broker familiar with multi-family properties as a STR or Mid-term rental and the fact you will be renting one of the units. I agree with @Bjorn Ahlblad in that you need your own buyer's broker to negotiate in your best interest and help you with analyzing the deal. You will also want to take into consideration the fantastic tax benefits and extra cash-flow available for owning a commercial property. It will also be important to know when those leases expire and whether you will be renting them out for 30 days or more (requires depreciation over 27.5 years) or for shorter than 7 days or <30 days at a time which require a 39 year depreciation schedule.  

@Bob StevensHe said he purchased the building that he could use for his business at $600K and only had to pay $3K. With my experience, I have very rarely seen a deal like this not pay off. Especially, when he may not owe any Federal or State Tax as a result of the purchase and if his tax pro knew how to leverage the tax benefits available. Buildings are not cheap in Seattle, WA. I am an investor and have been a commercial investor and broker in years past. I know how difficult to get deals like this are and in a city as booming as Seattle, WA...is sure looks like a good deal to me. 

Quote from @Alan Fong:

I am a newbie investor/landlord and trying to understand the cost segregation aspect of owning. My understanding is this is the last year for 100% bonus depreciation (assume it relates to cost segregation?).

1) Is a cost segregation worth it for a 3BR/3BA townhouse/condo? I spent quite a lot of money on the renovation.

2) Does it make sense since I bought it 2 years ago and am renting it out now? Is it too late?

3) Any other tips/advices?

Thank you in advance

Yes, Alan, it is well worth getting a no-cost pre-analysis/estimate. My guess is that a lot of that renovation, if not all, can be depreciated up front. It does not matter when you do the study but sooner is always better than later for the ability to reinvest the additional cash-flow. 

Was the property occupied when you purchased it? Cost segregation can be done once the property is occupied. The bonus depreciation applies to the year it was occupied as well. Even if the property is a passive investment, if you can't use all the incredible benefits the first year you get the study done, you can roll those benefits forward from year to year until they are gone. You can also group your passive investments and use the losses from one to offset the gains from another. 

@George Ahearn  WOW! What an incredible opportunity you had and what a way to launch a real estate investment. Since you were or are an owner/occupant, did you take advantage of the opportunity to group your business with the building to take advantage of making the building investment active rather than passive? Sadly, too many owners and tax professionals miss this opportunity. If you had, you would have had a minimum of about $60K in depreciation that you could have taken against your business income. Not bad for a $3K investment! 

@Zachary Gray  If you did these renovations on a property you do not own but do rent, you have several options. I have many unanswered questions that I would need to know to give you the best advice. Here are a few: how long ago did you do these renovations? Are you or your company the occupant? Was the owner of the property involved in the renovation costs? Were you the contractor and are asking on behalf of the owner/tenant? 

If the renovations were all internal they may qualify for Qualified Improvement Property (QIP) or Tangible Property Regulations (TPRs) also called the Repair Regulations. There may also be the possibility of doing what is called a Partial Asset Disposition (PAD) which would allow the owner to expense the value of what was taken out of the property during the renovation from their depreciation schedule.  Like I said, too many unanswered questions. 

Yes, existing properties may likely qualify for cost segregation or some of the benefits I listed above. Additional questions?  

@Oliver Perry If your team has not considered doing a cost segregation study on the property, they need to. Conservatively, you have about $90K in taxes you will not have to pay. Let me know if you have additional questions or I can be of service. 

@Kapono Kobylanski and @Zander Kempf   We have done cost segs on HI properties with great results. There are only a few reasons a cost segregation study is not of value. 

I would encourage each of you to get no-cost estimates/pre-analyses on the properties you own or are considering purchasing. Then, you can discuss the estimate with your CPA/tax professional to determine how it fits your specific tax situation. Many investors who get these studies done are amazed at the tax and cash-flow benefits available that allow you to leverage into addition properties sooner than you might otherwise do. Let me know if I can help or you have additional questions. 

@Karna Patel  Add value to your job and your investments by getting to know the incredible tax benefits available to commercial real estate investors. Cost segregation is just one of those benefits. Another is the 2014 Repair Regulations, also known as the Tangible Property Regulations (TPRs). The TPRs are very complex and offer tax benefits that are most often overlooked. 

@James Parla Your best option is to get a no-cost estimate/pre-analysis. Then, between you and your CPA/tax professional you will be able to make the best decision about how that fits with your specific tax situation. How much does it cost is not relevant until you know what you are getting for that price. It is like asking how much does a car cost? Do you want a VW or a BMW? How much risk are you willing to take with a low cost study that increases your chances of audit? A $272K SFH rental on the beach in CA is going to be quite different than a single family home in Kentucky. Is the place run down? Is the purchase price mostly land? Or, is it a high-end property that you got a fantastic deal on? Does it need a lot of renovation before occupancy? So many unanswered questions...many, you will not even know you need to know. Let me know if I can help.

@David M Trapani and  @Tiffany Clay

David gave a very good explanation of what is difficult in the RE investment business. Another item that he didn't mention is learning how to maximize the tax benefits available to investors. It is not the job of a CPA/tax professional to be a tax strategist. Too many are stretched to the max right now. In addition, the tax laws surrounding commercial and other investment properties are complex. We need more tax professionals as the tax laws are getting more and more complex. 

The CPAs/tax professionals that are doing the best work for their clients are those who research and create a team of competent specialists. This results in maximizing their client's tax benefits and increases the client's cash-flow. This is especially the case with RE estate investors. This adds value to the tax professional's practice, reduces risk, and they become heroes to their clients.