All Forum Posts by: Jonathan McKay

According to tax assessor records, property is $30k, Building is $480k. So extend that ratio to the purchase price, the building value is $677k. 

I got one quote for cost segregation, which is for $3k. 

Under cost segregation, they claim potential depreciation deductions of 26k in 2016, 59k in 2017, 39k in 2018. 

With regular depreciation it would be 4k in 2016, 21k in 2017, 21k in 2018.

Over the first three years, that means  78k (26-4+59-21+39-21) in reduced tax burden. Let's assume that I can take advantage of that to the tune of 30%, I would get 23.4k in tax benefits over the first three years. 

If/when I sell the property, I would have to pay recapture so let's assume I'll eventually pay all the 23.4k back.  

But, let's put the time value of money as 8%, that would give me $1.8k (23k*.08) value per year return after the first three years. Bringing it back to the cost segregation quote of $3k, that means I'm getting an ROI of 60% (1.8k/3k) for the investment.

Are these assumptions right? Based on this it seems worth doing to me. 

I've just come under contract for a 12-unit apartment in Spokane, WA that was built in the 70's and remodeled in 2014. Purchase price was $720,000, and I intend to hold on to the property for >5 years. It is not part of a 1031 exchange. 

Since I am about to purchase the property, I am wondering: does it make sense to do an engineering study for cost segregation? 

The components of  this question then become: What sort of tax benefits would I expect to see from cost segregation? ($1000/yr? $10000/yr? more?) 

How much would I expect the cost segregation study to cost? 

Thank you in advance for the help!

@Account Closed- I would love to find some leading indicators that I could correlate with future appreciation, but I'm not nearly that sophisticated yet. 

Obviously, I would pick a market where the expected appreciation is as high as possible. Forcing appreciation is also a good strategy, but one can do that regardless of market. From what you are saying, it sounds like you would advocate buy and hold in high appreciation markets? 

SF is a market to consider, but I'm hesitant for two reasons. 

1: Highly correlated with current income. 

2: I don't think there's 6-8% long run appreciation left in the market for SF. 

I have something of a theoretical question. My current strategy has been to invest for cashflow, and to these aims I have purchased a triplex in my hometown of Spokane and am under contract for my first SFH in Indianapolis. I expect to continue purchasing SFR in Indianapolis, but this weekend was considering the tangent of investing for appreciation.

Let's assume that investing for appreciation is pure gambling, but the good news is that the dice are rigged. If I get appreciation on a property, I can 1031 it into a cash-flowing property later on, without having to pay taxes. If I lose the appreciation game, I can sell the property and deduct it against my regular W2 income, meaning that I get ~55% of the money back (highest tax bracket, live in CA). Not bad right?

The caveat is that this sort of gamble makes more sense in higher volatility markets. If the appreciation is low, (i.e. only 3%), transaction costs are going to eat all of my gains. However if appreciation is highly stochastic (even if the mean is zero!) I can gain significantly from the tax implications.

With that in mind, what would be good markets to roll the dice? Primary criteria is high volatility in real estate home values, with a secondary criteria of low cost of owning property. (As measured by cashflow)

Quick scans of Zillow reveal the following candidates:

(Note that I treat zillow predictions as a measure of expected variance, not a measurement of expected growth!)

Tacoma: 13.4% appreciation last year, predicted 6.0% appreciation this year

Portland: 20.1% last year, 7.5% predicted this year

Dallas: 17% last year, 7.6% predicted this year

If you had rigged dice, which market would you roll the dice in?

I talked with Dan Self (https://www.angieslist.com/companylist/us/in/moore...) , and Todd Whitehead (http://www.rocksolidhomeinspect.com/) when I was in Indy. I reached out to a few other inspectors but they did not return my emails in time. 

I was impressed with both Dan and Todd, but will go with Todd this time. I'll update this thread once I have true experience!     

I went with $5k deductible on ACV of the property. This was the maximum my bank would allow, and took a bit of negotiating between the broker and the bank to get it there.

@Harry Zhou sounds good!

@Jacob Evans - talking to you in Spokane was what made me realize it's worth reaching out to meet more people on BP.  

@Edward Rhoads, @Ben G. - thanks for the thought... next time!

@Erin Donlan, @Joshua Bangert - I'll PM you, and I look forward to talking in Indy!

Hello all!

I'm a real estate investor living in the SF Bay area, and I currently own one multifamily rental property in Spokane, WA. I'm looking to expand into the Indy market, looking at either SFR turnkey rentals, or possibly small multi's in nicer neighborhoods such as Fountain Square. I plan on buying 1-2 rentals in Indy this year, and if the numbers pan out nicely, will expand with possibly another 5 next year.

I'm going to be in Indianapolis for a weekend, and will be around all of September 9 and 10. During that time, I would love to meet with anybody more experienced in the area, especially other investors that have been investing in buy and hold SFR's in Indy.

Is there anybody that would be interested in talking shop on real estate in the Indy market that weekend? Coffee is on me!