All Forum Posts by: Warren Marshall

Hey guys, 

I'm working on structuring a NNN commercial property for JV. It's a $15,000,000 commercial complex with national AAA tenants that is projected to return 7% Cash on Cash Return day 1 (after vacancy, structural reserve, mgmt, 65% non-recourse financing, and non-recoverables) with an additional equity pay down of 6.7% per year. I'm working with a mentor that has been doing these types of deals for 35+ years but he hasn't done one this big in a while and worried we don't have enough investors to raise $5.3m before closing (once the offer is accepted). We have successfully raised $1m-$2m easily in the past.. within hours of releasing deals not as good as this one... However it's a much bigger raise and our unit prices would have to be triple what they have been in the past, $250k each minimum. Looking for input.

Thanks in advance, 

Warren

 Thanks Oren, 

to clarify, is the recapture amount based on your original purchase price or your sale price?   Secondly, assuming you depreciate your rentals have you done any cost segregation studies?   I cant seem to find anyone local who does, it sounds like its worth it with larger buildings but I want to make sure its still applicable in Canada. 

Thanks in advance, 

Warren

Follow up post for who ever finds this down the road:    

Positives of Depreciation: 

TVM - Time value of Money   I originally thought of the depreciation expense as profit/cash flow.   However it is more like interest free borrowed money.   To benefit from depreciation the most you must reinvest the depreciated amount and hold off selling the property until you are net positive. 

What I still haven't figure out yet:

- What holding period length is the minimum in order to reap the rewards?  (my assumption is 5+ but really not sure)  

-Not sure how to calculate the recapture amount yet.  Haven't found a good calculator or formula. 

-Would like to know if anyone has invested their depreciation expense into an investment account (ETF for example) every year and pulled out what was needed to pay recapture and Capital gains at the end..?    

Helpful Link:

I found this podcast by REI Mastermind really interesting about Accelerated depreciation and Cost Segregation Studies. Worth a listen if interested but not sure if it's completely applicable in Canada.

https://podcasts.apple.com/ca/...

Looks good Andrew, very similar to deals I'm looking for up in Canada. Is this NNN or Gross Lease?

Hey Guys, 

Cash flow question:   Does anyone invest their cash flow into a liquid tax sheltered investment account? (Canadian investor so I'm thinking TFSA)  The intention would be to invest the bulk of it, and at the end of the year withdrawal enough to pay taxes and leave the rest to grow until we can buy the next property.

My wife and I have a couple Airbnb's that are cash flowing nicely and it seems like a shame to have it sitting in our bank account. For sure I would leave a month or two of reserves in case of emergency but we currently have 8-10 months sitting there.   It would be invested in low risk accounts- I like Wealthsimple but open to other options. 

Thanks in advance, 

Warren

@Melanie Dupuis  I appreciate that point of view.  That helps a lot, just gotta make sure that I invest the depreciation benefit so that at the end I'm ahead of the game vs scrambling to pay off the extra expense.  Am I right by saying Its almost like having an interest free loan that has to be paid off at the time of the house sale?

Really appreciate the feedback

@Melanie Dupuis  and I'm assuming those properties you sold you were depreciating along the way?      Once the sale was done you obviously still thought it was worth it? 

Hey @Melanie Dupuis,  I've also thought of doing it this way.  It makes sense because you can invest that money today and have substantially more by the time you need to pay the recapture.   Am I right by saying you have intentions to hold for 10+ years on these properties?

Hey @Jonny Van Dyck,  I'm glad others are in the same predicament.    I would love to find a Canadian Real Estate tax specialist to explain the ideal structure for Canadian Investors.  I'm going to send you a DM, have some questions about the BC market. 

Thanks again

Every Podcast tells me the answer is yes, however every time I talk to my accountant he says that depreciation isn't always worth claiming.     He mentions that when you go to sell the property or if you pass away your kids will have to pay the depreciation recapture.   Basically cancelling out any benefit it has.       Am I missing something, or is there a follow up question I should be thinking about?  

Thanks in advance, 

Warren