Hello, David Moore, Equity Advantage IRA Advantage.
I once again have Jonathan Frizzell at CBRE
cost seg out of Seattle.
We are covering cost seg today, something
that's probably outside of the box for a lot
of our viewers. I guess I wanna say something
real quick just before we get into this last
segment here. If you have questions on certain
issues that you think are important to somebody
in the real estate world, please reach out
to us. Give us a suggestion if you've got
an idea for an Ask the Expert segment and
we'll do our best to address any of those
items that we feel is really of interest to
the real estate investment community.
Thank you for signing on to our channel and
paying attention to us today. We're going
to answer a few more questions, and then set
you free on down the road. How's that sound,
Jonathan?
Sounds great, David.
All right. Like me, you're dealing with tax
stuff. I always jokingly say about tax law,
nothing's black and white. It's all gray.
Rarely something where we can or can't do
something, it's how we're gonna get it done.
With that said, have you had clients audited,
and what kinda response has occurred if they
have been, or what actually flagged the audit?
Was it the cost seg? Do you see cost seg as
an audit trigger, I guess is what I should
say.
The answer is absolutely not. There is an
unsafe belief out there that a cost seg study
with a catch-up study and a 3115 IRS form,
that's gonna trigger an audit. In my 12 and
a half years, almost 13 years of service,
and hundreds of studies I've personally delivered,
we have never been audited. I've known of
clients that have been audited that have had
a cost seg study. But it was never because
of the cost seg study. It was something else
in their business or their personal tax return.
So it becomes inadvertently ...
It's important to note that if you have a
high-quality cost seg provider that will defend
it to the bitter end, there should be no problem
at all whatsoever.
So deal with a professional, is what you're
saying.
Deal with a professional. That's correct.
Not somebody that does this as a side business.
It's complicated stuff.
Yeah, you don't wanna be done with anybody
working in their kitchen, that's for sure.
That's funny. Nobody likes to be audited.
I'm sorry, service. Nobody likes it. It's like
going to the dentist, okay? Sorry, Dad. It's
just one of those things where I ... I remember
going to Dad's office. He had these little
plastic or metal rings for the kids to ... "Here,
here, do this. You've got a cavity, but here's
this ring." Anyway. "Free bowl of soup." Anyway.
The idea is if it happens, how defendable
has it been for you? If somebody is audited,
is this something that the service is all
in on? What should somebody expect?
First of all, it's an unlikely event that
they are gonna be audited. We're looking at
anywhere from one, 1.5% of anyone that's had
a cost seg study performed on their commercial
property has been audited.
But the reason for the audit ... That's not
the trigger.
Yeah, it's not the trigger. It's never the
study. Always, meaning 99.9% of the time,
it's something else in their file. Then they
happen to see that there has been a cost seg
study been performed on that property. But
to my knowledge, and I say this with certainty,
I've never been audited in any of the studies
that I've delivered.
Anybody that I've worked with, the actual
engineers, they've all won. They've all won-
People-
Regardless of what company I'm working with.
You mentioned that one of your coworkers were
discussing, and they had somebody audited.
Yeah. We usually give about 40 hours at no
cost. If we have to travel, there might be
a charge on that. But we try to give a minimum
of 40 hours. I can sweeten it by doubling
it. 40 hours is plenty.
So 40 hours of defense?
Up to 40 hours of, yeah, defense, audit support.
Audit support.
Audit support on that. We can certainly double
that. We were going after a large-
But you just don't have to do it very often.
No, yeah. I don't have to do it at all. Like
I said, I've delivered several hundreds of
studies, and I have not ... I know my clients
personally ... I would know about it. They
have not been audited. Again, audits are usually
because of something else in the file, not
because of the cost seg study.
I interrupted you. You started to talk about
a study you were just doing, I think.
Gosh, I can't even recall that, what that
was about. We can move on to the next question.
No problem, David.
Next question, next question. Basically next
question is really a comment, I think. It's
just do good work, right? Apply Jim Rome to
it. Have a take, don't suck.
Right. It's important that the project manager
and the engineer ... I've been trained over
the years to do them. I do the on-sites or
OSRs, on-site reviews, on the building. Right
now it's not a great use of my time, but I
learned a lot. But it's important that the
project manager or the engineer that does
the on-site on the subject property takes
the time out to really go ahead and document
the improvements. When you get into retail
and office, you wanna treat each suite as
a separate unit of property. You don't wanna
broad stroke and try to cut corners and get
done. You wanna go in right to come out right.
It's very important that your project manager,
engineer, when they do the on-site, that they
actually do visit every suite, occupied or
unoccupied. That's where the value is.
It's amazing among retail and office buildings.
The truth of the matter is not all suites
and units are created equal. They're all different.
That's where the value is. Then when they
bring back the pictures and all the documentation,
that's the second part of where the good work
starts and ends.
Right. Right. Before I let you go, I want
you to look at the camera and I wanna tell
people how they can reach you, and is it fine
if they've got questions for them to reach
out to you? What's the best way to contact
Jonathan with questions that our viewers may
have on cost seg?
They can contact me any time, anywhere, seven
days a week, either by my direct phone number,
which is area code (206) 399-7769. That's
(206) 399-7769. My email address is jonathan.frizzell@CBRE.com.
Again, that's J-O-N-A-T-H-A-N.F-R-I-zebra-zebra
.. That's two Zs. E as in Edwardo -L-L@CBRE.com.
Thank you, Jonathan, for joining us today.
Thank you, audience, for joining us for another
Ask the Experts, this time on cost seg. If
you've got questions or suggestions, please
don't hesitate to reach out. Look forward
to speaking with all of you, and thank you.
Thanks, David.
Take care.
