The power of a new construction
cost segregation study
can save you thousands.
That's today's show.
Let's dive into it.
Here we are at our very
first rental property.
[MUSIC PLAYING]
Hey, everyone, I'm Clayton
Morris, longtime real estate
investor, and I've built
multiple seven-figure
businesses.
This channel is focused on
buy and hold real estate.
That is the number one way
to build wealth, I believe.
It's how I've done
it, and that's
how we're going to
help you do it as well.
So today's topic is high level.
If you plan on starting a
new residential construction
projects soon, you
may want to consider
adding what's known as
a cost segregation study
to your overall plan.
Or better yet, utilize a
full-service real estate
investment company that
conveniently builds a cost
segregation analysis into their
new construction projects.
It's an extremely
important element
and allows for tremendous
tax saving opportunities that
are often overlooked, the chance
really to greatly accelerate
depreciation deductions
on land improvements
and personal property
early on in the game
so you can save more money,
more money in your pocket.
Whether you perform a
cost segregation study
on a single family home,
duplex, or another type
of rental property,
you will literally
save thousands of
dollars in this process.
All right, so what is a new
construction cost segregation
study?
A new construction
cost segregation study
is a mouthful, number one.
It's a thorough analysis of a
non-structural components that
make up a property for the
sole purpose of reclassifying
these eligible items into
different tax classifications.
Simply put, this pulls
the eligible assets out
of real property section 1250 in
the tax code, which depreciates
over the entire lifetime
of the property,
and then instead, it puts them
into the personal property
and land improvements
section, which is 1245--
1250, 1245-- with new
accelerated depreciation
frames.
It's basically
reclassifying the way
the house is taxed
and depreciated,
taking it out of the
longer, more slow process
into the faster, more
accelerated process.
But you need to do
this with a proper CPA,
so this is not something
you can do on your own.
Just a reclassification of
certain things in the home,
and putting it in a different
section of the tax code,
leaving more money
in your pocket.
Doing a cost segregation is
one of the most powerful tools
an investor has at
his or her disposal.
The tax savings is phenomenal.
Yet another reason that real
estate is one of the best ways
to build wealth in
my humble opinion.
So reclassification
of property assets
allows for faster
depreciation rates.
Now, I'm not an accountant,
but this is how it works.
These newly assigned items are
depreciated over a shorter tax
life.
We're talking 5,
7, and 15 years,
as opposed to
everything being lumped
into one real
property depreciation
timeframe of 27.5 years.
Therefore, it significantly
accelerates the depreciation
on these eligible items, which
in turn greatly decreases
your tax burden and increases
your cash flow in the earlier
life of the investment.
You don't have to
spread it out as far.
So as you can see, performing
a cost segregation study
on a new residential
construction project
is certainly a smart
real estate tax strategy
that prevents your money from
being tied up in one property.
This allows for the flexibility
to allocate your funds
into other real
estate investments
so you can quickly
grow your portfolio.
So if your portfolio
is growing, and you
need to find reliable rental
property insurance that
will maximize your
cash flow, you
need to take a look
Arcana Insurance
Services because we
utilize them for all
of our rental properties.
We'll have a link below--
super easy to set
up your insurance.
Now we're going to talk about
how these items are broken out
and accelerated
depreciation timeframes,
like the roof and other things.
So a cost segregation engineer
will do a thorough analysis,
determine which
real estate property
items are eligible for
accelerated depreciation.
This comes down to
assigning components
into three different
classifications.
So let's take a look
at each classification
to better understand where
new construction property
elements may fall into place.
All right, number one building
components, personal--
this includes certain items that
are brought into, installed,
or applied to the
residential property,
and they're separate from
the building's structure.
This includes kitchen cabinets.
That's one big example
of a building component.
Here's another one-- site,
work, land improvements.
Site, work includes
improvements to the area
where the structure will stand.
However, it would
have to be done
before the foundation
is applied and before
going vertical on the house.
This might include soil removal
or grading of the property.
Site, work, land
improvements could also
include work done
to the surrounding
area, the immediate
construction site.
Laying down a driveway is
a perfect example of land
improvements, sewer
structure, things like that.
Then, building
structure-- this would
be the building and its
structural components,
items such as the
foundation, the plumbing.
These are all placed inside the
building structure category.
Now, let's break it
down a bit further
with some additional
examples of items
that might coincide with each
cost segregation category
that we've got here along with
their depreciation time frames.
These are very important.
So the five-year building
components-- one, moldings,
flooring, carpeting, ceiling
fans, wall coverings,
window treatments,
specialty plumbing
for kitchen sinks and
washer hookups, security,
and appliances.
The 15-year category-- site,
work, land improvements.
That might include driveway,
landscaping, irrigation,
exterior fencing,
patio, porch, concrete.
And then that 27.5 that
we all know so well,
that's just the basic building
structure foundation stuff--
roofing, HVAC, electrical,
plumbing, fire protection,
alarms, exterior facade,
building skin, doors,
window frames.
You get it.
So the benefits of performing
a new construction cost
segregation analysis sit
in that 15-year window.
That's the hint.
So at this point, you
might be realizing
that you can't afford not to
perform a cost segregation
analysis on your property.
This especially applies
to single family homes
and duplexes that are
used as rental properties.
That's what we build
at our company.
A professional cost
segregation analysis
on these types of
residential properties
can significantly
reduce the amount
paid to the IRS
in that first year
and in the years
that follow, which
will save thousands of dollars.
So if you want to
even learn more
about lowering your
taxes even more,
you may want to read the
grade book Tax-Free Wealth.
It's an outstanding book by my
good friend, Tom Wheelwright.
We will have a link below
to that amazing book.
So take a look at these
benefits of performing a cost
segregation study on
a new construction
of a residential
rental property.
So these are studies performed
on the new construction
of a single family
home and duplexes,
and they can increase
your tax savings
by adjusting the timeframes
of those deductions
and not spreading it
out over 27 years.
This can save you an
incredible amount of money,
as well as free up capital
to invest as you see fit.
Now, you may lose all the
depreciation eventually,
but cost segregation
will allow you
to accelerate the return
on your investment
in a much shorter
period of time.
So you're going to see a
lump of cash immediately.
You'll still continue
to depreciate items
over the lifetime of the
property, the 27.5 years.
But however, because a
certain percentage of that
is reclassified and
you're accelerating it
in the first year,
that means you're
giving the IRS less of your
money on an annual basis.
So this reclassification of
property assets within a new
construction project allows you
to benefit financially from new
land improvements--
there we go--
that typically can't be written
off on existing rental property
purchases or
renovations when you buy
something that's already there.
So this tax strategy
creates an audit trail
that supplies you with the
necessary documents for costs
and classifications.
In the event that they are
ever needed by the IRS,
you have them all
in your folder.
So you may be
asking can I perform
a single or multi-family
home cost segregation myself?
Well, the money that you save
from having a cost segregation
performed on your new
rental property construction
will far outweigh the fees
associated with hiring a cost
segregation study expert.
Plus, you also have the option
of having the analysis cost
built in to the new
construction price,
normally, at a reduced rate.
So you want to have
an expert in the field
perform the cost
segregation study,
and it's going to ensure
that it's well documented
and it's correct, as well
as done in such a way that
will maximize your tax savings.
So you can't do it yourself.
You have to hire a proper,
licensed CPA that can do it.
You have to have an engineer
do a cost segregation
study on your new single
family home or duplex.
It's the best way to go.
You have to do it that way.
It's certainly something
we do all the time.
So it allows for a professional
and an accurate assessment
of classification
and cost estimating
of new construction
projects, which
will maximize your tax savings.
Experienced cost
segregation specialists
will have the ability to
read blueprints, analyze
architectural drawings,
bid up documents.
They're going to look at other
crucial documents that play
a part in the analysis process.
And they fly into town and
spend days at your property.
Cost segregation studies are
performed by a construction
engineer with extensive
knowledge of the tax law.
These are not amateurs, OK?
They provide asset
classification organization
along with
explanations if needed.
So no research or
guessing on your part.
They are the expert.
So if you were thinking about
trying to do your own cost
segregation study,
then it's possible
that you might also
be contemplating
managing your own
rental properties also.
Don't do it, folks.
If this is the
case, you might want
to look into some free online
property management software
to think about, which we'll
have a link below to that
so you can do it yourself
if you're going to.
Let me give you a sample
here of course segregation
study on a new construction
single family homes.
So this is an example now.
If you had $100,000 in
cash that's not invested,
and you happen to pay
a 37% tax rate on it,
you would have to pay $37,000
in taxes to the government.
But if you invested this
$100,000 as a down payment
on the new construction of
a single family home rental
property, and then you perform
a cost segregation study,
the amount you
would owe to the IRS
would be considerably
reduced based
on this following example.
Purchase price-- $400,000.
Down payment-- $100,000.
Cost segregation
write-off-- $70,000.
So multiply that $700,000
cost segregation write-off
by the same 37% tax bracket,
and you have a $25,900 savings.
This means you would only
owe $11,100 to the government
in that first year.
Boom.
Mind blown?
Now you know why I
love this so much.
This is, again, not
amateur YouTube stuff here
from some amateur YouTube
guru on real estate, OK?
This is advanced level stuff
that the wealthy people
understand.
It's why I love this
so much, and I'm so
thrilled that you're
watching this video.
But we've got more
to get to, so please
hit that Like button if
I'm helping you so far,
and smash that subscribe
button as well.
OK, let's get back to it.
So take that savings of
$25,900, and then add it
to a $6,000 cash flow
from your tenant.
Now you have $31,900
return on investment.
That equates to a
31.9% first year return
on your $100,000 investment.
Again, mind blown.
Do you get it?
Remember, you have a tenant
in the property with the cash
flow.
So even after expenses, you've
got this cost segregation
analysis done.
You get the cash flow
from your tenant.
You're almost quintupling
your return on investment.
Follow me?
So as you can see, utilizing
a cost segregation study
will greatly impact
your bottom line.
To further decrease your
taxes, though, it's also
recommend that you incorporate
your real estate business.
It will allow you to be
eligible for even greater tax
deductions down the line
by running a business, OK?
Now that you see the
power of cost segregation
when it comes to
greatly accelerating
certain aspects of a new
construction property,
you may want to
consider integrating
an analysis into your
next real estate project.
With this in mind, the
most effective route
would be to have your cost
segregation study built right
in to your construction project.
This is smart.
That's what we do.
Morris Invest offers new
construction properties,
my company, with built-in cost
segregation analysis that would
cost thousands of dollars.
We build it into
the construction.
Most people don't realize
how much time and money
it takes to perform a
cost segregation study.
Our clients are usually shocked
to learn that we've already
paid for it, and it's already
completed, the cost segregation
study, when they buy
one of our properties
so they can immediately
in that first year
use it on their taxes.
A cost segregation study on a
single family home or duplex
can take up to three
months or longer.
But because it goes hand-in-hand
with our real estate projects
while we're building one of our
new construction properties,
and when someone
purchases with us,
the study is already performed.
This allows the buyer to
accelerate their depreciation
at a much faster rate, therefore
maximizing their tax savings,
which is awesome.
So our focus is on single
family residential properties
and duplexes, making
us experienced
industry leaders in that area.
That's what we do.
If you're interested and want
to book a call with our team,
you can.
At Morris Invest, let our
team of seasoned professionals
help take care of all of your
cost segregation details.
We'll explain it to
you over the phone.
You can book a call with
us at the link below.
So we want you to take
control of your money
with a new construction
cost segregation study
because wise real
estate investors utilize
the power of cost
segregation studies
to reclassify their
new construction
assets on their
single family homes
and their duplex
real estate projects.
Look, this is
incredible tax savings,
and it can save
thousands of dollars
in the early life
of that property,
as well as it giving
you the freedom
to allocate some of
those additional funds
towards purchasing
other real estate
investments if they see fit,
or buying gold, or starting
a business.
The alternative is not doing
a cost segregation study,
and then sending
thousands of dollars
to the government for no reason.
It just makes sense.
Go ahead and book a call with
our team at Morris Invest
and let us help you with
all the details of owning
a new rental property and
a new construction project
with a built-in cost
segregation study.
We'd love to talk with you.
But also, subscribe
here to the channel,
please, and check out
all of the other videos
we have here to help you
become a real estate investor.
Just get started.
I believe it's the number
one way to build wealth.
We'll see you next
time, everyone.
