[MUSIC PLAYING]
All right.
We're here in Texas
at one of our job
sites for our new
construction properties.
I'm here with my man, Josh, who
is really our cost segregation
expert.
So cost segregation, I
think, for a lot of people
scares them.
But if you are a
real estate investor
and you're investing
in new construction
properties or
renovated properties,
from a tax perspective
this is really
one of the absolute secrets that
you need to pay attention to
in order to lower your taxes.
Right, Josh?
Absolutely.
Absolutely.
So I mean, one of the things--
if you're sitting there
right now and you've got--
this year you've got
a tax bill that's
going to be $50,000 or
$70,000, something like that,
if you invest in a new
construction property,
how does that alter
your tax basis?
Well, there is a little known
law about cost segregation
where on newer construction
properties built within
the last 15 years-- we do it
on all of our new construction
projects--
you're actually able to
accelerate the depreciation
of personal properties
and mechanicals
in addition to the
depreciation of the structure.
So what that does is it gives
you a bonus over 5 and 15
years on all the interior
pieces from your appliances,
to your water heater,
to your furnace.
And you can actually take that
as a bonus in your first year
against your income.
So you're taking
that depreciation
lost against your income.
And you can get close to a
$0.70 to $0.80 on the dollar
write-off for the amount
you invest in a property.
And let's be honest.
There's a lot of myths about
what you can do with the taxes.
So people think, oh, my gosh.
Well, if I get this
cost segregation,
I'm able to quickly depreciate
in those first few years
or in that first year.
Then, oh, my gosh.
That whole long depreciation
over 27 and 1/2 years
is not going to happen.
But that's a total myth, right?
Total myth.
A total myth, similar
to how you'd hear you
can't use an IRA to buy
real estate type myth.
Not true at all,
no basis in truth.
Because you're only
accelerating personal property
in mechanicals versus
accelerating the structure,
which is your 27 and 1/2 years.
And you get to take that every
year in addition to this bonus.
So we're outside.
It's a rare cold
day here in Texas.
We got a little bit
of snow overnight.
It was 73 degrees.
They had this cold
front move through.
So Josh is being brave.
We're outside.
But the reason we're outside
and in this little bit of snow--
by the way, it was so funny
today that some of the schools
got delayed with this
little bit of snow.
At least this is not--
you would walk to
school in this.
But anyway, we're here next
to one of the properties.
So we're at a duplex right now.
And then over here,
this is a duplex
that's going up right
now that we're building.
And let's talk about
some of the features--
and if we want to take
a little walk here--
that you would be able to
depreciate doing a cost
segregation analysis, the
benefit of having a CPA
do a professional
cost segregation.
When you look at a new
construction ground up,
what types of
things would you be
able to take advantage of in
a new construction property
that you wouldn't if you
bought a renovated property?
All the light fixtures,
all the appliances,
all the interior pieces like
the flooring and the cabinets.
And they break it down
between 5-year depreciation
and 15 years.
Some things like lights--
they would say 5 years.
Some things like
major mechanicals--
they would say 15 years.
What about roads
and improvements
there that you might not get
from just a typical renovation
project--
improvements in
the roads and some
of the infrastructure
to the neighborhood?
To the infrastructure
of the neighborhood,
you don't really get a
depreciation bonus on that.
It's just more the structure.
So it comes down to what
the structure is built with.
And being newer
construction, you're
able to depreciate something
within that 15 years,
because you get that 15 years.
Something older than 15
years-- the depreciation
has already been
taken advantage of,
whether it's by you or
by the previous person.
So even if you
renovate a property,
you still don't get the
same amount of benefit
you would buying it brand new.
Because you're taking--
it's like driving
a new car off the lot,
how it depreciates much
faster than a used car, right?
The value goes
down tremendously.
Same principle here when
it comes to real estate.
It's just a great law that lets
you take advantage of that,
unlike buying a new car
where you really don't
give a depreciation benefit.
Right.
Well, let's get out
of the wind over here
and walk back a little bit here.
So with some of the
new construction
that we're building, the
benefit for a buyer--
let's talk about that.
So someone's buying-- we
have a waiting list right now
for a lot of our
new construction.
But if someone is coming in
and buying a new construction,
talk about the tax
benefit that they would be
able to see in that first year.
What would they get?
And how long would it take
them to do it on their own?
The benefit that we have is
that we're building this in,
right to the product.
So when they close, we're
handing them the paperwork,
right?
Absolutely.
Well, first off
challenge-- if you're
getting a new construction
property built
and you need tax savings
in, let's say, 2019,
you have to close on the
property in the year you
need the tax savings.
If you don't complete
that property
and close on it until January 1,
you can't use that tax savings
in 2019.
Same principle for
this year as well.
So here's your advantage
number one is having
it built and delivered, right?
And that's obviously
something we
have where it's already done.
It's not like you're going
out and building it and hoping
they get it done in time.
Number two is the study, right?
That's something-- no extra
charge for our clients.
We order them for
all of our projects.
And that typically takes
two to three months
and can cost between
$5,000 to $7,000,
depending on how
big the property is
and how much work they
have to do to break down
the different pieces of it.
And because we have our
CPA come out doing it
all at the same time
as we're building
the different properties, he's
able to do it all at one time.
And then that savings--
they don't have to
deal with that, right?
Oh, exactly.
Yeah.
So when we're going out and
we're doing this in bulk
where we're building
50, 60 properties
and they're all
exactly the same,
we're able to bring them in.
And we're able to get a savings
that you wouldn't get if you
were to do your own duplex.
Because every property is
going to need its own cost set,
unless it's the
exact same property,
so built with the same
plans, the same materials.
The same report
will work for that.
All right.
We're going to go inside now,
because we're all freezing.
So let's go inside
and take a look
at some of the cost
segregation analysis
items inside the house that
break down some of those myths.
Come on.
Let's go get warm.
