Yonah Weiss – How Does Cost Segregation Work in Real Estate?

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Multifamily Commercial Real Estate Show - Yonah Weiss

Yonah Weiss – How Does Cost Segregation Work in Real Estate?

Yonah Weiss is a lifelong learner and teacher who uses his passion for teaching to support real estate investors in creating powerful tax strategies for their businesses. Known as the #CostSegKing in real estate circles, Yonah is also an advocate for cost segregation that allows investors to grow their businesses by reducing their taxable income and increasing their cash flow. He will reveal in this episode how exactly that works, as well as the things that successful people do that you can apply right now. Listen to Yonah and know more about cost segregation!

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[00:01 – 05:25] Opening Segment

  • Let’s get to know Yonah Weiss
  • The benefits of cost segregation in real estate

[05:26 – 15:53] Cost Segregation

  • Yonah breaks down depreciation and accelerated depreciation
  • What investors should realize about tax deductions
  • What most successful people do according to Yonah

[15:54 – 25:46] Business Scaling

  • How to scale in the real estate business
  • What Yonah learned about savvy commercial lenders
  • How much depreciation can an investor expect from cost segregation?

[25:47 – 32:41] Value of Depreciation

  • How depreciation is set when you buy a property
  • When to reach out to Yonah and his firm
    • Should you go to your tax advisor first?
  • The minimum dollar amount for real estate properties

[32:42 – 34:07] Closing Segment

  • Connect with Yonah
    • Links below
  • Final words from Yonah and me 


Yonah Weiss 0:00
One thing that I learned from a commercial lender a couple years back was that the savvy commercial lenders can actually add that back into the underwriting to show what the real cash flow is. And maybe this is more you know, less for syndication is more for individuals who are buying properties. Because you know, you’re not dealt, you’re not, you know, distributing the income to, you know, to investors. But what having that initial report, or that initial at least estimate, analysis before you buy a property, you can actually share that with your lender. And they can help to understand what your because they’re always going to be looking what’s the DSR right how much money you’re going to have to pay off the debt service. They want to know that upfront, when you can show them that, well, here’s my cash flow. Here’s my net operating income, but I’m not paying taxes on that. So really, my cash flow, right is much more. And so really, I have more to work with in terms of the debt service coverage ratio. That’s something I learned from a commercial lender a couple years back that I thought was very insightful.

Abel Pacheco 1:02
Hello, hello. Welcome to the five talents podcast. I’m your host, Abel Pacheco, I interview the top commercial real estate investors and industry experts. So you can learn from their experiences. So if you’re an investor, a high W-2 earner or real estate or tech sales professional, that wants to invest in real estate without having to manage properties or leave your day job, then this podcast is for you. Or if you’re already investing in real estate, but you’re doing it part time and you want to become a full time, multifamily or full time commercial real estate investor. This podcast is for you too. You’re going to learn a ton. You will learn from real life, multifamily investors and other professionals in the industry. They’re going to share their blueprints for success. And I’m super excited that you’re here. So I hope you enjoy the show.

Alright, hello, hello, this is Abel Pacheco, your host for the five talents podcast, we are super excited as always to bring you some additional educational information for investing for financial freedom for multifamily commercial real estate, and we are pleased to provide you with some bonus episodes. So if you’ve been following our show, there are 186 out and 187 something shows that we’ve been able to record with some phenomenal guests. And last year when COVID was bringing us down that one of the hardest levels for networking in person events, we started a virtual meetup. And we were doing weekly Wednesdays and we did those for gosh, it felt like a little under a year. And every once in a while we would have some really solid guests deliver some really great information. It was just for our meetup attendees. And we are finally going to publish those. So we’re excited to put them out some unreleased unpublished some versions of our meetup. So I just wanted to provide you a heads up, these are going to be the next few bonus episodes, push them out and get some information, additional education out to you all. So hopefully you enjoy. We trust that you all are liking our sending reviews, written reviews to our podcasts, the number of positive ratings continues to grow. So we appreciate your listening, your support, your social support, as well on Facebook and LinkedIn and all the different places that we push to so an Instagram. So thank you very much for everything. And I hope you enjoy the next several episodes. So guest number one was Mr. Yona Weiss, he was our first podcast guest he helped me through the way we had a great conversation. And I thought, you know, he would probably be a good, you know, source for education today. So I’m gonna allow him to introduce himself further and say what he does and how he does it. And then, you know, probably just ask a few questions as you’re going through this and would love you know, to talk about some accelerated depreciation cost segregation, and, you know, so let me turn it over for a minute. Introduce yourself, please. And then we’ll go from there, brother.

Yonah Weiss 4:17
I think he did a great job introducing me already. I don’t know what else I needed to say.

Abel Pacheco 4:21
The Cost That King if you’re new to LinkedIn or social follow this guy, he’s a good following

Yonah Weiss 4:26
Yeah, I think I pretty much recognize everyone’s name here. For the most part. I didn’t look at every one yet but definitely see a lot of familiar faces and names so great to have you here. Yeah, I’m just literally like you said traveling all over the world today. And my voice is already a little hoarse from the presentation I just did for the last hour so,

Abel Pacheco 4:43
I love it. What was your take it easy audio? Yeah, we’ll take it easy it man.

Yonah Weiss 4:48
It’s all good. So I’m with Madison specs. We’re the largest national conservation company doing this in all 50 states have been involved for a little over three years with this company. So just enjoy wanting the ride trying to teach people about the tax savings help people save income tax. And it’s been a lot of fun. I’m also the host of The Weiss Advice podcast, which I highly recommend anyone checking out some good, good content putting out there, not about conservation. So if you want to hear it, you got to stick around today and pay attention. Or you can just listen to me on a couple of the podcasts I’ve been on. So without further ado, Abel, what’s the story?

Abel Pacheco 5:24
what’s the education? So, look, I’m going to take you through a few questions that, you know, I know he’s going to knock out of the park, but to double down on the Weiss Advice podcast, he’s got some amazing guests. He’s in the commercial real estate world full time, he knows the tax side of the world, and then interviews a lot of the players. So that’s a great one to watch as well, for some education, and you know, it only started out so for those that, you know, maybe we understand what it is, we understand, you know, there’s a tax benefit, just start at the 100 level 101 man, What is depreciation? What’s accelerated appreciation? What’s the benefit of caustic study? And then I’ll ask you, maybe one or two more, we’ll get after it.

Yonah Weiss 6:05
Sure, yeah. So just straight forward. If anyone owns a commercial property, any type of investment property doesn’t mean you can be residential, we have single family, you get what’s called depreciation deduction. And I’m sure a lot of people are familiar with this, and know that this deduction exists. And basically what it does is you buy a building based on your purchase price, you’re allowed to take a little bit every single year as a depreciation deduction. And even if you’re always going up in value, it’s appreciating. The concept is that since things go down in value, as time goes on, you’re able to take a write off basically every year of how much the building should be losing value as if it is but that starts the day you buy the property not based on the day the building was built, you know, unless it’s a new construction, then obviously, it starts when it’s first placed in service. So that’s what depreciation is, conservation is really just an advanced form of that is saying, Well, hey, the whole building is, you know, there’s a lot of components, a lot of things, individual assets inside this building inside this property that actually according to the tax code, depreciate at a faster rate. And so you’re able to take by doing a concentration study, which is a very detailed engineering study of the building breaking down, there’s different components, it’s there’s different tax life is different schedules, you’re able to take those tax deductions at a faster rate. So in a nutshell, that’s what it is, we’re front loading your overall tax deductions that you can spread over a 27 and a half year period, take a little bit every year, we’re front loading a certain portion of that maybe 20 to 30% of that into the first year or the first five years. And you can take those as large tax deductions up front.

Abel Pacheco 7:42
Yeah. And let me give you a working example. And actually the gauge the audience, who is a real estate professional IRS classified, you know, your real estate professional, okay, who got a significant other, that’s a real estate professional in the family. Anybody else? Okay, one or two other hands? Who is 100%? You know, you’re not a real estate professional at all. You’re full time W-2 who can’t take any of those. Okay, okay. Cool. Few of you. So that kind of gauges the room, right? I was not a full time real estate professional, according to the IRS, and 2019. My wife was, and my wife stayed home from work. She was the CEO of our real estate business. I invested 100k cash in a couple of deals as a passive investor. And we essentially had enough everything that Yonah just talked about accelerated depreciation through a cost segregation study squeezed 27 years down to like five, and in the first year bonus here, we wrote off $68,000 from taxes. So I was like, that’s a pretty good 100k investment if I ever seen one. So I put in 100. I was the W-2 earner at work. So I had pretty good W-2, which I walked away from this year. But that W-2 withholdings was less than 68. So I wrote off all of my W-2 withholdings. I got a 30k refund check. And then I had more taxes deduction to roll over to 2020. So that is basically how my Oh, I understand fully the benefits. Let me just frame that for you guys on the benefit of this Yonah, so what do you see, you know, you see a lot of commercial real estate investors, syndicators, operators, passive investors talk with a bunch of people in all different kinds of assets, asset classes, did I miss anything on these benefits on why it’s so money?

Yonah Weiss 9:41
I think you highlighted something really important is it’s not about how much these tax deductions you can get. It’s really about how much you can use Okay, and so if you are not or you or your spouse are not a real estate professional, then you’re limited to how much of these tax deductions you can actually use in current year. So I think that’s something a lot of overlook, they get, you know, here by the conservation day we get like a free estimate, you know and see, wow, this means I can get $300,000 in depreciation deductions this year, that’s awesome. You can. But if you’re not a real estate professional, you’re limited to use those deductions to offset your passive income from your rental properties. So it is limited. But if you are a real estate professional, like Abel said, it goes well beyond that, and any passive losses, any extra deductions you have, can be used to offset your W-2 income or income from any other sources. So if you’re a syndicator, for example, right, you may be taking an acquisition fee, that’s not Rental property income, right? That acquisition fee might be large, you know, portion of your income, and that’s going to be taxed at the highest possible rate. You want to make sure that you’re getting the tax deduction to offset that. And so it’s really part of the strategy, part of the game of building wealth through real estate is not only creating that wealth through you the equity in the property through the cash flow, but also specifically for the tax deductions that come along with it.

Abel Pacheco 11:03
Yeah, that’s awesome. who’s invested in single family prior to commercial multifamily? Okay, gotcha. gauge the room a little bit. And, you know, unfortunately, you know, I did take tax deductions, which is really good and single family, I just never squeezed 27 years in in the first five. That’s basically the the Excelerator part. So anyways, you know, that’s why I wanted Yonah talk a little bit about, hey, what, you know, maybe a different. I don’t know if anybody asked you this, you turn a podcast. What’s up with the new regime? The new presidential, our POTUS, he’s got some plans, some thoughts on new, you know, tax rules. Have you dug into any of that stuff as it relates to accelerated depreciation, cost segregation study, or it’s too soon to tell do you know any of those insights?

Yonah Weiss 11:54
Yeah, I think I think it’s too soon to tell. For one, there’s been so little information given about any potential possible plans that it’s not even worth spending time looking into should at this point, yeah, it’s total speculation. And not only speculation, it’s so vague, is what it is. It’s really you hear things from different different sources that are completely contradictory. So I think it’s too premature to actually dig into that I think we need to wait in the coming months. And then, you know, see what happens from there and then see what happens with Congress, because any potential tax plan that any President has, has to go through the Senate has to go through the channels to pass first. So historically, you know, tax advantages, especially real estate, bonus depreciation, for example. All this stuff has been highlighted and has been, you know, passed through Congress, and I’m talking about consistently over the past 50 years. So this is nothing new to like the Trump administration that, you know, they created the bonus depreciation with tax cuts and Jobs Act. That was a new a novel, right? benefit, but it was consistent with the tax advantages for real estate rentals, as has been for the last several decades. So I don’t see Congress, you know, changing anything in that regard. There’s been talking about doing away with 1031 exchanges as well. It’s also highly doubtful

Abel Pacheco 13:19
yeah, exactly. Say your prayer account or whatever you need to do flub it. Okay, well, that’s good. Still too soon to call. Hey, what insights or advice can you give, like, let’s say, we’re gonna switch gears a little bit. You’re the Cossack King, and we appreciate it. And I think most of this group can go follow any number of what 100 Plus podcasts on the subject, or have wondered what, how many have you done?

Yonah Weiss 13:44
a few times, I don’t know, I lost count. But I try to, I try to put them up on my website, you go to Yonaweiss.com, if you want to

Abel Pacheco 13:50
scroll through, I got a ton of them. So there’s a bunch of information. Switching gears you man have met with a lot of commercial real estate investors. Now maybe tell us like a couple of summary wisdom points, a few data points to say, man out of everything. Here’s the most successful people I think they do. XYZ maybe it’s a mindset thing, maybe it’s a strategy thing, maybe it’s whatever, whatever, we’d love some of those consolidated wisdom points if you can, if you can share.

Yonah Weiss 14:17
Sure. I mean, that’s great, I think and you’re right I have the you know, the incredible privilege and benefits that have you know, speak with some of the top people around the country I for the past few years, like on a daily basis, which kind of gave me an into why you started the podcast in the first place. I’m rubbing shoulders and talking to all these people like hey, I can interview them and let’s see what they have to share with my audience. So but I think one thing that is consistent you know, with successful people in general and specifically real estate is that they realize the importance of a team. Okay? It’s not like nobody there. I’ve never come across someone who considers themselves a self made right and and that concept to me really bothers me when people go at it. I’m self made. Right, first of all, without getting into, you know, the theology of it, no one’s self made, okay? First, but there’s a team involved, there’s always a team involved these people, they can’t do anything. And they can’t scale. Without having those team members and realizing the potential right? To be able to scale to be able to get bigger they need to delegate, they need to have those team members in place so that they can do more what they’re good at. And actually, I just had an episode air this morning with Dr. Aaron Hudson, I think she’s local to your you guys over there in San Antonio.

Abel Pacheco 15:33
Aaron, we know her. And she’s great. Awesome.

Yonah Weiss 15:36
And one of the things she talked about is exactly this when you know your superpower is when you know what you’re good at. Right? Find team members that are good at the things that you don’t like to do, and that you’re not so good at, and use those powers and combine them together to really explode. And I interviewed someone else recently, a couple guys that their partners, they came in partnerships, and how do you guys get started in partners? They’re both real estate investors both successful. And then they formed a partnership. I was like, how did that come about? And basically, they said, we kept bidding on the same properties against each other. And one day, like we just met at a property to add a property to or like, Hey, I know you’re gonna bid on this, I want to be like, why don’t we just buy it together? And let’s see. And it turned out they had a lot of strengths and weaknesses that the others didn’t have. And so it was an amazing balance, when you realize kind of just that humility, like, I don’t have to do everything on my own. I don’t have to take over the world on my own. I can partner with someone else and do something, focus on the things that I’m good at and the things that I love to do. And have a partner has people that can do those other things and just grow together.

Abel Pacheco 16:45
Hello, hello. You’re listening to the five talents podcast. I’m your host, Abel Pacheco. If you’re enjoying this podcast, then I know you’re serious about achieving financial freedom. Are you ready to create your own path through multifamily investing for yourself and your family? Then I know you’re going to appreciate our Investors Guide to multifamily investing. It’s titled tackling commercial real estate the easy way we use this guy to invest ourselves in $93 million worth of real estate. So we’re going to show you the basic mechanics of multifamily syndications and how to evaluate your next passive investment opportunity. So the best part, if you subscribe to our podcast now leave us a review and a rating. I’m going to give you a free copy of our ebook. So please take a moment to do that. Now. Once you’ve done that, go to 5TCRE.com/ebook, 5TCRE.com/ebook , make sure to let us know you left a review and we’re gonna send you a free copy. So thank you so much for subscribing in the five towns podcast, we really appreciate it

right on, I love it. That’s I mean, outstanding. That’s a good summary of of a number of topics, partnership working together, focusing on your strengths. And then you know, just realizing you’re only one man, no one’s self made, we all help each other, you know, one way or the other way that I’m learning from or actually partnering with, you know, everybody’s helping each other. So I love it, especially in the multifamily commercial community, it kind of feels like very different than the single family community that was a part of for a number of years. So anyways, this is awesome. Yonah, I want to be respectful of your time, my friend, I know you’re traveling to three other cities the rest of the day, or how you know, the five city tour today that you are on. So is there any last anything you want to share with us anything you’re you’re hoping to speak on today for our community, our network right now?

Yonah Weiss 18:47
Let’s talk about maybe just a couple more things. You’re just getting into one thing? Well, first of all, if anyone ever has a property you’re interested in looking conservation, obviously, I mentioned before we do a free analysis, something to let you know, to just look into see what those numbers look like happy to speak with anyone privately I have a Calendly on my LinkedIn page, you can just book scheduled time anytime like that. So I mean,

Abel Pacheco 19:09
Let me hit on it one more time for you just to highlight this, because I’ve used Yonah on you know, a couple of deals recently and I have this Before closing, try to pull somebody in an investor and and I have some pretty savvy investors that say, Well, how much tax losses am I going to get from this deal? And they want to know in advance before they invest? As opposed to after the fact we’re saying hey, it’s gonna be x amount. So Yonah will actually go give us at least some some very good closest to the pin math, if you want to call it that. And I know in advance and he’s extremely helpful, so I would highly recommend his services. Sorry to cut you off. I just wanted to share.

Yonah Weiss 19:47
Yeah, no, absolutely. And so that’s just something like like you said, sometimes investors are curious about that. Somebody you want to know I mean, you plug it into your underwriting. One thing that I learned from a commercial lender a couple years back was that The savvy commercial lenders can actually add that back into the underwriting to show what the real cash flow is. And maybe this is more, you know, less for syndications more for individuals who are buying properties. Because you know, you’re not dealt, you’re distributing the income to investors. But what having that initial report, or that initial at least estimate, analysis before you buy a property, you can actually share that with your lender. And they can help to understand what your is they’re always going to be looking what’s the DCSR right how much money you’re going to have to pay off the debt service. They want to know that upfront, when you can show them that, well, here’s my cash flow, here’s my net operating income, but I’m not paying taxes on that. So really, my cash flow, right is much more. And so really, I have more to work with in terms of the debt service coverage ratio. That’s something I learned from a commercial lender a couple years back that I thought was very insightful.

Abel Pacheco 20:53
Awesome. That’s great.

Yonah Weiss 20:55
Yeah, no, that’s, that’s good. Maybe there was, but maybe open it up to the floor, if anyone has any, any questions they’ve been burning to ask.

Unknown Speaker 21:02
I got, I got asked a question this morning from an investor. And the question, was it the same thing? How much depreciation am I going to get? And my answer was a lot. I just didn’t know how much. And is there an answer? He said, like a scale? I know, it’s hard because each asset is different. But is there like a range that you can give someone that asset before we go out and get an estimate on the property? Like, is it half of what you invest? Maybe? Or is it like, you know, 200%, to half to 200%? What is there? Is there like a range? Or is that like out of the question?

Yonah Weiss 21:35
No, there is a range? And it’s a really good question. There’s a range of the property itself, how much depreciation is going to be accelerated? So that’s pretty average, I would say, I mean, it fluctuates based on the type of property there is, but like, let’s say, garden style, multifamily property, typically between, I’d say 20 and 30%. And again, let’s say 25%. But that’s gonna be a round number. But then, even more importantly, is really what your investor is asking, Well, I’m investing X amount into this deal, like, how much am I going to get of that, okay. And so that’s something really important because your depreciation is going to be based on the purchase price. Okay, and so the investors, depending on how you structure it, most people structure the deals in a way that everyone gets an equity position in the property, which means they have a percentage of ownership, whatever that’s going to be, based on that percentage of ownership, they’re going to be allocated depreciation equally. So if you own 10% of the property, right, you’re going to get whatever income you’re going to get, you’re going to get 10% of the depreciation, whether accelerated or not, at the end of the year. Now, what’s important to note, and this actually came up very recently, that I mentioned is based on the purchase price, you may be getting at most people buy commercial properties with leverage, right, you get financing, you get a bank to pay a good chunk of that money, bringing you to your purchase price. So you may buy a $10 million dollar building, and you and your investors together, putting in 25% of that two and a half million, well guess what your depreciation is based on the 10 million on the two and a half. So you may have 100, you know, $250,000 investor, who’s putting in 10% of the equity, let’s just say to keep the round numbers, you’re getting 10% of equity, what you’re getting 10% of the equity and the depreciation based on 10 million. Okay? So 25% of 10 million, just going back to depreciation is to two and a half million dollars, and you get 10% of that, well, guess what you put in $250,000 investment, and I’m sorry, if I lost him with the numbers, but you’re getting in that example, the 25%, you’re getting 100% of that of the accelerated depreciation, which you’re doing bonus depreciation again, the first year, you’re getting all that upfront. Now, that changes drastically when number one, the equity split is is different, and when the leverage is much lower. Okay, so if you and I, we just had this recently with someone they actually raised, like 70% of equity from investors and only got a 30% loan of leverage, which meant that the depreciation allocations are much much lower. Okay, then they would be on a property that was bought with bank financing at a higher leverage rate. That makes sense.

Speaker 3 24:27
Totally makes sense.

Yonah Weiss 24:28
I see some confused faces though.

Speaker 3 24:29
That was awesome. That was super awesome.

Abel Pacheco 24:32
I did record this. I will send it out so you can break it down. But yeah, it’s you know, your your percentage of investment is a percentage of the equity and your leverage your loan to value also impacts that mount of return more I put in Yeah, and this and that flips, that flip answer is, yes. Get somebody like Yobah to help you with the deal, at least on the front end, right. And he can give you some examples. And then every do every investor still has their CPA that they probably need to talk to active passive different tax brackets things like that real estate professional not. But yeah, yep.

Yonah Weiss 25:12
I think Kenneth had a question he wrote in the chat

Kenneth 25:15
Yonah, I have a quick question. First Great, great information as usual. But say like you’re an investor, you looking at a property and you know, it’s gonna need some major capex even, maybe not right away, but down the road three or four years? Are you setting yourself up for failure for taking accelerated depreciation on say, like the roof? Or like water heaters or the Hvac or like, mechanicals? Are you replacing him in five years? And can you take like depreciation on the same items twice? If that makes any sense? Like, you replace the roof after five years? Can you do? You know, that’s a major expense can? How do you depreciate it? How do you account for capital expenditures that you’re going to be doing when you calculate your depreciation? I guess is my question.

Yonah Weiss 25:59
Yeah. Excellent, excellent question. So it’s really kind of a two part question here. And I’ll answer it in two parts also, which is I’ll just reiterate it for everyone. But just to preface, when you buy a property, your depreciation is set based on your purchase price, okay? Which means that’s the amount you can now depreciate over that number of years, you can accelerate that you cannot accelerate whatever, that doesn’t change with an appraisal doesn’t change. When that goes up in value, the only time that changes is when you do capital improvements, okay? So when you add money into the property that money spent, is depreciated, okay? Which means if you’re replacing a roof, alright, you’re placing the appliances, furniture, whatever you’re doing, you’re going to add that into your depreciable basis. And two things that happen. Okay, number one, when you do a cost segregation study, from the beginning, okay, on the acquisition, what we’re doing is we are doing, again, the constant engagement on the acquisition cost, we’re breaking down, engineers are breaking down what the overall purchase price is, and how much of everything in the building and everything in there, all the components depreciate, and we’re taking those tax deductions at a faster rate. Then, when you do capital improvements, and you’re replacing a roof, which is structural, anyways, a roof is structural, so it doesn’t accelerate depreciation, but it’s still depreciated. Just add that in, you are going to add that into the basis. Once you since you’ve done a concentration study, you can go back and do two things. Number one is called a write off study, which is, from the real, we call it a write off study. But what it is, is called partial asset disposition. It’s a tax terminology that allows you since you’ve already claimed the value of already identified from the beginning, from the acquisition, what the value of every individual component is, when in five years from now you replace those individual items, you can write that off for your books, when you take that off of your depreciation schedule, you’re no longer depreciating that it’s gone. Okay, which means it’s good gonna help you in the long run, also, if and when you sell the property on the back end with depreciation recapture. So that’s gonna be cut off, taken off the the books, that’s called the write offs. And then all the money that was spent on the renovations can now be allocated and segregated their costs right concentration into those different categories. And so you can do a follow up study, once you’ve done those renovations at a later point in a different tax year and take the tax benefits going forward. On on that amount as well.

Abel Pacheco 28:30
Clear, right, Kenneth? Hey, got to listen to that again. Yeah. Hey, I have a good question. Maybe to follow up on that. Who’s the best advisor to help me with that in the deal? Is it your firm or I go to CPA or who? Who do I basically talk to you and say, Hey, this is the best way to do it Abel

Yonah Weiss 28:51
to do what specifically

Abel Pacheco 28:52
would like to advise me, hey, if you spent capex in year one versus year two, bonus not is it your firm? Or is it like somebody else? My CPA on my dealer?

Yonah Weiss 29:03
Yeah. No, so we’re not an accounting firm. Okay, just to be clear, we specifically focus on cost allocation, we have other services. Also, Madison is a big company, Madison title, Madison 1031 Exchange, so we do other services. But yes, you can definitely come to us to advise on that aspect. But you want to, again, always discuss this with your tax advisor, because every individual has an overall situation, that the conservation is going to be looking at the specifics of the property of depreciation, but you know, maybe your overall situation is going to be different. We’ll look into that but it definitely is a good idea to do that. Do the conservation because it actually helps to do consergation from the beginning because it helps you later on when you do those renovations

Abel Pacheco 29:48
right on. Alright, that’s that’s awesome advisors. James. Over here.

James 29:54
Yeah, let me ask real quick. So how does it is it any conflict? Interested just to add advantage if you make a purchase of a commercial building in an opportunity zone,

Yonah Weiss 30:04
it’s not a really a conflict of interest per se, because the opportunity zone actually can be more beneficial. The interesting thing about opportunity zones is that you have to spend more money in the renovations or in the building whatever in the construction, then you would the actual purchase right? Now, something really interesting happens when you do a conservation, you do bonus depreciation immediately upon acquisition, and there’s some regs involved in this. And I haven’t actually looked, this may be already outdated. I think the last time I looked into this was was about six, seven months ago. So I don’t know if they changed things since then. I haven’t keeping up with the regs on the opportunity zones. But you lower your basis, your tax basis when you do bonus depreciation. So let me just give you an example. If you buy an existing property, and you do bonus appreciating, you’re taking that 25% off right away. Okay, so your $10 million property, you’ve just taken off two and a half million from your basis by taking that bonus depreciation the first year, your basis is now meaning the amount of how the property’s worth is now seven and a half million. When you’ve done that, and I think, if I remember correctly, it’s like if you do that within the first 20 months or something like that, then that establishes and correct me if I’m wrong with opportunity zones that establishes what the basis is how much you have to reinvest during that first 20 months. So many that have not

Abel Pacheco 31:21
done opportunity.

James 31:22
I’m not opportunity’s own expert. Okay, I’m actually looking at a building the purchasing opportunities Oh,

Yonah Weiss 31:27
okay. Well, this might help. Because since you have to do this major capex, this major renovations, you have to spend the equal to the amount that you spent, are you $10 million. But if you already lowered that basis by 25%, and now your base is only seven half million, you only have to spend seven and a half million. So that’s the one difference that I would say that actually helps when doing opportunity zones in this regard, but definitely, definitely look into a little further.

Abel Pacheco 31:55
Right now. Hey, last and final question, minimum dollar amount for real estate property. I guessed a million. I don’t know what the actual answer is.

Yonah Weiss 32:02
Yeah, so it’s good because I see carrying asked you know, if it five units are it’s a number amount, it doesn’t have to do with the size of the property, the unit count has more to do with the dollar amount, because again, that’s going to establish your basis. Usually, for commercial properties multifamily, I recommend anything over half a million is definitely worth looking into. If it’s less than that probably doesn’t, unless you’re a real estate professional, in which case, your individual case might make it sense. There’s also for single families, we started doing a lot of single families recently doing like portfolios, and we lowered the actual fee for single family prices, like cut it way, way down. So which means that it actually may be beneficial even on much smaller properties for single families.

Abel Pacheco 32:42
Right on. So everyone, thank Yonah, Yonah, thank you very much. You’re the man. I appreciate it. We’re good. Everybody should be good here.

Yonah Weiss 32:49
It’s been a pleasure. Thank you so much, Abel. It’s a pleasure for all you guys. Also, if you do have any other further questions, feel free to reach out to me, you know where to find me. LinkedIn is the best place more responsive there than email usually. So definitely. keep me going. And I hope everyone has an awesome rest of your day.

Abel Pacheco 33:06
You’re the man thank you very much, and I appreciate the time. Thank you for listening to this episode of the five talents podcast with your host myself, Abel Pacheco. Each week, we’re gonna bring you interviews from industry experts and commercial real estate investors who follow their dreams and achieve massive success. Before you leave. Let me ask you a few questions. Did you enjoy this episode? Did you learn something valuable? Was your mind stretched to what’s possible and what you can achieve? Do you want other experts just like the one you heard today? If you answered yes to any or all of those questions, then please take a moment to subscribe to the five talents podcast give us a five star rating. And most importantly, leave us a written review. Tell us what you liked. Tell us your favorite guests. Give us any feedback. I’m excited to learn and improve so you can get a more valuable show. So thank you again for subscribing to the five talents podcast.

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