Real Estate (How to Become Wealthy in Real Estate)
Real estate wealth is gained primarily by buying and selling at the right time and minimizing taxes. Real estate brokers and researchers provide voluminous data which allows investors to gain insights into the operational fundamentals for a market. The operational fundamentals include supply, demand, and operating expense trends. Real estate investors also focus on keeping what they earn. Tax laws are generous for real estate investors. Real estate wealth is accumulated by reducing tax payments.
There are several bromides for when to buy and sell: 1) Buy when there is blood in the streets! 2) Buy when no one else has the courage to buy. 3) Buy low and sell high. The challenge for many investors is having the emotional courage to do what appears counterintuitive. Data regarding the real estate fundamentals is available from many sources. Real estate investors can review information such as occupancy rates, vacancy rates, proposed construction, operating expense trends and employment trends to understand the status and likely outlook for the market. Real estate investors often discuss the market status and trends with real estate brokers, mortgage bankers, commercial bankers and management staff. It is clear when a market is declining. It is not clear when a market has bottomed. However, it is clear when the market starts to recover. If the initial recovery is accompanied by favorable fundamental indicators such occupancy rates, rental rates, employment growth, and limited new construction, it is probable the market is starting a new upward cycle.
Another bromide is: no one rings a bell when it is time to sell. However, signs are usually evident when it is time to sell. The level of buyers has increased sharply, prices appear irrational, and the operational fundamentals start to deteriorate. You'll often find long-term owners asking: why are people paying these prices when occupancy rates and rental rates are starting to soften? Real estate transactions often require 6 to 12 months for a favorable execution. Investors who are buying when markets are low and selling when markets have peaked should sell when it is clear the market has started to deteriorate. When the market starts to decline, it is often difficult to sell before prices decline materially.
Real estate wealth is accumulated by making and keeping profits. Reducing federal income taxes and real estate taxes accelerate the accumulation of wealth. Calvin Coolidge is quoted to have said: “collecting more taxes than is absolutely necessary is legalized robbery.” Real estate investors reduce federal income taxes by using cost segregation. Cost segregation is a specialized service which increases the level of real estate depreciation. Real estate depreciation is a non-cash expense which directly reduces taxable income. Cost segregation increases the level of depreciation by precisely allocating a portion of the improvements for shorter depreciation life. Most depreciation schedules for rental residential property have all improvements depreciated over 27.5 years and most commercial properties have all improvements depreciated over 39 years. Cost segregation fine tunes the depreciation schedule so about 20 to 40% of the improvements are depreciated over 5, 7 or 15 years. This can increase the level of depreciation by 50 to 100% during the first 5 to 7 years of ownership. It is also possible to catch up depreciation previously under reported after obtaining a cost segregation study.
Real estate property taxes are substantial in many portions of the country. In Texas, real estate taxes are often about 3% of the market value of the property. Property taxes can be reduced by reducing property tax assessments. Although laws vary from state to state, most states allow for appeals at the administrative and judicial levels. Real estate investors should either appeal themselves or engage a tax consultant to appeal their real estate taxes annually (or as frequently as allowed by state law).
Studying market and operational trends allows real estate investors to buy and sell at opportune times. Using cost segregation and appealing property taxes allows them to keep more of what they earn.
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Cost segregation produces tax deductions and reduces federal income taxes across the country and in every size market. Below are just a few examples of where cost segregation generates meaningful tax deductions.
City:
- Washington, DC
- Memphis, TN
- Orlando, FL
- Philadelphia, PA
- Miami, FL
- Las Vegas, NV
- Houston, TX
- Los Angeles, CA
- Boston, MA
- Phoenix, AZ
- Charleston, SC
- Jacksonville, TN
- Tulsa, OK
- Toledo, OH
- Providence, RI
- Harrisburg, PA
- Austin, TX
- Charlotte, NC
- El Paso, TX
- Raleigh, NC
- Milwaukee, WI
- Grand Rapids, MI
- San Diego, CA
- Oklahoma City, OK
- Little Rock, AR
- Honolulu, HI
- Greensboro, NC
- St. Louis, MO
- Jackson, MS
- Des Moines, IA
Cost segregation produces tax deductions for virtually all property types.
Property Type:
- Regional mall
- Restaurant
- Land
- Car wash facility
- Lodging
- Bowling alley
- Drugstore
- Lumber storage
- Self-storage
- Airplane hangar
Almost every industry, including the following, can generate cost-efficient tax deductions by using cost segregation.
Industry:
- Automotive parts distributors
- Electrical component manufacturing
- Durable good wholesalers
- Textile product mills
- Printing activities
- Golf courses and country clubs
- Arts, Entertainment, and Recreation
- Leather product manufacturing
- Publishers
- Furniture manufacturing
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