Real Estate (Three Keys for Real Estate Success Are...)
Real estate investors usually have mastered at least three areas: prudence in making decisions, reducing taxes and managing the property. Each of these areas contain multiple subcomponents. This article briefly overviews some of the components necessary for successful real estate investment.
In making decisions regarding real estate, one of the key factors is when to buy and when to sell. Some real estate investors succeed by ignoring market trends and dollar cost averaging their real estate investments. Provided your investments are only moderately leveraged, this program can work well. Having a large amount of highly leveraged real estate can be disastrous in a down cycle. Many investors concentrate on making purchases after it is clear the local market has bottomed and is starting to recover. They also tend to sell less desirable properties when it appears a market has peaked or will soon be peaking. Performing competent due diligence when purchasing real estate is critical. Due diligence regarding a real estate investment should include the physical plant, financial performance, rent roll and leases, and the real estate market and trends.
Real estate investors pay a substantial portion of their net income to various tax entities. These include the federal government, state government, city government and other local governmental entities. Investors use a technique called cost segregation to increase depreciation and minimize federal income taxes. Real estate appraisers prepare a cost segregation report which provides a detailed listing of assets for the depreciation schedule. In some cases, real estate investors unknowingly overpay income taxes by preparing a real estate depreciation schedule which includes only land and long life property. Cost segregation allows real estate investors to reduce federal income taxes by increasing depreciation 50 to 100% during the first five to seven years of ownership. This higher level of real estate depreciation both reduces and defers federal income taxes. Higher levels of depreciation reduce federal income taxes by converting income taxed at the ordinary income rate (35%) to income taxed at the capital gains rate (15%). Cost segregation defers federal income taxes from the time income is earned until the gain on the sale of real estate is recognized Real estate investors also fiercely contest property tax assessments. Property taxes are the largest line item expense for many real estate investors. However, it is possible to reduce property tax assessments by vigorously contesting them in with administrative and judicial appeals. Real estate investors either perform this function or engage a property tax consultant.
Property management is not sexy, but it is crucial to success in real estate investment. Property management includes leasing, staffing, reducing expenses, maintenance, capital repairs and accounting. Real estate management is a specialized field unto itself. Many real estate professionals spend their entire career within a subset of real estate management such as real estate management for office buildings or for retail centers. Novice real estate investors, sometimes affiliated with more experienced investors, engage a property management firm or dedicate a meaningful amount of time to mastering the details of this function. Prudence in operating real estate is exhibited by either delegating real estate management to a management company, assembling an internal management team which is competent and effective, or personally performing the duties.
Real estate investors often become wealthy. The most successful real estate investors master decision-making, tax reduction and real estate management.
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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:
- Orlando, FL
- Philadelphia, PA
- New Orleans, LA
- Boston, MA
- New York, NY
- Washington, DC
- Dallas/Ft. Worth, TX
- Miami, FL
- Memphis, TN
- Denver, CO
- Manchester, NH
- Oxnard, CA
- San Jose, CA
- Chicago, IL
- Birmingham, AL
- Rochester, NY
- Minneapolis-St. Paul, MN
- San Antonio, TX
- Richmond, VA
- Pittsburgh, PA
- Durham, NC
- Little Rock, AR
- Greenville, SC
- Lakeland, FL
- Milwaukee, WI
- Madison, WI
- Santa Rosa, CA
- Albany, NY
- Salt Lake City, UT
- Wichita, KS
Cost segregation produces tax deductions for virtually all property types.
Property Type:
- Supermarket
- Mobile home park
- Drugstore
- Movie theatre
- Hotel
- Manufacturing/processing
- Department store
- Bowling alley
- Shopping mall
- Fast food restaurant
Almost every industry, including the following, can generate cost-efficient tax deductions by using cost segregation.
Industry:
- Arts, Entertainment, and Recreation
- Fabricated metal products
- Food manufacturing
- Real estate lesser
- Frozen food manufacturing
- Textile product mills
- Durable good wholesalers
- Paper manufacturing
- Wood product manufacturing
- Building supply dealers
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