3 Amazing Benefits of Cost Segregation Studies You Need to Know Now
Today’s blog comes from Amanda Bead at ELB Consulting Inc. One of ELB Consulting’s specialties is Cost Segregation Studies. If you are not familiar with these studies, and you want to get involved in real estate, then listen up. Cost Segregation studies provide an amazing opportunity to reduce tax liabilities. As you probably know by now, Marc and I are very tuned into reducing taxes for us and our private lender partners. We always like to find new and better was to reduce our tax footprint. Here’s Amanda’s article……
Cost segregation studies can accelerate depreciation and lighten your tax load in the first years after investing in real estate. While the amount of depreciation will not actually change, there are some benefits to speeding your return on investment. Having a cost segregation study done may help to ensure that your real estate investment does not fail during these first few critical years.
How Does a Cost Segregation Study Work?
A cost segregation study is instrumental in breaking costs down into different classifications such as land improvements, personal property, and construction costs instead of depreciating all building costs as a lump sum. Breaking these costs down into these different classifications may allow them to be depreciated over a period of 15 or even five years as opposed to the general 39 years. Cost segregation experts review blueprints, architecture, and renovation invoices and determine how best to reclassify the depreciable assets.
Will Increase Cash Flow
By accelerating the depreciation, the income that is generated from the real estate is sheltered. This means that less money is due for income taxes at the end of the year, directly increasing the amount of cash flow available. Having extra cash flow is always a good thing, but may catalyze further benefits at this early stage of real estate ownership.
May Allow You to Make Improvements
Having the ability to make improvements to a newly purchased piece of real estate can be beneficial in several ways. You may be able to make improvements that are necessary to secure tenants, which can help increase your revenue stream by eliminating vacancies. You may also be able to make improvements and add amenities that justify a higher rental rate, increasing the amount of income each month.
In addition to making improvements to the property that may increase revenues, some additions may decrease future tax obligations. Energy incentives may be claimed as a deduction for future years, so you may continue to save money using the capital that was freed up by the cost segregation study. In some cases, cost segregation experts may be able to provide advice regarding specific energy efficient solutions that can be implemented.
Can Free Cash Up for Other Investments
Investing in more properties or in other areas can help you to secure additional revenue streams and broaden your portfolio. If the cash that is freed up using cost segregation is substantial, securing additional investments may help to lend greater stability to your overall investment portfolio. This may decrease the risk inherent in the real estate investment and boost overall wealth.
If you are interested in finding out how a cost segregation study can help you maximize your cash flow from a new property, or if you are interested in investing in real estate, contact Simple Acquisitions today.
Thanks again to Amanda Bead from ELB Consulting Inc. for the blog submission. We always like to get useful information from industry experts.