Multifamily Cost Segregation

Investor · Wellesley, MA · Member since 2017 · 85 posts · 15 votes

At what price range properties are worth while to do cost segregation? Is it required to be completed by a CPA or engineer only? thanks.

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Michael DangPro Member

Rental Property Investor · Houston, TX · Member since 2015 · 454 posts · 273 votes

Minimum $500K is what is recommended by cost segregation company Madison Spec. They have both CPA and engineers on staff. They should be able to provide some feedback with a few bits of info.

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Armando Payano
Developer · Tampa, FL · Member since 2016 · 118 posts · 61 votes
8y
@Weina Shi Great question, but I dont think there is a straight forward answer. For example, how long do you own it? What is the extent of your capital improvements?
How many units are you considering the cost seg for?
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Weina Shi
OP
Investor · Wellesley, MA · Member since 2017 · 85 posts · 15 votes
8y
Purchasees for $725k, 12 unit, spent $40k on renovations so far. I think value of property matters more than number of units in making that determination. Thanks.

Originally posted by @Armando Payano:

@Weina Shi Great question, but I dont think there is a straight forward answer. For example, how long do you own it? What is the extent of your capital improvements?
How many units are you considering the cost seg for?
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Armando Payano
Developer · Tampa, FL · Member since 2016 · 118 posts · 61 votes
8y
If its a long term hold, the benefits are worth it.
0 Reply
Bjorn AhlbladPro Member
Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
8y
@Weina Shi sounds like a good project. What are the average rents, and are they at market?
All the best!
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Lane Kawaoka
Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
8y
@Weina Shi I just got back some quotes for some 3-5M properties of mine. The costs were 3-5k for the study.
That said the two biggest factors are time of hold of your deal and how much the property is worth.
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Kyle Jean
Bedford, NH · Member since 2018 · 77 posts · 49 votes
8y
Hi Weina,
In our area you may want to reach out to Bedford Cost Segregation, they're about 40 min north of Boston. I have had a few meetings with their leadership about cost seg and I know they have done reports for smaller assets like yours.
Kyle
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Weina Shi
OP
Investor · Wellesley, MA · Member since 2017 · 85 posts · 15 votes
8y
Great thanks!

Originally posted by @Kyle Jean:

Hi Weina,
In our area you may want to reach out to Bedford Cost Segregation, they're about 40 min north of Boston. I have had a few meetings with their leadership about cost seg and I know they have done reports for smaller assets like yours.
Kyle
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Barry Ruby
Developer · Boulder, CO · Member since 2018 · 530 posts · 365 votes
8y
@Armando Payano New tax laws allow for 100% bonus depreciation in year 1 So a long term hold is not required to realize benefits
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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
8y
Most firms will provide a free feasibility study for you to assess the costs/benefits. I just had a cost seg performed for my 2017 tax return and the cost relative to the tax benefit was inconsequential. I have heard $500K thrown around as a general rule of thumb (will vary by firm).
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Michael DangPro Member
Rental Property Investor · Houston, TX · Member since 2015 · 454 posts · 273 votes
8y
Minimum $500K is what is recommended by cost segregation company Madison Spec. They have both CPA and engineers on staff. They should be able to provide some feedback with a few bits of info.
3 Reply
Rob Beardsley
Rental Property Investor · New York, NY · Member since 2017 · 300 posts · 168 votes
8y
Hi Weina,
It is probably worth it to do cost segregation on properties over $5MM. As far as I know, it costs about $15,000 to perform a cost segregation so if it makes sense in your underwriting, then I'd say pursue it.
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Paul Caputo
Cost Segregation Specialist · Naperville, IL · Member since 2016 · 204 posts · 168 votes
8y
@Weina Shi The cost can vary widely depending on the level of accuracy of the study. @Lane Kawaoka$3k-$5k on a $3mm-$5mm property is extremely low, I'd be wary of such a study as it likely relies heavily on statistical sampling or computer modeling. Such methods are inherently inaccurate so they'll either overstate or understate the reality of the property. If qualifying assets are overstated you've opened yourself up to fines and penalties for taking tax deductions that are not allowed. If qualifying assets are understated you've left money on the table so you're still overpaying taxes. The IRS has indicated that they're going to be cracking down on inaccurate cost seg, so it's important to make sure the firm is doing things by the book. The IRS Cost Segregation Audit Techniques Guide, that is ;)
Better to have it done right using a forensic detailed methodology so you get the maximum allowable benefit without overstating or understating. It must be done by qualified engineers or architects, CPAs are not qualified as they generally do not have knowledge of construction, construction techniques, design and estimation procedures. Doing it right costs a bit more, but the additional benefits and peace of mind makes it worth it.
Cost seg can technically be done on any size property. We've done small properties under $100k up to huge facilities over $1B. It depends on the property specifics as well as your tax situation. If someone is in California and in the 37% federal tax bracket and 12.3% state tax bracket it'd make a lot more sense to pursue cost seg than someone in the 12% federal tax bracket with no state tax.
On a $725k property you're likely looking at $3.5k-$5.5k to have it done right, but cost depends on the property specifics. Feel free to PM me if you have any questions.
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Daniel HymanBusiness Member
CPA · Milwaukee, WI · Member since 2016 · 2k+ posts · 1k+ votes
8y
@Weina Shi
Be in touch with @Yonah Weiss. His firm provides estimates and his company is highly reputable.
My Online Accountant572 Reviews
Website View Page
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Julio GonzalezPro Member
Specialist · West Palm Beach, FL · Member since 2008 · 4k+ posts · 1k+ votes
5y
I'm happy to answer any questions about cost seg as well! feel free to post them here!
561-253-6640
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Yonah WeissPro Member
Cost Segregation Expert and Investor · Lakewood, NJ · Member since 2017 · 1k+ posts · 1k+ votes
5y
Originally posted by @Daniel Hyman:
@Weina Shi
Be in touch with @Yonah Weiss. His firm provides estimates and his company is highly reputable.

Thanks for the mention Daniel! Just seeing this two years later 🤦‍♂️ lol
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Ben Guttman
Specialist · Baltimore, MD · Member since 2017 · 418 posts · 126 votes
5y
@Yonah Weiss is the expert here! I believe his rule of thumb is $1Mil+ but I'll let him chime in
1 Reply
Jeffrey Donis
Investor · Durham, NC · Member since 2020 · 1k+ posts · 691 votes
5y
It comes down to the business plan. If you are planning on exiting the property within a short amount of time the benefits may not be worth it- I would check with your CPA and/or cost seg tax specialist on it- Michael Blank interviewed a cost segregation expert on his show- episode 23 I believe titled "Save BIG with Cost Segregation for Multifamily Buildings"- they discussed cost segregation on SF + multifamily assets so I recommend checking it out!
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Sagiv O.
Real Estate Investor · Austin, TX · Member since 2017 · 111 posts · 27 votes
9mo
@Weina Shi - For your 12-unit at $725k plus $40k in renos, you're right at the borderline where it could go either way. @Michael Dang mentioned the $500k minimum which is a good rule of thumb. The study itself needs to be done by qualified engineers to meet IRS standards - CPAs can help interpret it but shouldn't be doing the actual component analysis. Given your property value, I'd suggest looking at newer cost seg options that have emerged for smaller properties. Some platforms can now deliver defensible studies in the $500-600 range for residential properties under $1M, which makes the ROI much better than the traditional $3-5k quotes. Worth exploring if you want to accelerate those depreciation deductions without eating up all the benefit in fees.
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