Question on investing in motels - tax benefits

7 Replies

Hi, Quick question on investing in motels. Does cost segregation and double depreciation apply to motel investing as well? I know for multifamily a general rule of thumb is roughly 35% of the purchase price can be depreciated. How is it in motel business? Does it make sense to do cost segregation study on a 32 unit motel? TIA

Hi @Deepti Mikki , Great questions! Cost segregation could be really beneficial for a motel, especially if you are planning to make any improvements. Motels have a significant amount of property that can be depreciated over much shorter useful lives such as five - fifteen years. This would include items such as the carpet, parking lot, landscaping, sidewalks, decorative lighting, cabinetry, etc. On average about 30% of the motel's total assets could be reclassified into shorter useful lives. 

Originally posted by @Deepti Mikki :

Hi, Quick question on investing in motels. Does cost segregation and double depreciation apply to motel investing as well? I know for multifamily a general rule of thumb is roughly 35% of the purchase price can be depreciated. How is it in motel business? Does it make sense to do cost segregation study on a 32 unit motel? TIA

Really, you can do a cost segregation on any type of property, whether it's an investment property or business property, as long as it's not your personal residence.

Each type of asset class will have different averages of reallocation of depreciation to faster lives. As others said above, motels can be beneficial. Happy to help if you have any other questions.

 

Originally posted by @Deepti Mikki :

Thanks Yonah🙏  from your experience what % of purchase price is depreciable. 

Really depends on a lot of factors, but typically around 30%. Happy to discuss further via DM

 

Hello @Deepti Mikki with cost seg experts like @Julio Gonzalez  and @Yonah Weiss weighing in, you are getting good advice. Yonah is right to point out that every class of commercial or income real estate can utilize cost segregation. And that every property type can vary in the range of tax benefits offered. Lots of factors come into play. 

Even within the same category like hotels, the range can be from the low to mid 20's% range to well into the 40's% based on the construction methods and materials, land improvements and the level of the amenities. For example, a Red Roof Inn will be far different than a Marriott Resort hotel. So giving a rule of thumb is good, but there are many variables that make up the amount of short life components within a specific property.  

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