All Forum Posts by: Jay Hinrichs
Jay Hinrichs has started 333 posts and replied 42262 times.
Post: Cost Segregation Report
#1 All Forums ContributorPosted - Real Estate Consultant
- Summerlin, NV
- Posts 44,053
- Votes 65,100
Quote from @Sean O'Keefe:
Quote from @Tyler Carter:
So is there a rule of thumb or cost range for a Cost Seg Report for a SFH that is used for a long term rental? I am seeing $500 to $3K in report costs. Seemingly there isn't a ton of difference as long as you got a report. I have talked to my CPA and we qual for a real estate professional and want to use the report to help off set W-2 wages. SFH was only $155K purchase price though. Thoughts?
"Seemingly, there isn't a ton of difference as long as you got a (cost seg) report."
I just finished a consultation with a rental owner that said something similar about cost seg reports and followed it up with "this stuff can't be that hard."
A couple of thoughts on this:
- Bonus depreciation is available on improvements and capital expenses with a useful life of 20 years or less. Items like Concrete generally fall into the > 20 years useful life bucket. If a real estate investor buys a property that’s already built, what skills are needed to determine how much of the purchase price should go to things like Concrete and not be eligible for bonus depreciation? If you don’t have a background/experience in construction / civil engineering / surveyor how would you know how to allocate it?
- Feels like it is important to have the experience and know how to allocate the different building components $ value between things like concrete, landscaping, etc.
- If your cost seg report underestimates or overestimates the amount of purchase price to allocate to + 20 year items. This can increase your tax savings or decrease it. If they overestimate + 20 year buckets, you loss money on tax savings. If they underestimate and you get audited, this exposes you to the risk of having some of the tax savings you received clawed back with penalties and wastes a lot of your time going back and forth with the IRS.
“But the cost seg firm provides audit support so that must mean they know what they’re doing.”
- Not exactly, and do you really want to take the risk on your tax return? If the report is inaccurate the IRS will be asking you for tax savings + penalties back, not the cost seg firm.
“An onsite visit from cost seg firm civil engineer or surveyor isn’t required by the IRS for cost seg firm to prepare the report.”
- Correct, but according to the IRS Publication 5653 Cost Segregation Audit Technique Guide this IRS prefers an “onsite” visit.
- Which study do you think has more audit defensibility? The cost seg report prepared using the IRS’ preferred method or the one that isn’t?
“The firms that provide “onsite” visits can take months to complete the report. This other firm does virtual/self-service and they can have it done in a couple days.”
- Based on the above, is “speed” something that you’re really looking for in a cost segregation report? Accuracy, audit defensibility, and experience should be a priority.
- Another example, do you want the accountant that tells you they can prepare your tax return in 5min or the one that took a day because they had it reviewed multiple times by other CPAs in their firm and took the time to make sure they included everything?
- If you work with a cost segregation firm that actually has an experienced surveyor, civil engineer, or someone with experience in construction look at the property and prepare a report, don’t you think that the report will be more accurate? Accuracy matters for the reasons I mentioned above.
"Seemingly, there isn't a ton of difference as long as you got a report."
There is a big difference. Pay the extra $500 - $1,000 to get a quality report, with high audit defensibility, where the cost seg firm took time to prepare it. This may end up saving you a lot of time, money, and sleep.
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This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.
I asked this once on this thread sorry to ask again.. can a Doctor tenant who wish's to buy the building they have their business in.. and is not a RE investor .. Can they buy the building and cost seg it first year ? it would be an owner operator situation.
Post: Cost Segregation Report
#1 All Forums ContributorPosted - Real Estate Consultant
- Summerlin, NV
- Posts 44,053
- Votes 65,100
Quote from @Michael Plaks:
Quote from @Andre Taylor:
Looking for a tax company that does Cost Segregation Reports.
Three cost segregation companies are operated by these three Bigger Pockets experts:
@Bernard Reisz @Yonah Weiss @Julio Gonzalez
Reach out to any of them. And read this post to better understand how cost segregation works: https://www.biggerpockets.com/forums/51/topics/1075919-five-...
Michael, quick question Doctor tenant wants to buy the building her bizzness is in .. Can Doctor use cost seg when they purchase the building and go from tenant to Owner ???
Post: I feel lost and naïve
#1 All Forums ContributorPosted - Real Estate Consultant
- Summerlin, NV
- Posts 44,053
- Votes 65,100
there is an old adage for private pilots.
Night moutains experince if all 3 exists its a life threatening flight.
Pick one all three is a no go.
so you have the same thing going No cash ( at least you said you did not) No experience , first deal U can only pick one to get a deal done with some HML but not all three..
Post: Seems to me Biggerpockets Dealfinder is useless
#1 All Forums ContributorPosted - Real Estate Consultant
- Summerlin, NV
- Posts 44,053
- Votes 65,100
Quote from @Nicholas L.:
of course! I know you know just about all aspects of this cold, was just curious if you were still actually buying any yourself.
Oh ya but only to fix and flip or build new and sell as a spec. but not buying SFRs for long term rental purposes in any big way.. I might buy one more in Vegas as I need a garage and thinking i can use the garage for my personal stuff and give the tenant a deal on the actual house.. I hate paying storge rents hate it.
Post: Seems to me Biggerpockets Dealfinder is useless
#1 All Forums ContributorPosted - Real Estate Consultant
- Summerlin, NV
- Posts 44,053
- Votes 65,100
Quote from @Nicholas L.:
are you still buying SFHs at this time? your main gigs are lending and development right?
I fund about 100 sfr's each year for BRRR investors so I under write quite a few in my noggin LOL.. spread sheets down to the penny I am not interested in as I know they never work out the way folks think
Post: Seems to me Biggerpockets Dealfinder is useless
#1 All Forums ContributorPosted - Real Estate Consultant
- Summerlin, NV
- Posts 44,053
- Votes 65,100
Quote from @Jonathan Warner:
Quote from @Jay Hinrichs:
Quote from @Jonathan Warner:
Quote from @Jay Hinrichs:
Quote from @Jonathan Warner:
Quote from @Jay Hinrichs:
Quote from @Jonathan Warner:
Quote from @Jay Hinrichs:
Quote from @Nicholas L.:
i haven't looked at the Dealfinder, so I am not familiar with it and can't comment on it.
but, it sounds like you're not missing anything. most deals right now will not cash flow, and new investors tend not to be conservative enough.
in general, only the higher risk / more creative niches are going to cash flow right now. vanilla LTRs don't. now, to be clear, that doesn't mean they're not a good long term investment. they are- there are other benefits to RE than just cash flow.
i'm under contract right now on a property i plan to BRRRR, and... it's not going to cash flow when i'm done, it's going to break even. but that's just fine with me.
I think for today's market one has to define IT WONT CASH FLOW .. what does that mean?
IE no positive cash flow with MINIMUM down maximum leverage.. Is that why ?
Most everything cash flows when you pay CASH.. So think you have to start there and work backwards.. If the goal is to have NET NET NET operating income on a rental. One needs to work the numbers back from paying cash to how much down will create the amount of NET NET NET one is trying to achieve. Now I get it in markets that have very slow to meager appreciation there is little reason to buy rentals if you cant get some cash flow with high leverage but in other markets cash flow really is not the main concern the main concern is just getting in the game and how much can you afford to feed it with the capital you have to put down.
Personally I think it is about 30 seconds to underwrite SFR.. take gross rents use 50% for operating expenses then deduct mortgage payments and see where you land.. if its close look at it harder if you miss by a mile then move to the next. Going to have to look at a lot of deals on deal finder to find anything that works same with wholesalers MLS etc etc.
Bottom line is investors from 2010 till the rates jumped a few years ago were spoilt rotten with being able to cash flow with Max Leverage that is not how it was before the GFC and it is not returning anytime soon.. at least IMHO your mileage may vary. So bottom line today you may need 30 to 40% cash down to cash flow positive as that is the reality of the market and the mortgage market.
I'm more referring to the irresponsibility of the DealFinder calling a deal "cashflowing" when it doesn't factor for property taxes, CapEx, or maintenance. But, do you think it's unresonable to search for a (not heavily) cashflowing deal now with a 20% down payment? What if I was in no burning hurry and had the time and financial security to wait for a great deal? Searching off market, with an agent etc. I really only need a little cashflow for securuity and padding.
well were is the deal finder ? I dont think I have looked at it just classified.. I would never use any kind of calculator for sfr .. that to me is simply napkin math.. since NO rental ever follows a spread sheet .. something is always going to cause the spreadsheet to be inaccurate over time.
What's your napkin math? To me (a newbie) it just seems kind of scary to based such a large financial decision on a napkin xD Not saying big things can't be done on napkins, I'm pretty sure Lincoln wrote the Gettysburg Adress on one.
Search for "biggerpockets deal finder" It's a free tool that scours on market deals. It's a great concept but I just see big line items missing from the analyses.
I explained napkin math above.. but to me its very simple for a vanilla SFR rental.
GROSS rent divided by 2 = gross cash flow - mortgage payment = cash flow + or - simple as that .. If you do better great and if on the napkin it is really negative then probably a pass. But if it works then next step.. 50% over time is usually about right many try to use 30 to 40% but find them selves in trouble when as @Nicholas L.pointed out when you have a bad tenant turn over or a cap ex early on in the ownership.. like HVAC Roof foundtation etc etc.
And what exactly do you mean by this part?:
"50% over time is usually about right many try to use 30 to 40% but find them selves in trouble when as @Nicholas L.pointed out when you have a bad tenant turn over or a cap ex early on in the ownership.. like HVAC Roof foundtation etc etc." What is the percentage referring to?
Appreciate the responses.
sorry fast typing MANY will use 30 to 40% for expenses .. but that is hope not reality based on most who have experience.. I have owned 100s of SFRs Sold them all.. so that is my experience.
at least in the low B C asset class with 60 year old homes etc.. New builds or Properties in say Vegas with super low prop tax's and desert environment will be less.. but mid west upper mid west with snow grass that grows like crazy old housing stock.. cost are more.
I personally have zero interest in rentals at this stage of my career.. I prefer to rent my cash out to others to help them build their portfolios.. We do have some small commercial and solid B class MF west coast which performs.. but even those we run numbers at 40 to 42%
That makes sense. I amazed that you've gotten by on such simple napkin math. I'll consider that in the future. Personally, I still prefer to run the numbers in a more detailed manner due to my inexperience. Maybe in the future and I can a napkin math savante like you xD
I dont even use a napkin just my noggin :) now if its a true cap rate property I do run those through the cap rate formulas that are avaliable on line. But you know you just never know when a HVAC is going to bust and its 10k or like with one of my buildings I wanted to paint it for my physician tenants so it looked first class that was 15k.. U just dont spread sheet for a lot fo this stuff .
Post: Seems to me Biggerpockets Dealfinder is useless
#1 All Forums ContributorPosted - Real Estate Consultant
- Summerlin, NV
- Posts 44,053
- Votes 65,100
Quote from @David Fern:
@Jay Hinrichs is the 50% of rents counting property management? Would 40% be ok if self managed?
Quote from @Jay Hinrichs:
Quote from @Jonathan Warner:
Quote from @Jay Hinrichs:
Quote from @Jonathan Warner:
Quote from @Jay Hinrichs:
Quote from @Jonathan Warner:
Quote from @Jay Hinrichs:
Quote from @Nicholas L.:
i haven't looked at the Dealfinder, so I am not familiar with it and can't comment on it.
but, it sounds like you're not missing anything. most deals right now will not cash flow, and new investors tend not to be conservative enough.
in general, only the higher risk / more creative niches are going to cash flow right now. vanilla LTRs don't. now, to be clear, that doesn't mean they're not a good long term investment. they are- there are other benefits to RE than just cash flow.
i'm under contract right now on a property i plan to BRRRR, and... it's not going to cash flow when i'm done, it's going to break even. but that's just fine with me.
I think for today's market one has to define IT WONT CASH FLOW .. what does that mean?
IE no positive cash flow with MINIMUM down maximum leverage.. Is that why ?
Most everything cash flows when you pay CASH.. So think you have to start there and work backwards.. If the goal is to have NET NET NET operating income on a rental. One needs to work the numbers back from paying cash to how much down will create the amount of NET NET NET one is trying to achieve. Now I get it in markets that have very slow to meager appreciation there is little reason to buy rentals if you cant get some cash flow with high leverage but in other markets cash flow really is not the main concern the main concern is just getting in the game and how much can you afford to feed it with the capital you have to put down.
Personally I think it is about 30 seconds to underwrite SFR.. take gross rents use 50% for operating expenses then deduct mortgage payments and see where you land.. if its close look at it harder if you miss by a mile then move to the next. Going to have to look at a lot of deals on deal finder to find anything that works same with wholesalers MLS etc etc.
Bottom line is investors from 2010 till the rates jumped a few years ago were spoilt rotten with being able to cash flow with Max Leverage that is not how it was before the GFC and it is not returning anytime soon.. at least IMHO your mileage may vary. So bottom line today you may need 30 to 40% cash down to cash flow positive as that is the reality of the market and the mortgage market.
I'm more referring to the irresponsibility of the DealFinder calling a deal "cashflowing" when it doesn't factor for property taxes, CapEx, or maintenance. But, do you think it's unresonable to search for a (not heavily) cashflowing deal now with a 20% down payment? What if I was in no burning hurry and had the time and financial security to wait for a great deal? Searching off market, with an agent etc. I really only need a little cashflow for securuity and padding.
well were is the deal finder ? I dont think I have looked at it just classified.. I would never use any kind of calculator for sfr .. that to me is simply napkin math.. since NO rental ever follows a spread sheet .. something is always going to cause the spreadsheet to be inaccurate over time.
What's your napkin math? To me (a newbie) it just seems kind of scary to based such a large financial decision on a napkin xD Not saying big things can't be done on napkins, I'm pretty sure Lincoln wrote the Gettysburg Adress on one.
Search for "biggerpockets deal finder" It's a free tool that scours on market deals. It's a great concept but I just see big line items missing from the analyses.
I explained napkin math above.. but to me its very simple for a vanilla SFR rental.
GROSS rent divided by 2 = gross cash flow - mortgage payment = cash flow + or - simple as that .. If you do better great and if on the napkin it is really negative then probably a pass. But if it works then next step.. 50% over time is usually about right many try to use 30 to 40% but find them selves in trouble when as @Nicholas L.pointed out when you have a bad tenant turn over or a cap ex early on in the ownership.. like HVAC Roof foundtation etc etc.
And what exactly do you mean by this part?:
"50% over time is usually about right many try to use 30 to 40% but find them selves in trouble when as @Nicholas L.pointed out when you have a bad tenant turn over or a cap ex early on in the ownership.. like HVAC Roof foundtation etc etc." What is the percentage referring to?
Appreciate the responses.
sorry fast typing MANY will use 30 to 40% for expenses .. but that is hope not reality based on most who have experience.. I have owned 100s of SFRs Sold them all.. so that is my experience.
at least in the low B C asset class with 60 year old homes etc.. New builds or Properties in say Vegas with super low prop tax's and desert environment will be less.. but mid west upper mid west with snow grass that grows like crazy old housing stock.. cost are more.
I personally have zero interest in rentals at this stage of my career.. I prefer to rent my cash out to others to help them build their portfolios.. We do have some small commercial and solid B class MF west coast which performs.. but even those we run numbers at 40 to 42%
agree but as we know these things are never accurate to the point that spread sheets really are just to me for fun.. its is what it is after you have owned 3 to 5 years then you can run your
spreadsheet and see how close to the 40% or 50% rule you are.. at least its my rule.. :) running these at 30% or 35% like I see usually is not reality over the 3 to 5 years unless its brand new and you get a tip top tenant.
Post: Exploring Luxury Real Estate & Investment Opportunities in Belize
#1 All Forums ContributorPosted - Real Estate Consultant
- Summerlin, NV
- Posts 44,053
- Votes 65,100
Quote from @Edwin Varela:
Quote from @Jay Hinrichs:
Quote from @Edwin Varela:
Quote from @Jay Hinrichs:
client of mine is building out a small resort on one of the islands.
I went down and checked it out.. boy you have to watch out for the speed bumps on the highway LOL.. Not my cup of tea but I am sure its great for many..
😂 That's so true. Even we get annoyed of them sometimes. Hey but, it doesn't take away from all the beautiful scenery along the way.
I'm glad to hear you have a client out here in our small country. Always happy to have investors coming in.
I am just glad I was driving during the day first time there and had it been at night I am sure I would have either blown a tire or wrecked hitting a speed bump at 60 or 70 there are nice new highways..
I agree. And yes, several highways have been/are being renovated. Hopefully your next visit with have a smoother drive.
I am a one and done with Belize but for many its perfect for them for sure felt safer were I was at compared to say Cancun and that mess there. but its to 3rd world for my personal taste.
Post: Exploring Luxury Real Estate & Investment Opportunities in Belize
#1 All Forums ContributorPosted - Real Estate Consultant
- Summerlin, NV
- Posts 44,053
- Votes 65,100
Quote from @Edwin Varela:
Quote from @Jay Hinrichs:
client of mine is building out a small resort on one of the islands.
I went down and checked it out.. boy you have to watch out for the speed bumps on the highway LOL.. Not my cup of tea but I am sure its great for many..
😂 That's so true. Even we get annoyed of them sometimes. Hey but, it doesn't take away from all the beautiful scenery along the way.
I'm glad to hear you have a client out here in our small country. Always happy to have investors coming in.
I am just glad I was driving during the day first time there and had it been at night I am sure I would have either blown a tire or wrecked hitting a speed bump at 60 or 70 there are nice new highways..
Post: Do any agents out there text or email?
#1 All Forums ContributorPosted - Real Estate Consultant
- Summerlin, NV
- Posts 44,053
- Votes 65,100
Quote from @Seth McGathey:
Personally, as an agent, I prefer text and email when possible. If we do a call, I need to make notes to make sure I don't forget anything. If we do it via text or email, the messages are my notes. So it probably all depends on the agent.
I dont sell RE anymore but for me I want to talk to some one I HATE text messages.. in personal its like a summons out of the blue no context etc etc.. I particularly dislike the agents that on their VM on their phone say for faster service text me. I went round and round with my wife on this one and finally got her to answer the friggen phone.. And lo and behold she actually admitted she was able to get more buyers excited out our subidivsion we were building out then just letting them go and then call the next developer or Lennar or Horton or whoever..Myself I always answer and if I dont have time I just answer with Hey I am on the other line or busy at the moment just wanted to answer to tell you I will call you back in X.. that keeps folks in the game and I think works really well.. again my personal style.. So call for me its call or e mail Do NOT TEXT me I wont return a text LOL I know its the minority but thats how i work it. If I allowed all my subs all contacts to text me all day long all I would be doing is staring at my phone with two thumbs trying to return text messages..
As a larger than average owner of out of area RE with Zero debt Like 100 to 150 props you can imagine how many wholesaler text or calls I get a day.. its insane.. but even the wholesalers I will answer and then tell them no I only transact with licensed agents.