BC BUSINESS
Saved by @SteveeRogerr

A thread on how real estate investors, developers and operators can make millions a year and pay almost nothing in TAXES by using depreciation, bonus depreciation, and 1031 exchanges.

How it works:

 Depreciation is the act of slowly, over time, deducting the initial expense of an asset against your taxable income. Generally over a 27.5 (residential) or 39 (commercial) yr time frame. So each year you can write off 2-3.6% of the purchase price against your income.
Thats a big deal. We're buying a new property, a $3MM self storage facility. Thats a $60k a year write off against about $260k in NOI and 200k in cashflow on a $3MM deal.

It makes 30% of our cashflow tax free.

Very powerful but there is much more to it...
Different parts of the asset can be depreciated on different schedules.

We'll have a cost segregation study done to split up the depreciable lifespan of different parts of the building. The raw land can't be depreciated so you have to give that a value.
But other items can be depreciated on a quicker timeline. A roof, road, sidewalk, fencing, walls, gates, doors, latches, flooring, air conditioners, pavers, curbing, landscaping, etc.

The IRS has a depreciation schedule for each type. Some parts are 5 yrs. Others 15 years...
So you can depreciate a portion of the asset costs faster. Get the study done, get dollar amounts assigned to different parts and different schedules to front-load depreciation.

Now you can get 5 or 6% of the value as a deduction in the early years...

But wait... theres more.
Bonus depreciation allows you to deduct a certain percentage of cost in the first year an asset is put into service. Anything that is on a schedule of 15 years or less...

So the doors, sidewalks, HVAC, walls, latches, curbs, security, gates, etc.

A % of this stuff goes in Yr 1
For years 2015 through 2017, first-year bonus depreciation for these items was set at 50%. It was scheduled to go down to 40% in 2018 and 30% in 2019, 0% in 2020

But then Trump got elected and he enacted the Tax Cuts and Jobs act. Moving this percentage to 100% from 2017 to 2023
Its not uncommon to allocate 30% of an asset cost to items that can be depreciated on a 15 year or faster time frame.

So now 30% of your asset cost can be DEPRECIATED IN THE FIRST YEAR.
So back to our $3MM self storage facility we're buying in a few weeks.

The cost segregation study came back. 30% of the asset cost can be depreciated on a 15 yr or faster timeframe. This is 100% deductible THIS YEAR...
Take a quick break to remind you that I send out a newsletter with stuff just like this all the time. Signup here:

https://t.co/FEt1sBoSWS
30% of $3MM is $900k.

A $900k tax deduction. In year 1.

The facility will produce about $260k in NOI and $200k in free cashflow after interest expense.

So while $200k goes into the bank account the tax LOSS is $700k.

But wait there is more...
The Cares act made it so you can carry those losses back 5 years to income made from 2015 onward. You can also use the new depreciation guidelines to CATCH UP assets purchased in the last 3 years.

You can also carry these losses forward into eternity.
The passive losses can't offset active income (W2 income, etc) but they can offset gains from other real estate properties or passive income.

On these new properties we won't have a tax liability for 4+ years because of Bonus Depreciation...
We'll also get a huge tax shield on cash we are now making from the facility we built in 2017.

INSANITY.

This is how real estate owners, operators, developers make millions a year and pay 0 taxes.
There is a downside. If you sell your asset you have something called recapture. Your basis decreases in the asset as you depreciate it so you have more profits when you sell and thus a higher tax rate.

But if you've owned it longer than 12 months its taxed at capital gains...
Which is 15% vs 30-40% for standard income in higher brackets.

And you can do whats called a "like-kind exchange" (1031 exchange) which allows you to use the proceeds to buy a new asset and shield the taxes and push them further down the line.
Me? I'll never sell this $3MM facility so I won't have recapture. Yes depreciation will run out over time but we'll use the proceeds to buy more facilities and thus getting more bonus depreciation and shielding more taxes.

Powerful stuff.
A disclaimer - I'm not a CPA, this isn't advice, and I'm not a master at this stuff. I look forward to getting corrected wherever possible!
To get a quote on a cost seg study reach out to @1245consulting! He did all the cost segs on the 9 buildings we purchased over the past 2 yrs.

You can even cost seg your vacation homes or small rental properties and its often very cost-effective.

Thanks for following along!
Sorry this is a repeat thread. I’ve been releasing a lot of them so I’m going to re-post them from time to time so folks can get reminders or see them if they missed them!

Thoughts?

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A thread on how to turn $100 into a lot more:

People are spending a lot of money on their homes right now. Its time to go get some of that money and help out some of these people.

Sound silly? Good.

It really is this simple sometimes.

Lets go 👇

Get on your computer and buy a web domain.

Get a freelancer (upwork or fiverr) to make you a logo/flyer and get $45 worth of flyers printed at your local print shop.

Buy a box of sidewalk chalk if you really want to grind and get gritty.

Go downtown with the sidewalk chalk and write “pressure washing and home cleaning 888-555-1234” as many times as you can in high traffic areas.

Go to a middle class or high end neighborhood and hand out flyers on porches and wherever else.

Get creative. You might get ran off but its low risk. Target those with dirty payment.

Your cell phone will start ringing. Book all of the jobs for Saturday.

Rent a power washer Saturday morning with the other $50 and go make $300 in one day.

Do the same thing the next weekend and then buy a power washer. Then put $200 into a website and nurture a Google My Business location.

Get reviews, upload photos, make it look nice. 50% of your biz will come through here.
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Nick Huber
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@sweatystartup
The wealthiest person I know prints millions out of thin air in the real estate business.

This is what he does...

A thread.

He finds a distressed retail plaza. Let's say 50% of the space isn't leased.

On a 300,000 sf plaza that might mean 150k square feet is vacant.

If asking rent is $8 per square foot per year, that means the building has a "potential revenue" figure of of $2.4MM.

So in this retail center 50% is leased and 50% is vacant. So the actual revenue, right now, is $1.2MM.

Most retail leases are whats called "Triple Net" or "NNN". This means the tenant pays the taxes, insurance, maintenance and CAM (common area maintenance).

They basically pay all of the landlord's expenses (except debt service on any loans he/she has, of course).

Commercial properties are valued based on something called a "cap rate".

The equation is:

net operating income / (cap rate) = value

The cap rate is a %.

Think about it as the return on your money, annually, as a percentage, you spent to buy a property.
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Nick Huber
Nick Huber
@sweatystartup
If you're new to real estate twitter this is a must-read.

A thread on how most real estate folks structure deals with outside investors.

Most GPs utilize the "preferred equity" structure when they raise money from outside investors. They "syndicate" deals.

Here's the basics:

The person (or team of people) putting the deal together is the "sponsor". Also called general parter. Referred to on twitter as the GP.

They find the property, do all the work, hire the management company and take fees. They often co-sign debt and always secure the financing.

The investor is generally passive, doing no work and putting in cash. This is the "limited partner". Referred to on twitter as the LP.

They don't co-sign debt. They simply read reports and ask the sponsors questions and cash checks every month (if the deal is going well).

There are two equity classes.

"Preferred equity" belongs to the LPs. Cash talks, so this is a higher class of shares. They are first in the "capital stack" behind the debt (bank loan).

"Common equity" belongs to the sponsor. They are generally last in the capital stack.

Sponsors generally co-invest. That means they hold both equity classes. A 10% co-invest is standard.

That means the GP has skin in the game. His 10% co-invest makes him both an LP and a GP.
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Nick Huber
Nick Huber
@sweatystartup
A THREAD on how most real estate folks structure deals with outside investors.

Most people utilize the "preferred equity" structure when they raise money from outside investors. They "syndicate" deals.

Here's the basics:

The person (or team of people) putting the deal together is the "sponsor". Also called general parter. Referred to on twitter as the GP.

They find the property, do all the work, hire the management company and take fees. They often co-sign debt and always secure the financing.

The investor is generally passive, doing no work and putting in cash. This is the "limited partner". Referred to on twitter as the LP.

They don't co-sign debt. They simply read reports and ask the sponsors questions and cash checks every month (if the deal is going well).

There are two equity classes.

"Preferred equity" belongs to the LPs. Cash talks, so this is a higher class of shares. They are first in the "capital stack" behind the debt (bank loan).

"Common equity" belongs to the sponsor. They are generally last in the capital stack.

Sponsors generally co-invest. That means they hold both equity classes. A 10% co-invest is standard.

That means the GP has skin in the game. His 10% co-invest makes him both an LP and a GP.
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Nick Huber
Nick Huber
@sweatystartup
A hill I'll die on:

95% of entrepreneurs should forget about technology (a few big fish and a lot of sophisticated fishermen) and focus on small business (small fish everywhere and really crappy fishermen).

A THREAD:

Be like water.

Take the path of least resistance.

The goal of every entrepreneur should be:

#1. Gain financial freedom

and

#2. Maximize probability of achieving #1

Because when you have financial freedom your world opens up.

You can start doing what makes you happy.

And you can positively impact a lot more people with project #2, 3, 4 etc. You're in a position to try to change the world if you have financial freedom.

So why don't more folks think about opportunities with more weight added to #2?

The odds part. The risk. The probability.

The amount of small businesses in America that absolutely print money and still do business like it’s 1985 is astounding.
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This is a GREAT argument to pull up when talking to people about minimum wage. Some others nested below


A large number of new jobs being created are minimum to low wage, so looking for a new job generally won’t increase pay.

Raising minimum wage helps things not directly related.

Helps Infant mortality? Yup.

Lowers Suicide? Yup.

Reduce smoking rates? You bet.

It also boosts the local economy! Minimum to low wage earners spend more % of their money, so an increase means more is spent, often in community!

Low paying jobs are often in sectors which would gain from this. More people spending money in your shop makes your business more money! Now you have more profits and increased labor costs are covered.
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A few predictions of what will happen in 2021

[ a thread ] 💻🏠🌍

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Almost every region that has something which would attract people to move there will do the same thing

Incentives for remote talent to move will grow quickly

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I spoke to 1,000+ companies over the last 6 months about their plans for remote work going forward

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[ a thread ] 💻🏠🌍

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Companies who don't will lose people to companies who do

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Companies doing this have seen their workers decentralize rapidly, leaving expensive cities to be closer to family

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especially with the direct line that's drawn in the OT with the allegory of WW2 and Vietnam with the rebels being the Vietnamese and the Empire being America. That...doesn't exist in the Clone Wars.

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Steph: evil father, who openly works against her. And then there's Damian, whose parents are both alive and yet both have identities that totally obliterate their role as his parents. He doesn't relate to them as a mother and father; he can't, and neither can they.

In all these different cases, Batman tries all these different ways of making orphanness for them not what it was for him: Either by trying to teach them the (arguably poor) coping skills early that he learned over a very long time, or by literally legally adopting them, etc.
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THREAD:

80 Films with the biggest Plot Twists that will blow your mind.

1. Fight Club


2. Predestination


3. Seven


4. Requiem for a Dream
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