Cost Segregation Studies + Haste Makes Malpractice

Business brain, episode 491 for Wednesday, October 11, 2023. Greetings, folks, and welcome to Business Brain, the show where we take an idea or three, we run them through the ringer, that is, we analyze them, we crunch them and dissect them together so that we can all tune our business brains such that we can each live a better version of our charmed lives. Sponsors for this episode include shopify.com businessbrain, where you can sign up for their $1 a month trial period. We'll talk more in depth about that in a little bit. For now, here in Durham, New Hampshire, I'm Dave Hamilton, and I'm still out.

Here in Northern California. I'm Shannon Jean. And I'm so glad that fall is finally in the air.

I am, too. I like it. Most years I am eager. Like, fall is definitely my favorite season. I love the feel of the air. One of my Christmas this year as fall began, Fall here starts. You start to see the beginnings of it in late August for us here, like, occasionally. I mean, it's still warm, but you get, you get some nights where it's like, oh, there it is. Like, you know. And as I noticed those this year, I. They were met with a little bit of sadness only because we didn't really get much of a summer here. It rained.

We didn't either.

Cool. Most of the summer. Same here. So it was like, oh, yeah, I guess that's gonna happen now. Like the fall's gonna. It just, just because it rained all summer doesn't mean we get to delay fall, you know?

But the way we know it's fall is my house has oak trees all around it. And so day and night now it's, you hear the acorns falling, ding, ding, ding, ding.

Yes.

Pachink game bouncing off the roof, off the deck, inevitably off the pool deck, into the pool. And I have to scrape them out. So it's.

Yeah, it's good.

Yeah.

I guess talking about the weather is better than talking about the government, but do you have a different topic?

I do. I do. So I've been working on this new property that we bought and I wanted to talk about this new. Maybe it's not new to a lot of people, but it could be. But I think it is new.

For.

What you might say residential. It's pretty common in the commercial real estate industry, which called a cost segregation study.

Okay.

This piece of property will eventually become a vacation rental. And so as I was learning new things on the X platform, I started to see this term come up all the time, this cost segregation study. And. And I dived in, wanted to learn more about it. And of course, I then confirmed with my accountant because, you know, you can't quite trust everything you read on Twitter.

Well, you. You can only trust the. The most recent thing you've read, Shannon. That's.

There you go.

That's right.

That's right. So. And he said, oh, yeah, this is a thing. It's mainly with, you know, he's like, I don't know how much you know how it will work. So the way it works is, is this. Here's the concept is that you have a. The government, The IRS says, okay, you've got a commercial property, you have to depreciate the asset over 39 years. So you can take. Okay, you buy a property for $39,000 every year. You could take $10,000 as depreciation to help offset your income, right?

Yep.

With residential properties, it's around 27 years.

Okay. Okay. Yeah. So.

But there's also, There's. There's a bunch of laws that kind of challenge that concept. And the IRS agreed that indeed, there are things at that property that are not going to last 27 or 39 years. Fair. And now there are companies that have specialized in going to your property. In this case, we did a virtual tour. But going around your property and identifying and cataloging every one of those items and matching it to a schedule of. Okay, a dishwasher typically lasts, let's say, five years.

Yep.

Those solar panels last eight years and so on and so forth, all the way down to fencing, to driveway material. Everything you can imagine, you can't do the land because the land is just. That's just the land is the land. But the structure itself, everything from the siding, the roofing, the windows, the doors, and after they create this new depreciation schedule, it basically increases the timeline for your. For this depreciation. So you typically will see a significant increase in depreciation that you can take quickly. And it just so happens in this, I don't know, some government act for. I think it ends in 23, maybe 24. They're letting you accelerate almost all of these things that you put into one of these studies. So it's a significant tax saving. So let's say you. You.

So it's kind of like. Like. Like an enhanced, more granular version of a section 179 for real estate, specifically. Yeah.

And so that out of. Let's say you bought a place for a million bucks, and they do this study and say, okay, out of that million, 250 is the land, leaving 750. And we've created this study and about $250,000 of those items are going to accelerate at an increased rate. And here that rate is. They give it to your accountant, backed up by all the legal documentation.

Sure.

And your accountant then says, OK, year one, we can take, you know, x25,000 instead of 10. So it's great. We just finished up the studies. First time I've done it, got the report, gave it back. My accountant had some questions back and forth a little bit.

Of course.

I highly recommend you learn about this. If you have a piece of property that you're going to do some commercial stuff with, rent it out. Whether it's, you know, vacation rentals or venue events or a commercial building. Definitely.

That's really interesting. Take advantage of. Yeah, yeah, it's great.

And it is a significant amount of savings that allows you to. It changes how you invest that money because, you know, okay, right off the bat, I'm going to get some benefit and you're going to, you can bank it so you don't have to use it all at once. So if you don't need that depreciation that year.

Right.

You can carry it forward and use it in the future.

I like it. That's good stuff, folks. If you know of anything like this. Feedbackusinessbrain Show. We would love to hear either your experiences with cost segregation or anything else that's just like. As you've been listening to this, I know you're like, oh, wait, that's like this, but for a different thing. Let us know. Feedbackusinessbrain Show. We'd love to hear from you. All right, so I have this business where we're publishing stuff for all the users that come in. And we'd been running it for a couple of years and one morning at a staff meeting, one of my partners says, hey, wouldn't it be great if we could offer merch to our partners? And it was like, oh, wow. Like, I hadn't even been thinking about it. But it, it was clear based on the way the things were organized in this business that it was on me to make this happen. By the end of the day we were able to have T shirts and hats and all that stuff. And it's so easy. And it's all because I use Shopify. That's the sound that I get to hear every time there is a new sale on Shopify. Shopify is the global commerce platform that helps you sell at every stage of your business from the launch your shop online stage to the first real life store stage, all the way to the did we just hit a million orders stage. Shopify is there to help you grow. And it's because it doesn't matter what you're selling. Shopify helps you sell everywhere. From their all in one e commerce platform to their in person point of sale system. Whatever you want, it just is there. Because Shopify helps you turn browsers into buyers. With the Internet's best converting checkout, it's up to 36% better compared to other leading commerce platforms. This is why Shopify powers 10% of all E commerce in the US plus Shopify's award winning support is there to help you and ensure your success every step of the way. Because businesses that grow, grow with Shopify. Sign up for a $1 per month trial period at shopify.com businessbrain all lowercase go to shopify.com businessbrain now to grow your business no matter what stage you're in. Shopify.com businessbrain and our thanks to Shopify for sponsoring this epis. Shannon. I had this attorney years ago. I love this guy. Got along with him. Well, he was the right pace for me. But I, you know, I, I would be, I'm, I'm an impatient person, right? And so we were, oh yeah, doing, yeah, we were doing something. And I was like, come on man, you know, like, we got to figure this out. And he's, he understood me. Like, so it was fun. We had a very, very, very, we could be candid with one another. And he said, you know, in my business, haste makes malpractice. And I was like, ah, right, got it. This is why I have you here, because I want you to make sure we're covering all the bases. He's like, right, you've got to give me time on this. He's like, I understand that it's urgent for you. I just can't give you an answer immediately. We need to do a little research. We got to do it the right way. And I was like, yeah, okay, okay, fine, fine.

But.

And that, that has stuck with me in, in, in the realm of legal things ever since. Right. It's like, yeah, I get it, Haste makes malpractice. But I also, I recently come to realize, I think this is true in some areas of every business. If you know what to do, do it. If you are certain that this is the thing to do, do it. But if you don't, there is a period of time for cogitation and processing. That is good. But, but you need to limit that. Right. Like, because we can get into analysis paralysis. Right. Like and don't give yourself permission to do that. So this is, this is like an advanced skill. This would be like a three hundreds level course. Right. This is not business 101. Right. You gotta know how to apply this concept. But I was, I was. And I forget what it was that made me put this on the agenda. I put it on maybe a month ago or on our Q list of things to talk about in the show. And it was like, yeah, it worked out really well for me to process this for three days. I didn't know what to do. So I stopped, I thought about it, I asked a bunch of people questions, I learned more and I cogitated more. And then I made the decision and most importantly, took action. And sometimes action just as an aside in my mind, sometimes choosing to do nothing is an act. I think of as an action. But you have to think of that as an action. It is not if you choose to do nothing, if you choose not to decide, you still have made a choice. Right? So you know, and I think I said that. Oh, I, I, I, last episode I, I quoted a different Rush song. But you know, that's fine.

Yes, yeah, yeah.

But like I, it's, you got to be careful.

I have some comments. Yes, I have some, I have some comments. So looking back, I, I definitely do, I do agree with this haste malpract because. But I also think it's based on the level of the decision and the importance of the decision that you have to make something that has, could have catastrophic impact on your personal life or your business. Yeah, you really better think about it. But if it's a day to day thing, I really agree with your paralysis type question. I call it, you know, beware the once is right.

Yes, once.

Once I figure this out, we can do X. Once I buy this new thing, we can do X. Once I learn this, we can do, you know, whatever. Well, I hear those excuses every day from people because people, you know, because I've been in business my whole life and small business this and launching this. People around me always seem to want to talk about business and I'm like great, I love it. I'm highly encouraging, everything. But I just had this experience the other night where somebody told me this story about this new business they were launching and I said man, that is great. I'm excited for you, I'd be glad to help you. Anyway, I Can give you any advice, but then they had a whole laundry list of things they had to get done before they could do anything. So if it's not, you gotta qualify it. Catastrophic things or things that could be crazy detrimental. Yeah. You really have to stop and think and make a right decision and maybe, you know, get some advice from your board of advisors that we've been talking about for eight years on this show. But if it's something, you know, if it's a deal or it's something that if you make a mistake, okay, no, it's not a big deal. I learned about it. I lost that customer. I didn't. I spent this money. Didn't need to do that. I bought the wrong. Whatever. I'm a firm believer in just making the decision, man.

I agree.

Jumping into it. Yeah.

You know, here's, here's. You just said something that gave me an idea I've never had before. We've talked on the show many times about empowering your staff, right? And one way to empower your staff is to give them a dollar amount and say, hey, look, if you can solve a problem that you think needs solving for X dollars or less, and it's going to be radically different depending on your business, you know, it could be $200, it could be $2,000, it could be $20,000. I don't know. But think about this. What's the dollar amount that you are comfortable letting your staff spend so they don't have to ask you? Right? Like, that's. That's really what this comes down to. So what if we were to do that for ourselves? And this is a number just like you do with your staff. You might want to review that number once a year to make sure that it's still relevant for your business. Like, there's a world where you say, okay, it's $250. If you can solve this problem for $250, great.

Yeah.

Well, the economy has changed in the last two years, right? So maybe for your business, that 250 is now 500 or maybe 400, I don't know. But it's worth revisiting. The same is going to be true for what I'm about to suggest here. Come up with a number for yourself. If you. Because you were just saying, like, if it's some amount of money, you can spend it. Just do it. You'll learn a lesson. Or you won't. But there's a. There is an amount of money for every business that if you were to spend that and in error yes. Then it does crater the business.

But I have a TV in my house that I call my hundred thousand dollar tv.

Exactly.

Because that's about the money I lost when I thought I could get into the TV business. And I keep it just because. So I can tell that story. I'm like, oh, yeah, that TV cost me 100 grand.

Yeah, yeah, exactly.

For sure. Yeah.

And you're worth $12 today.

But yes, yes, exactly. It cost me money to get rid of it.

Yeah, yeah, of course.

Yeah, yeah, yeah, yeah. Like the, you know, the Ritz Carlton this was back in 2015. They told their employees, they encourage them to solve problems and they could spend up to $2,000 to solve a guest problem.

Exactly.

Not. Not just said, oh, we allow you to. They encourage them. And not only is it get you, you know, crazy loyal customers, but it got them crazy great press for how good their customer service is.

Yep.

And, you know, it's up on Forbes and it's in Newsweek and they talk about it on, you know, these other case studies. And so, yeah, I like that.

You got to come up with a number and think of it as empowering yourself to solve problems. Just like you need to empower your team to solve problems on their own. Empower yourself to solve problems immediately without any analysis. Can I solve this problem for this amount of money or less? If so, solve it. And you've just freed up your time and even more important than that, your mental bandwidth, it's over now. You might learn a lesson from it, and it's either going to be a positive lesson or a negative lesson. And so there's your tuition, and that's okay, like, just like with your staff. But don't get yourself into analysis paralysis all the time. Don't get yourself caught in the cycle of, you know. Well, I don't know, like, just empower yourself to solve problems. I just came up with this as we're recording the show, and it's one of my favorite things I've ever come up with. Now I have.

That's why we do the show.

I have recency bias on this. Obviously, it's, you know, it's.

It's too much recency bias.

Absolutely. Like I said earlier, it's the most recent thing I thought of, so it's the best idea.

Yeah, I'm definitely going to take that one.

That's.

I know, I know many people, myself included, that have recency bias.

Oh, we all do. We all suffer, of course. Yeah, yeah, that's why, that's why I said it. I I didn't say it to sound smart. I said it to acknowledge what's going.

In my brain right now.

Yeah, yeah. And.

And I think, you know, if you're in the legal field, haste makes malpractice. Well, that's much. You know, you're in. You're solving problems constantly, and you're on the hook. Customer, and you're on the hook. And I would say the same if you're an accountant, that kind of thing. So, yeah, I. I would love some examples. You know, in your business, do you find this to be true? Do you have to be extra cautious because the liability is so high, or do you just wing it and jump into things? Or is it, like I said, you know, based on what level and how you qualify the risk? It would be great to hear back. Feedback@businessbrain.show. we definitely want to hear from you. And we're getting close to giving away a MacBook Air.

That's right. He said feedback at BusinessBrain show. Send it in your ideas. Recency bias. If you just thought of it, it's the best idea ever. Let us know and keep living that charmed life. See you next time.