HI 165: Short-Term Rentals & Taxes with Brandon Hall

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Hello and welcome to episode 165 of the Heroic Investing show and Happy New Year to everyone. We're starting 2019. This is my second episode here of 2019 and making a commitment here. One of my New Year's resolutions is to get back to two episodes per week and stick to it. You might have noticed that the last few months as the end of the year for my sales business and my coaching programs and everything that I was involved in started to really, really get intense. I kind of backed off a little bit. So I owe it to the audience. There's so much incredible material out there, so much that I want to say. So many great clients and great veterans and active duty members and first responders, real estate investors and entrepreneurs that want to be on this show and want to have a voice to help you. Like I'm trying to help all of us get on a better path. And so lots of people who want to participate and I'm going to get those interviews stacked back up and get on path. So there you go, guys. There's my New Year's resolution for everyone. So here on 165, we're going to talk taxes. It's the last in a series that I've been doing of Jason talking on the subject of short term rentals. And if you remember, I brought that up because sue and I have recently purchased our first one. It's down in St. Augustine on the beach. And actually for the holidays we went down and visited, visited the property. It's absolutely gorgeous. And my hat's off to very, very good friend Jim, who's a close friend down in the St. Augustine area. And he is a local market specialist or a provider for the Hartman Network. And he just did a tremendous job. We were extremely happy. And you know, as we continue to build the occupancy higher in the new Airbnb property or Airbnb or short term rental. Actually, I've been just playing a few of these episodes to just heighten the awareness and give me an opportunity just to talk about that experience. And this last one is about some of the challenges, concerns about perils, I guess you could say, about operating what would otherwise be a long term buy and hold as more of a short term weekly or less than weekly rental. And so some of the stuff that the CPA here, Brandon hall, talks about with Jason this episode was a couple years ago. A lot of these challenges have been kind of gone through by the industry by this point. Very, very fledgling industry. Back when they were talking about these. What he's talking about a lot though is the do it yourselfer. And there certainly are a lot of people out there that are renting their short term rental on Airbnb and elsewhere, doing it themselves. I would personally caution against that. I don't think that's a great fit for the audience, especially as busy as everyone is. You guys have stayed in Airbnb, right? I mean, you know that you have the owner or the person who's rented it out to you. You have them on your beck and call pretty much 24 7. And that's a lot different than just the tenants and toilets stuff that you get of the two or three phone calls a month if you're self managing a property. And so I personally would caution against that. I think your time is best devoted towards your unique ability, your unique genius. And shoot, if you're active duty or you're still actively first responder, you know, you can't run reputable business like that being out of commission and unavailable for that period of time. I mean, the ratings are just so extremely important with these short term rentals. So I have a management team and I pay them a whole lot higher management fee than I do for my long term buy and holds, but they earn it. And the other thing to keep in mind is that there's no turn cost and there's no lease up fee. So the repairs really kind of get averaged out across all of the different ones. So there's a lot of things that is covered under this management fee that's not otherwise covered on my long term buy and hold. And so I think that's certainly something that I wasn't thinking about as I was looking at the management fee here being two or three times what it is for my long term buy and hold. So far we're happy. We don't have a huge cash flow from the property yet, but I think that's simply a fact. That property wasn't available to lease up months in advance like a lot of people do in these vacation spots. So more to come on that. But some of the concerns, as I said, are about the active Business income instead of passive. Again, that's if you're doing all this stuff yourself. There's some other stuff though, like there's hotel taxes and fees in many of the states. Doesn't really come up in this interview, but it comes up in some others that they talk here and it's certainly a popular topic when you're talking taxes associated with short term rental in general. You know, my property manager handles that. They have a good handle on it. And it's really charged to the tenant, the person who's staying there, you know, as is like the cleaning fees.

Right.

It's just all kind of taxed through to the individual who's, who's staying at the property. So I will give you more information as I, as I learn more. This is probably the last though of the short term rental kind of flashbacks that we're going to do. Now listen, if you're into taxes, but you're not into short term rental, never fear. The second half of this is really, really good on things like real estate, professional status on other tax issues, but it's really kind of the basics. So it's a really, really good review. And then I've got some other CPA tax topics. What I'm going to do is kind of a flashback here from about a year ago when the Trump taxes came out. I want to help everyone understand a little bit better what's happening with their 2018 taxes because, because now we actually have to go pen to paper with all of the changes that happened in 2018. So I think that'll be useful and helpful for everyone. Next week, have another great client interview and listener participation kind of interview. New material from an entrepreneur, good friend and real estate syndicator that I think you will really appreciate. So without further ado, let's get to Brandon hall, cpa, Brandon hall and Jason talking taxes, some of which has to do with short term rentals. Thanks so much. We'll see you next episode.

It's my pleasure to welcome Brandon hall to the show. He is owner of Hall CPA and I reached out to him because he posted a really interesting article on the tax impact of Airbnb and short term rentals in general. And you know, there are, there's a small kind of little cottage industry going on of real estate investors who are building strategies around Airbnb. And of course, you know, our philosophy is long term, stable, simple rentals. You know, I thought we should talk about this because there are some very sneaky problems that can crop up when you do short term Rentals and you're in the, you know, you're doing Airbnb and stuff like that. So Brandon's here to talk to us about it. Brandon, welcome. How are you?

I'm doing well. Jason, thanks for having me on the show. It's a pleasure.

Well, it's good to have you. So, sneaky little issues with short term rentals that most people don't know about, do they?

Oh, yeah. You really need to know what you're getting yourself into before you jump into this business.

So tell us about that. I mean, you're, you're a buy and hold investor. You have long term investment property and your firm specializes in real estate clients. You basically only take on clients who are real estate investors, it sounds like, right?

That's correct. Yep.

Okay. And what happens with the Airbnb thing?

Sure. Yeah. So the biggest problem with Airbnb investors is that they can turn their passive income, that passive rental income into active business income. And what happens is when you do that, you subject yourself to a 15.3% self employment tax. And that's on top of all the other taxes that you already owe anyway.

Because essentially the irs, instead of viewing it as a passive investment, as they would view long term buy and hold real estate, you're saying.

Right, right, right.

This is viewed as a. More like a business. Like a hotel.

Exactly.

Like, like running something that's an active business. And of course, you know, people know that they, they need to be active. I mean, if you're doing short term rentals, there's a lot more management and a lot more engagement. And you had a story about your personal experience with one of your own investment properties. Please share that if you, if you'd like.

So, so, exactly. So the IRS is going to look at this like you are running a business like you're running a hotel, like you're running a bed and breakfast, basically. And when you do that.

Your income is going to be subject to self employment tax like you are a regular business owner. Now I own a triplex. It's a long term buy and hold piece of property and I'm all about what is the value of your time. I want to be able to spend 30 minutes a month on my property and have it cash flow 7, $800 a month. That's perfect for me. That's why I don't get into Airbnb, aside from the tax aspect.

So Brandon, you talked about that difference and I believe you said that managing your triplex takes you about a half hour a month.

Yeah. So my Whole philosophy is set up business systems that basically automate everything for you. So I have a property manager that takes care of everything. All I'm doing every month is doing my bookkeeping and a bank reconciliation to make sure everything's in place.

Some investors I'm sure would doubt that you can really manage a triplex with a half hour a month. Care to address that at all?

Yeah, I mean, I honestly doubted it too. And I'm sure it'll be subject to change over time, but right now that's what it's trending at.

Fantastic. Good stuff. So tell us about your clients who are doing Airbnb rentals. I mean, do you have clients or people that you know or have even heard of? Maybe they're not your own clients, but you know, who buy a bunch of properties and they go the route of Airbnb or, you know, any type of short term rental? I mean, we're, we're kind of maybe unfairly characterizing Airbnb just because they're the big name in the field and they sort of founded this new industry of sort of Uber and Lyft kind of sharing economy for, for rooms and residences and so forth. But it's any short term rental, it doesn't have to be through Airbnb, obviously, right?

That is correct, yes. So I have a couple clients, they use Airbnb, they use a couple other websites out there and then they just advertise locally and it's all the same thing. I mean, a short term rental is going to be a short term rental regardless of what you use to get the tenants in. And we can talk a little bit about how to actually avoid being classified as an active business and, you know, shelter that income from that self employment tax.

Okay, so let's do that. But first I wanted to kind of, I was asking a question there of, you know, what do you think is involved in the management of one of these? Say, you know, because obviously with an Airbnb type of short term rental, you get a much higher rate and much higher nightly rate. Of course you're not occupied as often, ideally. Or not ideally, but typically, I should say that's the wrong word. You know, so you have a much higher vacancy rate in most cases and there's a lot more management and involvement. So, you know, can you share any of that experience that you hear from some of your clients or just people, you know, who've responded to your articles and so forth on this topic?

Yeah, yeah, absolutely. I mean, I can just share my experience with my clients. So I have a range of clients. I have some that want to be really active in the business and some that don't. So the guys that are really active, they're going to the rental every time that they're turning over units and they're doing all the cleaning, they're fixing things that are broken, they're rearranging everything to make it look nice for the next guy to come in. I also have clients that pay people to do that, and that's perfectly fine too. So there's a whole range of what actually goes into this stuff, but it's pretty labor intensive compared to the typical buy and hold property. I mean, you got to get in there and really fix everything. You got to make it look like the pictures. Otherwise people are going to come in, they're not going to enjoy the stay, they might give you a bad rating, which hurts your income potential later on in the future. And yeah, just overall, you really got to make sure that you're on top of it. It's completely different ballgame compared to the average buy and hold property.

Well, but people would say, you know, they've got a property that they rent on a short term basis and they hire all of that stuff done. I mean, my investors that do buy and hold strategy, you know, they're not swinging a hammer, they're not fixing up their houses, they're not cleaning it between tenants if the tenant stays there a year, they're not, you know, doing any make readies. And they'll say, well, you can hire all of that stuff done. But you know, that would be like saying, I'm going to start a business and hire everybody and they won't ever bother me, I'll never have to manage them. They'll just run this company and make it hugely successful without any of my own attention. Kind of crazy, huh?

Exactly. Yeah. Well, I actually had a conversation with a client about a month ago. He was kind of going through that whole thing and what he was realizing is that he has regular buy and hold properties and he does hire out all the work and he manages the contractors, the property managers, all that stuff. And so he was going down the Airbnb path, the short term rental path. And what he was realizing is that he's not having to. He's not having these conversations once a month or once a quarter anymore. It's three times a month, four times a month. I mean, he's talking to cleaning services, he's talking to contractors, he's talking to the property managers, he's talking to schedulers. So it becomes much more time intensive, labor intensive. You just gotta, like I said, I keep going back to just know what you're getting yourself into.

Some people say that. And of course you have to remember with short term rentals, they're furnished, of course they have to be furnished. And not just furnished, but plates and silverware and everything, you know, has to be in there because it's gotta be sort of viewed like a hotel almost. You know, with that there's just going to be a lot more stuff that breaks. People spill drinks on the furniture and things like that. And it's just a much more complicated scenario, right?

Absolutely. There's a lot of planning that goes into it. I mean like you said, you have to furnish everything. A guy that's coming in for three days is not going to move a bed in, so you have to provide that for him. And that just goes, I mean all that's coming out of your pocket. It can play into the tax strategies, but ultimately it's just a lot more that you have to do to set this thing up. Now there's nothing wrong with that. I mean like you were saying, it can be very lucrative. You do generally get higher rents, but you're also working on it more so than a typical buy and hold property.

And see what I've found is that even on these short term rentals where you know, and the rates definitely vary based on the season and all kinds of much more complex business factors. I mean it's like hotel pricing. You know, hotels have software programs that run their business that go out and compare rates of other hotels and spider them off the Internet and then have these pricing algorithms. I mean, I don't know if anybody really realizes how complex this is. When I was in young entrepreneurs organization, Yeo, now called EO for 10 years, I remember meeting someone who owned a software company that did this for rental cars. And rental car agencies do this. I'm sure the airlines do this. I'm sure many types of businesses have this stuff. And it's incredibly sophisticated where they'll go and they'll, you know, spider and get the rates off other competitor websites for whatever product or service they're selling. And it will, you know, suggest that their pricing do this and they do that and it's, it's really, it's really like Wall street, you know, the modern version of organized crime as I like to call it because you know that it's, it's almost like high frequency trading, you know. And so with, and with a short term rental, I mean, you've got to be constantly looking at what all the competition is doing to keep your unit rented. You've got to adjust the rates constantly based on seasons and so forth. And I mean, there's a lot to this, you know, and, and what I find is at the end of the day, I should really say in this case, the end of the year, in talking to people that do short term rentals and comparing them to long term buy and hold investors, it kind of works out about the same. It seems like most of the time, you know, because if you're, if you're occupied in your short term rental, you know, 280 days per year out of 365, and you get a higher rate, but then you have higher management fees and also more of your own time, which is never factored in. All of that just, you know, it kind of just seems like it's a wash. What I've noticed. But I don't know, you're doing the tax returns for these people. So what do you think?

Yeah, so I've actually compared that on tax returns because I'm interested. That's part of being a real estate savvy, cpa. You can see these strategies that people are implementing and figure out which one works and it is kind of a wash. I mean, I will say that the short term rental guys do typically earn more, but like you were saying, time's not factored in, they're not factoring their time in. So what's interesting is when you put it on a, how much time did I put into my buy and hold property versus how much time that I put into my Airbnb property or my short term rental property? Now let's compare our net operating income and you will find that it'll be about the same.

Yeah, that's really interesting. Okay, so just circle back for just a moment and then I want to talk to you about some other things, just maybe some general real estate and tax strategies. But circle back for just a moment as you did in the beginning, and explain the difference. With a short term rental. The IRS basically views it as though you're running a business. And when you're running a business, you are supposed to not saying everybody does it. Okay, but you're supposed to pay this additional self employment tax, right?

That's correct. So the big difference is when you have a buy and hold property, you report that Property on schedule, etc. When you have a short term rental property, you're going to report that on schedule C.

Unless you're able to have an average rental period of over 30 days, or you have an average rental period of between seven and 30 days, but you're not providing substantial services. So what it really boils down to is what is your average rental period per property? And there's a couple ways that you can calculate that.

Sorry, there's not a couple ways. There's one way you can calculate that.

So basically what you do is say you have a two bedroom house and you rent out one room for an entire year. Well, that's 360 days. And there's one rental period, right? Because it's one whole year. Then say in the other room you're renting it out every month. So you have 30 days, that's your rental period, but you have 12 of them. So now you have 13 rental periods for this property because you got the one year lease and then the every 30 days guy, and you have 720 total days rented. So if you do 720 days rented, divide that by 13 rental periods, your average rental day is 55 days. So since you're 55 days, you're over that 30 day threshold and you're not going to be considered a short term, it's not going to be considered a short term rental. So really what you're looking for here, if you're investing in these short term rentals, you absolutely do not want a rental period less than seven days. If you have a rental period less than seven days, the IRS is going to say you're a business regardless of what you try to claim. And you'll have to report that on schedule C and you'll be subject to self employment tax.

And would you say that a lot of people aren't doing this now? I mean, I guess you have no way of knowing but you know, are they going to be there going to be a lot of audits coming our way as our broke, overspending, drunken sailor government is looking for more money, I would assume.

So that's kind of the way that I think it's going to go. Especially since Airbnb has gotten so popular and these short term rentals, you know, we mentioned the Uber stuff earlier. As those sharing apps become more popular, the IRS is definitely going to hammer down on the short term rental stuff. So I mean, I have a couple clients that came to me and they've been reporting their short term rentals on schedule E for years. And we have to go back and amend those tax returns because they are reporting them incorrectly. You don't want to be audited and have the IRS come in and assess tons of penalties and fines because you've been misreporting your short term rentals. And we talked earlier about all the things that these short term rental guys have to do. Taxes is the last thing that they think about and it's unfortunate because taxes is really going to have the biggest impact on your margin and that needs to be one of the first things you think about. But you know, a lot of people wait till April 15 to start thinking about it and by that time it's way too late.

Are there any other aspects of this that people should know? For example, the holy grail of tax benefits? I think income property is the most tax favored asset class in America. And the holy grail of tax benefits is depreciation because it's a non cash or phantom write off. I just love depreciation write offs. And they're the best thing ever. And to take full advantage of them, you need to be classified as a real estate professional. Not everybody can do it, but it's a, that's just, you know, a huge gift if you can do that. Do you have the same thing on your, on your Airbnb type of property properties? I would assume that you would because it's a business and you can depreciate business equipment.

Yeah, yeah, absolutely. And you know, with your Airbnb you even have the, I mean, you can do it with regular rentals too, but with Airbnb you're going to be furnishing everything, right? So we talked about furniture. So you can depreciate the furniture that you're furnishing. You can write off the silverware, the plates, the cups, anything that you are putting into the rental, you can either depreciate or expense. And that's going to be the big, that's going to be the nice thing about Airbnb rentals is that you are going to get that extra depreciation every month.

Right. But you know, I want to just say, I mean, what's the depreciation schedule for that stuff? Five years or seven years maybe. Probably five.

Yeah, yeah, five, seven years.

Okay. So here's the problem though, folks. That really isn't that good a deal. Unless I'm missing something because you're probably going to have to replace it in five years anyway. If, if you want to get premium rent, certainly, you know, I've rented condos and things and places that, you know, were tacky as hell, frankly, it seems like in ski places a lot of that is true. You know, whether it be Tahoe or Aspen or whatever. Even high end Aspen. Well, Tahoe is pretty high end too. You know, you get these ski condos, seem like they were furnished, you know, quite a few years ago. They're pretty, pretty tacky looking, a lot of them. That's why I like hotels personally. But, you know, so maybe it'll last you longer, but certainly it's not going to last you longer and get you top rent. And hotels, they remodel pretty often if they're, you know, if they're going to expect, you know, good room rates.

Yeah, well, one thing that I do with a lot of my clients is regardless of whether it's a short term rental or a long term buy and hold, we look at personal property items and we try to figure out which ones that we can deduct onto the new De Minimis Safe Harbor.

Tell us what that is. You can't use words like that on this show and not explain them. The De minimis. Okay, folks, here we come. Drum roll for the De Minimis Safe Harbor.

So the De Minimis Safe harbor allows you to deduct low cost personal property items and then also components of tangible, of tangible property. There's a threshold. You can deduct up to $500 per invoice or per item. That per item is key. So what I have a lot of my clients do, if you have a contractor say he's, I don't know, coming out and doing repairs or whatever.

You want to have your contractor itemize everything that he's done, especially to get below that $500 threshold because just say that he lumps everything into one sum and it's $1,000, well, you can no longer use the Safe Harbor. But if he's itemized everything and each line item is 250 now we have some flexibility. If those are, if those items are personal property items or components of tangible property, then we can deduct them currently. So going back to the short term rental thing, if somebody's furnishing their, their rental with, with furniture or appliances and things like that, you can generally, I mean, unless you're buying nice furniture, you're going to be able to deduct that in the current year under this Safe Harbor.

Very interesting. Okay, so in terms of just real estate in general or any other tax tips that you want to share with people. Brandon, becoming a real estate professional, we've done shows on that, you know, complicated. Not everybody can do it. If you can, it's phenomenal. You know, if you want to share any comments on that or any other things that, you know, maybe real estate investors can take advantage of that they might be overlooking.

Yeah, I mean, I can, I can talk about all that. The real estate professional is going to be very difficult to qualify for. Impossible if you have a regular job.

Yeah, but I don't think it's very difficult to go. I mean, you know, if you, if you don't have a regular day job or you have a spouse who doesn't have a full time job. Okay, you know, 750 hours and 500 material participation. What's so hard about that? Why do you say that's so hard?

Right, right. Well, the big problem is the 500 material participation that needs to be solely for your rental properties in order for you to pull these out and make them active instead of passive. That tends to be hard to do, especially if you're using property managers. If you're not doing the rehab but rather acting as a general contractor. I mean you can do it, but you have to be smart about it. And a lot of people.

They won't spend enough time in their rentals to satisfy the requirements. Now I have an example. I have a realtor client. She works 1500 hours a year, so she qualifies as a real estate professional. She meets that 750 hour threshold, but she doesn't materially participate in a rental. She only participates 200 hours a year and she has a portfolio of 20 rentals. And there's nothing that I can do other than, hey, we need to do a better job of tracking your hours. Just track everything and then we'll go back through and do a little audit before we report this come tax time just to make sure that we're capturing the right hours. But it comes out to be 200 hours and there's nothing that you can really do there to substantiate material participation.

Is there a number of. I mean, I know, I know there's not, but you know, this is an opinion obviously. You know, you keep a log, you keep good records and you try to be as inefficient as possible so you can spend more hours. You know, think like a union member who's basically leeching off the system system, who doesn't want to upgrade and use computers, they want to use clipboards because it'll take longer and they can get paid more. You know, and I'm sort of being obviously very sarcastic here. You do understand that, right? But, but you know, that's, that was the battle in California's with the longshoremen in Long beach, when they went on strike, one of the things they were striking over is that, you know, the businesses wanted to install computers and computerize everything. And they said, no, no, no, no, no way. We got to use clipboards to log in the inventory because it's really inefficient and we can get more hours that way.

Yep, yep.

And that literally was the battle. I hope you listeners remember that. And that's how bureaucrats think. Okay. Certainly in government it's that way too. So with that in mind, I mean, how many properties do you think you need to be able to justify 500 material participation hours? I mean, can you do it with a dozen properties? Maybe?

Oh, yeah, yeah. I have a client that did it with one.

No way. Come on.

Yeah.

What kind of property was it, though? And we should be talking not properties. We should say units. Number of doors probably is a more accurate way to say it.

So it was a triplex, three units. He essentially did the rehab and he does all the management himself. And yeah, he was able to substantiate it. And you know, the big key was that he did the rehab and put it in. Put it into service in the current year. And then he just continued doing all the repairs himself. He was just. Yeah, he counted all of his hours and it worked.

Has he been audited, though? They keep believing him that just on three units you're spending 500 hours a year. I can see it in the initial period when he did the rehab. I could see them believing that. You know, a lot of, A lot of time there, but on an ongoing basis. That surprises me.

Yeah. So he has not been audited yet and.

Yeah, well, see, every. Everything's okay until you get on well.

Yeah. But in future years he's going to continue picking up properties. So we thought that it was okay to go ahead with this, but. Yes, that is a great question. If you're going to pick one property up and then not do it, then it's probably not the best bet.

Okay, so in the rest of the world, other than your three unit guy, what do you think? 10 units, 8 units, 12? I don't know.

Yeah, I mean.

I would say anywhere between 10 to 20 units. I mean, it really just depends on. It depends on where you're buying the properties. I mean, if you're going out of state for these properties, you're going to have a property manager that's going to do everything. Like me, for instance. Right. I spend 30 minutes a month.

So if you have local properties, then you tend to spend more Time managing those properties because you don't need a property manager at that point.

And by the way, we teach people how to self manage long distance, which if you asked me several years ago if I could do that, I would have thought you were crazy. And it happened to me by default. I've told the story many times on the show. Self management long distance is very possible with today's tools and technology. And I use an agent in between for make readies and turnovers and releasing, but no manager, you know, it really can do it. A lot of times it works out better. In fact, one of our bigger clients who has about 70 units, he talked about at our last annual Meet the Masters event. I can't remember the exact number, but somewhere around half of his properties were self managed and he found those to be easier to manage because you don't have that third party in there. And sometimes it's, it's harder to manage your manager than it is to just go direct, you know, disintermediate the managers. So, you know, I'm not saying it's for everybody, I'm just saying it's an option. And, and you got to, you got to know what you're doing.

Yeah, yeah, I'm definitely have to check that out.

But yeah, if you have managers, in other words, the point you're making, if you have managers, it's the IRS is going to have a harder time believing that you're spending as many hours and you're materially participating in the property. And I, my managers do it differently by the way. Some will ask me to actually sign every lease and some just sign them for me. Okay. And you know, some managers want you more engaged and you can also manage that relationship and tell the manager how engaged you want to be. And if you're trying to qualify as a real estate professional, be more engaged. You know, make tenant decisions. Some managers, they just re rent it and don't even ask about the tenant, which admittedly could be a bad experience. But sometimes the manager is just really good and they know what they're doing and you know, they do a great job. So it depends. Obviously every situation is different, but. Yeah, that's, that's pretty interesting. Okay, go ahead. What else?

Yeah, so some other, you know, tactics that we use, we do segmented depreciation. So you basically break out the property into asset classes and you depreciate it at different rates. So we look for easy things like personal property, you know, like your stove, your fridge. We'll, we'll break that out and we'll depreciate it at a quicker rate. You can also break out structural components.

Otherwise known as cost segregation.

Yes. Yep. Cost segregation. Yeah, you can break out really anything. I mean, you can break out walls, floors, things like that. But generally, at that point, you need a kind of like a feasibility study, an engineer to come in and say, hey, this is the remaining life. This is what it's worth with the personal property items. It's nice, because if it's new, you can just pick up a Sears catalog and compare what the replacement cost would be today, and that's your fair market value.

What is it like 1972 here? The Sears catalog. You're joking, right?

Is Sears even still in business?

That was funny. I got to bother my guests here and get on your nerves, folks. Go get the Sears catalog, and after you're done with that, open up the yellow pages.

There you go.

Yeah, sorry, Brandon. I couldn't let you get off the hook on that one. Gotta give you a hard time. I mean. I mean. I mean, folks, I feel like I'm talking to my mom here, and she wouldn't even say that. My mom would have said, google it.

And you sound like a pretty young guy. I don't know your age.

Yeah, yeah, yeah. Well, hey, you know, I grew up around Sears.

Well, I remember the Sears catalog, too. Okay, but, you know, of a long time ago. Yeah, okay. All right, so what were we saying?

Yeah, so segmented depreciation, cost segregation. If you have new. At new personal property items, you know, you can pick up a. Don't pick up a Sears catalog. Go to Sears and.

Or. Or go to Home Depot or Lowe's.

But. Okay, yeah, or go to Home Depot, anything like that, if you have older assets. So say you buy a property and it comes with an old stove, old fridge. Just look it up on ebay, look it up in the classified, see what it would go for today, and then break it out. That way, that's your value that you're gonna apply to that property.

Yeah, excellent. And so cost segregation studies. I mean, I just did one a few months back on a big property, a big apartment complex that I had. You know, it seems to have really paid for itself many times over, but let me tell you, that was expensive. I mean, to have. We had a CPA do it, and that must have been about, I don't know, $12,000, I think it was. It was a lot of money, and it was a lot of paperwork, too. You know, I mean, is there a sort of rule of thumb for that, because you can do it on little residential properties. You could take a single family home and do cost segregation and say, look, the dishwasher can depreciate on a faster schedule, the air conditioner depreciates on a faster schedule, and you can really break it up in a little house. I mean, it's mostly on big commercial properties, but do you do those? What does that cost?

Yeah, so I've never actually engaged in a feasibility study. I typically refer my clients elsewhere, but those are the guys with the big multifamily properties that are doing those because like you said, they're expensive. I mean, they're anywhere from five to $20,000. For the smaller guys, we typically just look at the easy things that we can pick off. So that's the personal property items that we've already talked about. And then.

Anything that's not really structural but could be something that's easy. So like H VAC units, we can pick up the floors. You can typically estimate floors pretty well, but. Yeah, and it does require a lot of work and a lot of studying and a lot of paperwork.

But for a single family home, though, is there sort of a cost range someone should expect for that? You know, if. If one of our investors listening contacts you and says, hey, we do cost segregation study on my one single family rental property, what are you going to tell them that'll cost? I'd assume it'd be pretty cheap on just a single house.

Yeah, yeah. I mean, for something like that. Again, it depends on how. How much in terms of property we're trying to find here. But it would probably range from. It would probably start off around $500 and it could probably go up to 2 to 3,000 for a single family. That's going to be more in the higher end single family range. I mean, you got to come back and look at it like, If I'm paying $2,000 for a feasibility study, is it really worth it if you own a single family home? Probably not. Unless it's one of the higher end single family homes.

Yeah, yeah, that's why. And hopefully nobody owns higher end single family rentals. That would make sense because the lower end ones make a lot of sense. Okay. Anything else you want to share with investors before you sign off? Brandon, how about your website?

Yeah, yeah, absolutely. You can find me at www.hallcpallc.com.

Just feel free to reach out if you have any questions. I always make time just to answer questions and happy to jump on the phone with anybody that wants to talk.

Any other tips or suggestions?

Tip wise, I would say everybody needs a home office if you can justify it.

You open yourself up to a lot of tax deductions with a home office, so definitely go that route if you can.

And then at the end of the year, so towards like November ish, look at your rental properties and figure out how much income you're going to show for the year. And if you're going to show income, figure out if you can buy tools that you can use in the business next year, if you can buy that before December 31st so you can deduct it in the current year, or if you need to make any sort of repairs on your rental properties and if you can make those before December 31st to reduce your income and then also your tax liability.

Yeah, excellent. Good stuff. Well, thank you so much for joining us folks. That's Brandon Hall. Remember, taxes are the single largest expense any of us have in our lives, so do not be bored by taxes. Make sure you learn how to pay a minimal amount of them legally and patriotically. By the way, this is what the government wants you to do. They want to incentivize certain behaviors. Providing rental housing is something the government likes to incentivize. So let's do what they want us to do and get a tax benefit for doing it.

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