📈 Market Snapshot

📰 Headlines

• 🛠️ Heard of the built-to-rent trend? Everything you need to know about it right here

• 🌇 4 lessons from the Twitter Real Estate Gala in NYC

• 🏠 How 2023 foreclosures stack up to 2008

• 📊 Short-term rental investor walks through his full tech stack for Airbnbs

• 📋 Private equity firm Carlyle is gobbling up more self-storage units

🏚️ Deep dive

Bonus depreciation

Big real estate investors make millions of dollars and pay nothing in taxes.

I was always curious - how exactly does that work?

And more importantly… where do I sign up for the $0 in taxes thing?

There are several different strategies between 1031 exchanges, working as a realtor, etc., etc.

But none of them are as impactful as this….

Bonus depreciation.

What is it and how can you take advantage of it?

Let’s walk through depreciation and then we’ll get to the bonus part.

One huge benefit of RE is you can take the value of your property and depreciate it (effectively mark it down, like it has wear and tear) each year.

For residential properties, tax law allows you to slowly mark down the property over 27.5 years.

That’s 3.63% of the property value written off per year - a HUGE tax savings.

Imagine a property you bought for $200,000 that cashflows $8,000 per year.

Your depreciation expense (3.63%) would be $7,200, meaning you pay taxes on only $800 of the income you earned.

Here’s where it gets even more interesting.

Most people use a flat 27.5 years for the full property.

HOWEVER…

Technically every item in a property has different depreciation schedules.

Items like:

• Roofs

• Sidewalks

• Doors

• HVAC

• Etc.

Many of them are as fast as 5 or 15 years, which means you can write off way more than 3.63% per year.

Stack up enough of them and you could write off 10-15%+ in the first year - $20k+ in the case of the property above.

Here’s the catch:

You need a firm to do a cost segregation study for you.

But that’s generally only $1-2k.

Certainly worth the tax savings.

Sophisticated investors do this over and over and then trade up into larger properties.

It goes like this:

1. Buy a property with leverage

2. Hire a virtual cost segregation firm (usually cheaper than in-person)

3. Depreciate the cost basis of the items they say you can mark down faster

4. Receive low-tax cashflow for 3-5 years

5. Trade up the property via a 1031 exchange to delay taxes even more

6. Repeat

Tadaa! That’s the secret.

Poll for this week’s newsletter below, yenno…. just in case you want to share some appreciation for this depreciation. 🙂 

📊 Chart of the Week

Build-to-rent is on a tear this year, which raises the question - will housing ever become affordable?

We’re years behind on housing supply and a handful of developers are finding it more profitable to build single-family homes designed to be rentals vs. ever owned by new families.

🐤 Real Estate Rizz

#1

I call this sexy indifference - it pulls the other party in to want your deal.

#2

Nope, nope, nope. Sounds like a first-class ticket to Divorceland.

🔥 Want everything you need to buy 1-5 units this year?

Check out the Duplexx Blueprint and get all of these goodies:

Note: If you’ve joined in the past 2 weeks, you’ll automatically be taken to a special page to receive 80% off. 

• Cash-on-cash returns calculator

• Guide with 75+ items for your next rehab

• PM/Contractor interview guide

• 30-minute mini-course on finding deals