GI180: What is Cost Segregation with Erik Oliver

Erik Oliver is a cost segregation specialist. He brings with him a passion for identifying cost savings and educating commercial real estate owners on the benefits of cost segregation.

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Announcer:
Welcome to the Global Investor Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host Charles Carillo combines decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now, here’s your host, Charles Carillo.

Charles:
Do you have money sitting in the stock market? And you’re worried about it or worse. You have money sitting at the bank, not keeping up with inflation. My name is Charles Carillo, founder and managing partner of Harborside Partners. And since 2006, I’ve been investing my money and my family’s money into income producing properties. These are real assets, real properties with real addresses that produce real cash flow. At Harborside Partners, we provide passive investors who love real estate with a turnkey investing solution. If you want to put your money to work in real estate, but can’t find deals, don’t have the time to get funding in. The last thing that productive people want to do is manage real estate. We find the deals. We fund the deals and we manage the tenants, the termites and the properties. Partner with us at investwithharborside.com. That’s investwithharborside.com. Go to investwithharborside.com. If you love real estate, you like the idea of passive income and believe that income producing properties will appreciate over time. Go to investwithharborside.com. That’s investwithharborside.com.

Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host Charles Carillo. Today we have Erik Oliver. Erik is a cost segregation specialist. He brings with him a passion for identifying cost saving and educating commercial real estate investors and owners on the benefits of cost segregation. So thank you so much for being on the show with us, Erik.

Erik:
Yeah, no thanks Charles for having me. I’m glad to be here. So

Charles:
Give us a little background. I know we, we chatted before recording but give us a little background on yourself both personally and professionally prior to getting involved in cost segregation.

Erik:
Sure. So I was born and raised in Salt Lake City, Utah, and got my degree in accounting kind of by default I was horrible at English and so I thought, how am I gonna get through this college thing? And math always came fairly easy. So it was either finance or accounting. So I got my degree in accounting and ended up in sales. Prior to working for cost segregation authority, I worked for a company called OC Tanner doing employee recognition sales, so years of service, awards, retirement gifts, those types of things. And that job took me to the East coast. I lived in Richmond for about 12 years. And then after that I went to New York, long Island, New York. My father-in-law has a landscape business in New York that he’s had for 30 plus years and was getting ready to retire. And so we went and did the New York thing for a few years and then eventually New York is just crazy expensive. I love New York, but got crazy expensive. And so we ended up moving back out west to Salt Lake and came across this company. Always been interested in real estate and with my accounting background it was a great fit. So I’ve been with cost segregation authority for about six years now. Mm-Hmm. <Affirmative> working with CPAs and building owners across the country on helping them save tax dollars through, through cost segregation.

Charles:
That’s fantastic. So first off, can you explain what cost segregation is and why a property owner would want to hire a company like yours?

Erik:
Sure. So that, that’s a great question. So cost segregation really is just accelerated depreciation. So one of the benefits of getting into real estate is we’ve got this thing called depreciation that is a write off against your income every year. And so typically when you buy a building, commercial buildings are depreciated over 39 years. Residential buildings are depreciated over 27 and a half. So just to make the math easy, let’s say you buy a $320,000 single family rental. Land is non depreciable, so you have to back the land out. So if you pay three 20 for a piece of property and let’s say land is worth 50, you, that you now have 270 of what we call depreciable basis. So if you don’t do a cost segregation, what you do, what your CPA does is takes one 27th of that two 70 or basically $10,000 a year and you get to write that off against your income.

Erik:
So if you normally make 110,000 a year, instead of paying tax on 110, you now have this $10,000 write off. And so now you’re only paying tax on a hundred. So that’s what typically happens. Oftentimes will happen is a property owner buys a property hands the closing statement to their cpa and their CPA will put it on the books as one big building depreciated over 27 and a half years. And what we do with cost segregation is it’s an engineering based study that when you buy that single family rental, you’re not just buying the land in the walls, you’re also buying a bunch of what we call personal property. And the IRS says personal property should be depreciated over a much faster period. So items of personal property would be like, you know, you bought some carpet, you bought a driveway when you bought that single family home, you bought some cabinets, some countertops.

Erik:
There’s all these different components. And so what we do is we go in and segregate those costs into shorter asset life, which allows you to front load your depreciation. So you’re not waiting 27 and a half years to realize those deductions. You’re realizing ’em much sooner and there’s a number of reasons why you’d wanna do that. Charles, obviously time, value of money, give me my deductions today versus in the future. But then another hot topic right now is just inflation. Yeah. You know, a dollar today is worth more than a dollar probably this afternoon, so let me take my deductions now versus letting the IRS hold onto these. And so that’s really what cost segregation is. We’re just accelerating those deductions. At the end of the day, if you were to hold that property for 27 and a half years, you get the same amount of deductions. But by doing cost segregation, you’re getting ’em upfront versus spreading ’em out evenly over the course of the, the asset.

Charles:
So you’re actually going through a property and saying, you know, I have a 10 year property, I have 20 faucets and I have, and because anybody that knows that owns property, you know, only thing that’s lasting 27 and a half years in a rental properties, if you’re in the Northeast, it’s like a roof. You know what I mean? Right. Like everything else is not lasting 27 and a half years, you know what I mean? So that’s kind of, I think it’s just, it’s much easier for when I heard that and I was like, oh, okay. Like that makes perfect sense because you’re, when you’re depreciating out everything. Yeah. But this stuff isn’t lasting. But I, I kind of see Exactly. With the depreciation and bonus depreciation, how does that work now with, cause I cause what we have right now with these, the 2017 taxes, can you explain a little bit about that? I guess you’re more of an expert on this and then how that’s gonna work with bonus depreciation and I guess how bonus depreciation is now fading away over so many years.

Erik:
Yeah, so that’s a great, great point, Charles. So bonus depreciation is kind of a, a term that I, that gets thrown around a lot. Bonus depreciation is a lever that the IRS and the government uses to help stimulate the economy. So they, every year for the longest period that I can remember at the, and it’s usually at the end of the year, which is unfortunate because then we never know what it is, but usually at the end of the year they’re like, well, how is the economy? Do we need to stimulate the economy? If so we’re gonna implement, let’s say 50% bonus depreciation. And what that means is if I were to go buy a bulldozer that normally gets depreciated over 15 years, I now get to take 50% of that depreciation in the first year there oth the other 50% gets spread out over the next 14 years.

Erik:
And so there was a couple rules with bonus depreciation in a prior tax law. And it had to be the asset had to be 20 years useful life or less. So we just talked about it like a piece of real estate is 27 and a half or 39 years. So a lot of CPAs even today think, well bonus doesn’t apply to real estate cuz real estate is 27 and a half or 39 years has to be under 20. Well that’s not the case if you do a cost segregation study cuz now we’ve taken that 27 and a half year asset broke it up into five, seven, and 15 year assets. Those five, seven and 15 year assets are all under that 20 year threshold. So they are now eligible for bonus. So that’s the first thing. The second thing is bonus was only eligible or bonus only applied to brand new properties or equipment.

Erik:
So you’d have to build a brand new fourplex, have a Costa study done to identify the five, seven and 15, and then you were eligible for that 50% bonus. So that’s kind of the old tax law. In 2007 we had the Tax Cuts and Jobs Act, which was basically Donald Trump’s tax plan revisions. And obviously he’s a real estate investor, understands real estate, doesn’t wanna pay a lot of taxes. And so <laugh>. So a couple things were changed with that bonus D appreciation one is it went from 50% to a hundred percent, which was massive. So any properties placed into service between 9 27 September 27th, 2017 and the end of 2022 are eligible for that a hundred percent bonus. That was the first major change. The second major change was it no longer has to be a brand new apartment building. It could be a used apartment building or an existing apartment building that is brand new to you as the investor. So let’s say you went out and today and you bought a 12 unit apartment building for a million dollars, that’s brand new to you or that’s new to you and so you are eligible for bonus. So that was the second big change is now it’s bonus applies to basically every property that somebody purchases in that timeframe or puts into service in that timeframe, I should say.

Charles:
Yeah, very, very powerful. One question just to on this issue is if someone’s investing into, let’s say a development and let’s say let’s just say it’s a multi-family development and it’s two years from I’m putting the money in, let’s say I put the money in in 2020 and it’s completed in 2022, I’m gonna start depreciating that in 2022 after it’s pulled the co right certificate, occupancy and everything like that. Is that

Erik:
Correct? That’s correct. So your depreciation always starts from your in-service date. So if it takes you two or three years to complete the project, once you get your certificate of occupancy, I think the definition according to the IRS of in-service is if it’s available for its intended use or purpose. Okay. And so it’s gotta be basically ready to go. But that’s when you start taking that depreciation from that point going forward.

Charles:
Okay. That’s very interesting because I I, I’ll see emails come through from syndicators and they’re talking about depreciation on development and you’re like, yes, yes, yes. But not right now <laugh>. Right. You gotta, you should preference that that it’s 24, probably 36 months in the future that you’re gonna be able to get it and it won’t be, I guess a hundred percent unless something changes here. Within can you give us an overview of the cost segregation process? So if someone comes to you I mean how does that process work? It sound it sounds very time consuming. I mean, and for right now as we’re explaining again,

Erik:
Yeah, so I’m just gonna take a step back, Charles, just real quick. So one thing I wanted to mention on bonus was you had mentioned that it is phasing out and so bonus is phasing out. So as part of the Tax Cuts and Jobs Act, it’s a hundred percent bonus through the end of this year. Any properties you put into service in 2023, you get 80% bonus depreciation 2024 is 60% and then it drops 20% every year until 2027 when it’s down to zero. Now there have been some talks with this, this current administration that they may extend that depending on what happens with this recession and the way the economy’s going, again, they want to use that bonus as a, a lever to stimulate the economy. So it may get, get extended, but I just wanted to make that note for the listeners that it does phase out.

Erik:
The nice thing about cost segregation though, Charles, is if you put your building into service this year, you don’t necessarily have to do the cost study this year. You can do the cost study in 2025 and still get a hundred percent bonus because the tax law applies to the year you put your building into service. So just a, there’s some misinformation that I hear out there on that you know that you gotta do it this year, you gotta do it this year. No, you can hold onto, that’s the nice thing about cost segregation. You can hold onto these studies and kind of just keep them in your back pocket until you have a high income year. When you’re in a high tax bracket, that’s when you pull out and play this cost segregation card. And again, you’re not foregoing that bonus dep appreciation as long as you put the building into service this year. So I just wanted to make that point before we move on to the next

Charles:
One. Wow, that’s really powerful. So that even if it’s two years into the future and say the current administration doesn’t change anything with what happened in what was the act of 2017 there. So wow, that’s great. It would just, it would still be Wow, that’s very powerful

Erik:
Percent bonus. Yeah. Still be a hundred percent bonus. And that’s the, again, the nice thing about cost segregation is you don’t have to do the study the year you put the building into service. You can actually go back and do what they call a look back study. So you may have a property, Charles that you bought in, let’s just say 2015, you didn’t do a cost study, you go do your taxes with your cpa and they’re like, yeah Charles, you owe a whole bunch of money in taxes. And you’re like, oh crap, what am I gonna do? You can still go back and do a cost study on that property you bought in 2015, not have to go back and amend any prior years returns and use those deductions on your current tax year or your current tax filing. So there’s a form that you fill out, we fill it out as part of our service that just tells the irs, Hey, I’ve been doing my standard straight line deduction on this property for the last seven years. I’m gonna change it to accelerated depreciation and here’s the difference in those numbers. And you get to again, realize that difference on your current tax return. So

Charles:
Extremely powerful.

Erik:
Yeah,

Charles:
That’s great. So yeah, circling back to understanding and the process of doing a cost segregation if someone was to go down that route.

Erik:
Yeah. So to do a cost segregation the first thing we wanna do is we never wanna engage a client unless they’re gonna save significant tax dollars. So our firm, we always do a free benefit analysis to see, okay Charles, when did you buy the property? What were the tax laws when you bought the property? How much did you pay for it? What’s the land value? We go through this analysis to figure out what your expected tax savings would be. So that’s the first thing is get an analysis done, find out if there’s gonna be significant tax savings. We’ll partner with you and your CPA to, to make those decisions. Once we’ve identified that there is a significant tax savings available to you, you would then engage us to do the study. The first thing the IRS requires us to do is a site visit on the property.

Erik:
And so we’ll either go out to it in person or we’ll do the site visit virtually. Now with similar to like the Zoom app that we’re on now it’s a video conferencing app where we’ll actually have one of our costing engineers on one end and the other yourself or a property manager on the other end. And we’ll say, okay, you know, show us the flooring in the building. Take us around the parking lot. There’s certain things we need to see in order to conduct the study. Once the site visit is completed, that’s when we really go back and do our magic. We usually takes about three weeks for us to generate the report. And what the report is, is that’s our deliverable back to you and your cpa. It’s about a 40 to 50 page report that takes that building and breaks out all the different building systems and the different building components.

Erik:
So instead of just on your depreciation schedule, instead of just having building a million dollars, you’re now gonna have flooring, 20,000 cabinets, 30,000, you’re gonna have everything line itemed on that depreciation schedule now. And so that’s our deliverable back to you as that report. And there’s a number of different methodologies on how we calculate those numbers. But I just wanna state that because no two reports are the same. It’s kinda like getting your tax return done. If you took your tax return to five different CPAs, you’re gonna owe five different amounts depending on their interpretation of the law and how aggressive or conservative or their understanding. So but that’s really the process. Get a, get an analysis done, we do the site visit and then we compile the report. Once the report’s done, we give that back to you and your cpa and then your CPA will take the numbers from our report, put that into your tax return, and that’s how you realize those deductions.

Charles:
So at this point right now where we are with what you’re explaining is it’s really the CPA and it’s really your firm that are really doing the work. Now I imagine at some point when it comes to me as being a property owner, what kind of, what is my participate participation requirements like documents, let’s say Sure. That are gonna be probably necessary for a property owner that I have to dig up and provide to you.

Erik:
Yeah, so depending on the type of study, so if it’s an existing building that you’ve already put into service, like that example where you’ve had a building since 2015, really what we need at that point is your current depreciation schedule because that’ll tell us how much depreciation you’ve taken, how much land was, how much the land value was allocated at. So we needed depreciation schedule and then we would want any type of major improvements that you made. So if you did a major renovation and you have a contractor receipt that says all these are all the things that I’ve done to my property, we would want those improvement costs. And then if you have prints, that’s great. Sometimes on existing buildings you don’t always have prints. So that would be what we would need for an existing building. New construction’s a little bit different. We, you obviously are probably gonna have some type of prints on a new construction project. You’re gonna have a CONT contractor’s spreadsheet that has all the costs broken out. So we would need the, the breakout of the cost there and then the the closing statement as well. And so those are really the, the information, a lot of what we compile is done through that site visit. And so you not, you yourself don’t have to go in and measure how much carpets in your building. That’s what we’re gonna do throughout that site visit.

Charles:
Right. So it’s not actually, not that big of a process for the property owner.

Erik:
No. Yeah, no, it really isn’t. Yeah. Oh, I should add, there’s one more thing. There’s a one page form that we need filled out that just says, Hey, here’s where I want you to send the invoice. Here’s where I want you to contact to schedule the site visits. We call it a client information sheet, but it’s, it’s fairly painless for the building owner. A lot of the work’s done on our end. And then once the study’s done, your CPA does have a little bit of work to put those numbers into the report, but oftentimes they can just upload our report directly into their tax software and it works well from from there. So.

Charles:
Oh, okay. And I imagine when you do the initial report quote to make sure that your potential client is gonna be saving enough money to make it worthwhile that you’re, you’re putting in some sort of quote for what your firm would be charging for. Okay.

Erik:
Yeah, yeah, absolutely. So our benefit analysis has what you’re gonna save in taxes an estimation. It’s always a conservative estimate. That’s what does my mom teach me to under promise and over deliver. I think that’s the right, I always say that backwards and it sounds awful when you say it backwards, <laugh> under promise and over deliver. So our analysis is always very conservative. So we’ll give you a conservative and say, Hey, we’re gonna save you at least, you know, 80,000 in taxes. Our fee is gonna be 4,000 for the study. And then you decide if you can use those deductions with the help of your CPA and then engage us from there.

Charles:
Okay, great. So what properties do you normally see are good candidates for cost segregation?

Erik:
That’s a great question, Charles. Cause I think that’s changed over the course of the last four or five years. So prior to the Tax cuts and Jobs Act, prior to this bonus depreciation that we talked about, cost segregation was really for properties probably north of a million dollars. And the reason is, is because the fees were a lot higher and there wasn’t bonus or there was bonus, but not to the extent that there is now. And so the savings was a little bit less. And so you needed a basically a million dollar property to justify the fee and the savings with the tax cuts and jobs act, with bonus depreciation, with cost segregation becoming more and more prevalent in the industry. So costs have come down. Our firm, we do everything from single family rental homes up to large ski resorts and you know, mall, you know, big malls that have multiple buildings all over the place.

Erik:
So I know that’s a wide range. Residential is great. Apartments are great. Apartments tend to yield some of the higher numbers because if you’re thinking about an apartment, think about all the counters and cabinets and countertops and window covering, ceiling fans, appliances, there’s all kinds of stuff in apartments. Some unique categories are car washes. Car washes are interesting cuz if you spend a million dollars on a car was, depending on how, how the car washes is put together, you may get a million dollar write off in the first year. Because if you think about it, when you buy a car wash, all you’re buying is equipment, which typically is a short term asset and you’re buying land improvements. Things like drainage, cement, concrete, there’s really no structure. There’s no long term 39 year asset oftentimes. So car washes are unique, gas stations are unique and mobile home parks are unique.

Erik:
Some of those three categories we can see yield as high as, you know, as 80, 90% of your purchase price minus the land, getting that as a deduction in the first year. But, you know, you, you could probably think about it, Charles, if you do a, like a warehouse, a warehouse doesn’t have a lot of personal property inside typically. I mean if it’s just a a warehouse, it might just be a cement floor and four walls. Those properties still are worth doing costing because we’re gonna take all the parking lot curbs, gutters, asphalt, outdoor lighting, signage, fencing you’re still gonna get some deductions. It’s just they don’t yield as high as something like an apartment complex where you’ve got all that personal property inside.

Charles:
Yeah, that’s, that’s crazy. I it’s, I interesting about the car wash because I got sent a, a deal to invest passively and and it was a carwash and was like 90% or something there saying, I was like, oh my god, how is this possible with like apartments it’s usually like, you know, 50 or 75, which is fantastic, don’t get me wrong. Yeah. But you’re like, well goodness. You’re like how is this like almost a dollar for dollar? But it’s

Erik:
Crazy. That’s it is. It’s crazy cause you remember anything under 15 years you get a hundred percent bonus. Yeah. So if all those assets that you buy in a car wash are under 15 years, you’re basically writing ’em all off in the first year. So Yeah,

Charles:
Makes perfect sense. That stuff gets so much use, it’s consistent use. It’s gonna have to be replaced. So yeah. So if someone’s interested in doing a cost segregation, what kind of questions should an investor be asking a cost segregation expert when they’re doing the interview or talking to them?

Erik:
Sure. So that’s a great, that’s a great segue actually cuz they’re just probably about two weeks ago the IRS issued what they call an audit technique, tech audit techniques guide. And what that is is that’s basically the guide for their agents to, when they come across a cost segregation study, it tells the agents what to look for in that cost segregation study. So there hadn’t been any updates to that guide in seven years and no real major updates in like 15 years. And so the fact that they just came out with that is very interesting to me in our industry because cost segregation’s kind of been the wild west <laugh> for the last 15 years. There’s, I’ve seen all kinds of studies, there’s different methodologies on how to do these studies. There’s different techniques, some of them being super aggressive, some of them being super conservative some of ’em not actually doing what the IRS is asking them to do.

Erik:
And so <laugh>, I think with this new IRS audit guy, they’re trying to wrangle the industry in and say okay, here’s what is required for a quality study. So a couple things. One is they mentioned word for word in the audit guide that an engineering based study is the best method. So that’s what we do at our firm. There’s a number of firms who do engineering studies, but what it is is that you’re basically going in and reverse engineering the building and, and having costing software or actual cost to be able to put values to those versus there’s other companies or other soft, there’s software out there that you can do this stuff on your own, kind of like the TurboTax and the tax world. There’s kind of do it yourself cost, say software, but that that software isn’t actually going out and confirming that you actually have carpet in your building.

Erik:
What it is is it’s asking you to say, Hey, is there a carpet in your building? And you’re checking a box saying yes. Do you have cabinets in your building? Yes. If you check those boxes, it has some algorithm that says, okay, on average in a 30,000 square foot office building that has carpet, here’s how much that carpet’s worth. And versus somebody going in actually measuring how much carpet is there and coming up with an actual estimate based off actual numbers. So that’s the first thing you, you always wanna make sure you’ve done an engineering based study cuz those are the ones that will hold up best if you were to ever be audited. That’s the first thing. You wanna make sure that the firm has both CPAs and engineers on their staff. There’s no real regulatory body that says you have to be certified in this type of, or have this type of credential to be a cost segregation expert.

Erik:
So but it does say that you should have somebody with extensive knowledge in both tax and construction. And so that’s why if you’ve got CPAs, you’ve got engineers and I’m trying to think that’s really about, and then always get an analysis first. You wanna make sure you have that analysis first. I’ve seen way too many times where somebody was sold, Hey, you’re gonna save all this money. They get the analysis done and for whatever reason it doesn’t yield that on the back end. And so get an analysis done, get your CPA involved. And then the last thing would be just the audit support. Not all firms out there offer audit support. So these cost segregation studies in and of themselves aren’t gonna trigger an audit. We’ve done over 12,000 studies, been involved in eight audits and never had to change any of the numbers in our report.

Erik:
Of the eight audits we’ve been involved in, none of those were triggered by the Costa study. They’re triggered by something else, they see that you’ve done a Costa study and they say, okay Charles, I see you’ve done a Costa study. Show me your report. And you just wanna make sure you have a quality report to show ’em. And if they have any questions in that report, you wanna make sure you’ve worked with a company that will provide that support. So we’ll come in and say, okay, yeah, what is your question? Oh you have a question on how we calculated the land value? Perfect. Here’s our work papers, here’s how we did it. And they usually leave you alone after that. So that’s the other thing. Make sure you use a company that provides that audit support.

Charles:
Interesting. Okay. Great information. So I read previously that the technology a cost aggregation firm is using can actually have a huge impact on the cost and it that real estate investors don’t think of what, you know, how’s your backend set up? But is that actually true? I mean,

Erik:
It, it is there. I’ve seen costs all over the board for these studies. So I I I’ve been doing this six years and I’ll have clients come and say, Hey, I got some analyses done by other firms and I’ve seen from on the same building a $4,000 fee and an $8,000 fee on the exact same building. Now one thing that I always stress is, and, and I’ll put this out there for everybody, but our firm is not the lowest price and we’re not the highest price, but what we do offer is value. And that’s where I can’t tell you how many times I’ve seen people say, I’m going with the $4,000 quote and I’m like, okay, well stop, hold on, let’s take a look and see what their estimated benefit is. Cause if they’re saying we’ll charge you four but we’re only gonna save you 20 in taxes and the other guy’s saying, we’ll charge you eight but we’re gonna save you 80 in taxes, it’s just a math equation at that point.

Erik:
Right. <laugh>. So we’re not on either end of the spectrum, but one thing you want to be aware of when you’re getting quotes for these cost studies is don’t just look at the lowest price. Look at the one that’s gonna give you the biggest benefit for the best cost and do the math and say, okay, what’s my net savings on, on a and my net savings on B and go from there. Cuz I see too many times where people just say, well this guy’s half your cost, so I’m going with him. And I’m like, you can go with him, but he is also half the benefit. So you’re gonna save four but you’re losing 20 in tax savings. So, but so just be cautious of that. That’s the only thing I would say on that. Cause I have seen the, the whole gamut on pricing. There’s really, the pricing has to be based on the size and scope of the project.

Erik:
And so depending on how, and I will say this, the size and scope of the project for one firm is different than our firm I’ve seen. I know there’s a firm out there that doesn’t do anything with the land. All they do is take a flat 15% land value. Well that’s fine in some markets, but if you have a lakefront property, the IRS isn’t gonna say that land is worth 15% in reverse. We had that same firm had worked with one of the clients that ended up working with us. They bought a bunch of properties in Alabama and allocated 15% land value. When we looked it up and did our research on what the land should have been worth, it was only worth 5% of the purchase price. So they overstated the land value. So each firm does it differently. Some firms don’t look up land value, other firms do. And so the size and scope varies. But hopefully that helps gauge kind of where the pricing should be.

Charles:
Interesting, very interesting. So as we’re kind of closing up here, so you work with a lot of real estate investors and I always like asking this. What are common mistakes you see or you’ve seen real estate investors make?

Erik:
Yeah, this is a, this is an easy question cause I see it all the time. So this is like a softball, I appreciate it. So the number one thing that I see investors, the number one mistake in what I do. So I, I work with a lot of investors. The number one thing I see is not having a tax strategist and just having a tax prepare. So there’s a huge difference there. And there’s a, and there’s a big difference in their fees as well. A tax prepare takes your documents that you hand them usually on April 10th right before taxes due and they process those and submit your return. That’s a tax prepare and they’re usually inexpensive. I mean, hell, you can probably go to Walmart and I think there’s a firm that <laugh>, there’s those big box store you can go inside a Walmart and get your taxes done.

Erik:
That’s a tax prepare versus a tax strategist who you pay a lot more money to, but they’re meeting with you maybe even as often as every quarter to say, okay Charles, what’s your income looking like this year? What deductions do we have lined up for this year? What properties do you have? Are your entities set up correctly? Have you done cost segregation? Have you thought about 10 31 exchanges or opportunity zones? That’s a tax strategist. And so oftentimes people are like, well my cpa, I got somebody who does my taxes. I’m like, well, do they do your taxes or do they strategize with you? And it’s two different people. And so as real estate investors, as you start to get more and more into real estate, it’s a quality CPA or tax strategist is worth every penny that they charge. Yeah. Because they’re gonna save you tenfold on the back end by setting up your entities correctly, keeping track of your deductions and those type of things. So that would be my advice to any investors out there is make sure that you’ve partnered with not only a CPA who processes your tax return, but a CPA who understands real estate and understands what it is you’re trying to accomplish to reduce those taxes.

Charles:
Yeah, and just one thing to add on there, which is probably just goes set with what you’re saying, but is that you’re talking to multiple times a year, not that you’re talking to once you submitted stuff, like someone that’s like talking to you mid-year and I just met with my cpa, it came down from New York and it was just one of the things that you’re just like going through stuff and seeing how things are going for the year and what’s happening. And that’s super important. And especially when you start getting more into real estate, like you said, more complicated business with all the depreciation, everything goes with it. You need to have that. So I totally agree with that. Yeah.

Erik:
Yep. They’re worth every dollar they charge, so don’t be afraid to pay for a good quality cpa.

Charles:
What are the main factors that have contributed to your success, Erik, over the years?

Erik:
You know, it’s funny because it, it actually ties into that, that last question you asked because one of the main factors that I had to learn the hard way unfortunately was that I can’t be an expert in everything. And so I had, I have had to surround myself with experts in their different fields and then I’ve had to pick and say, okay Erik, what is it that you’re good at? And you’d be really good at that. And then surround yourself with, you know, I’m not a great marketing person. I don’t, my creative side is not great. I’m great at numbers, but not creativity. So get a good marketing person. Don’t try and do, I’ve tried, when I first started to do my own marketing and my marketing material looked awful. I mean, it looked like something my 14 year old son had done.

Erik:
So you gotta, that’s the biggest thing that I’ve learned is, is you can’t be an expert at anything. Put a good team around you and let be able and comfortable enough to be able to delegate and say, you know what, Susie is my marketing person and Susie’s the best marketing person out there and I’m gonna let Susie do what she does best and not try and micromanage that or try to do it yourself. So you just have to find what it is that you are good at and then surround yourself with people who compliment your skillset.

Charles:
Oh, another great, another great insight and as we’re finishing up here, how can our listeners learn more about you and your business, Erik?

Erik:
Yeah, so the best way is I’m definitely on LinkedIn. It’s Erik with a k e r i k, last name’s Oliver, o l i v e r. Linkedin is a great way to get ahold of me. Also our website, which is just www.costcostsegsauthority.com. So all my contact information is out there. Please use this as a resource, you guys, we don’t bill by the hour. I mean you can call me my cell phone number’s out there. I try to answer that as much as I can. You guys can call me, ask me a question, say, Hey, I bought this property, what’s the best way for me to appreciate it? Or is it a good candidate for casa? Or, I think the weirdest question we’ve got Charles, is someone asked us how to depreciate mule deer in Wisconsin. <Laugh>, I didn’t have the answer to that, but I was able to look it up and get them the answer.

Erik:
So they had like a, a hunting, I don’t know what you could, it’s not a farm, I’m not a hunter, obviously <laugh>, they’re like a likem, not a hunting farm, A hunting range I guess you would call it, where they breed these deer with massive antlers and then charge people ridiculous money to go shoot ’em and hang ’em on their wall I guess. But so anyways, they called us and they asked us, Hey, how do I depreciate these deer? They should be some type of inventory or livestock or something, right? So we were able to get ’em the answer. But again, for your listeners, anybody out there, please use this as a resource. You can find my information on that website, www.costauthority.com.

Charles:
Yeah, thank you Erik for coming on today. And one thing I just wanna leave is with listeners is that it’s very normal to get multiple quotes from different providers before actually entering into a cost segregation agreement with one firm. So don’t, this is what they do all the time, so feel free to reach out to Erik. So thank you so much for coming on today. Looking forward to meeting up with you connecting with you face to face at some point here in the new future.

Erik:
Yeah, no, I appreciate it. Thanks for having me. Hopefully I was able to shed some insight on cost segregation. I know it’s a complicated topic, but again, use this as a resource. You’ve been great and really appreciate the opportunity.

Charles:
Thanks again.

Erik:
Yeah. Take care.

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

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About Erik Oliver

Erik Oliver holds a Bachelor of Applied Science in Accounting from Westminster College. Prior to joining Cost Segregation Authority, Erik was an operations manager for a multi-million dollar landscaping and design firm in Long Island, NY. Since heading west and joining Cost Segregation Authority, Erik has been speaking at local, regional, and national events. He brings with him a passion for identifying cost savings and educating commercial real estate owners on the benefits of cost segregation.

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