The Fastest Way To Build A Six Or Even… Seven Figure Real Estate EMPIRE!
Tax time is right around the corner. Whether you’re an entrepreneur, a high earner or a hobbyist investor, there are opportunities to save some money on your tax bill. Especially with some of the updates to the tax code that were introduced in recent years.
Here to walk you through how to do it is my friend Erik Oliver. He’s a cost segregation expert at the Cost Segregation Authority, where he digs into tax codes and how to make them work for you.
In today’s episode, we dive into the major tax changes signed into law during the Trump administration, how to make the most of depreciation regardless of your investing style, and how Erik used these strategies himself to turn a $50,000 tax bill into a $140,000 deduction–and add a new property to his portfolio along the way!
Key Takeaways with Erik Oliver
- Why W-2 earners are investing in short-term rentals to offset their income.
- How cost segregation can save clients tens of thousands of dollars in taxes for both residential and commercial investors.
- How bonus depreciation works and the different ways you can use it in your business.
- How Erik conquered his fears and dove headfirst into real estate after getting burned on his first rental property.
- The difference between a tax advisor and a tax preparer–and why you want the former, not the latter.
Erik Oliver Tweetables
Rate & Review
If you enjoyed today’s episode of The Accelerated Real Estate Investor Podcast, hit the subscribe button on Apple Podcasts, Spotify and YouTube so future episodes are automatically downloaded directly to your device.
You can also help by providing an honest rating & review on Apple Podcasts. Reviews go a long way in helping us build awareness so that we can impact even more people. THANK YOU!
Connect with Josh Cantwell
Sign Up For The Forever Passive Income Partnering, Mastermind and Coaching Program with Josh Cantwell
Josh Cantwell: So, hey, guys. Welcome back to Accelerated Investor. Hey, it’s Josh Cantwell. I’m your host. And today we’re going to talk about taxes. We’re going to talk about reducing your taxes. We’re going to talk about updates to the tax code that were signed into law in 2017. So, I’ve asked my friend and a cost segregation expert, his name is Erik Oliver with the Cost Segregation Authority to come on to the show. And today what we’re going to do is we’re going to talk about a few things. Number one, we’re going to talk about what is cost segregation but, number two, specifically the changes to the tax law that Donald Trump signed in, which is the new laws and the rules around bonus depreciation. So, the first thing we want to talk about, number one, is the bonus depreciation schedules and how they changed from 50% to 100% and then dropping back down 80, 60, 40, 20 down to 0%. And how you can use those for your acquisitions, not just for real estate, but for major equipment, for major investments in your business, not just for apartment buildings. That’s number one.
Number two, Erik’s going to talk about a specific strategy that he recommends for high-income W-2 earners and how you can actually capture these depreciation write-offs. So, if you’re involved in a syndication and maybe you’re a doctor, maybe you’re an attorney, maybe you’re in e-commerce, maybe you have a high W-2, a salesperson, but you’ve invested in the syndication but you haven’t been able to use your depreciation because you’re not an active operator, Erik actually has a specific strategy that we talk about on how to use short-term rentals as your other asset and then use the depreciation from your apartment buildings as a limited partner because you now have achieved the status that you need by owning the short-term rental property. So, if you’re a high-income earner and you’re a limited partner in deals, my deals, or other deals, that is a very important strategy to listen to. Also, number three, we’re going to talk about how to basically hire a tax advisor versus a tax preparer. And also, even if you do file for bonus depreciation, this is the fourth they want to talk about and you end up selling your building, there’s what’s called accelerated depreciation recapture on why that’s still better than just doing the long form 39-and-a-half year regular depreciation schedule.
So, there are some real nuggets in this show, in this interview with Erik that we haven’t talked about before and there’s a couple of specific strategies that Erik talks about that we haven’t mentioned before. So, I think you’re going to love it. So, here we go with Erik Oliver from the Cost Segregation Authority. I hope you enjoy it. If you do, rate it, review it, subscribe. Here we go.
Josh Cantwell: So, Erik, listen, welcome to Accelerated Investor. Thanks so much for joining me on the show today to talk a little bit about taxes, cost side, the state of the market. Welcome to Accelerated Investor.
Erik Oliver: No, I appreciate it. Thanks, Josh. I’m glad to be here.
Josh Cantwell: So, listen, I love to talk about the state of today’s market because the market’s always changing and moving so quickly, especially over the last 12 months. As our audience is very aware, the Federal Reserve started raising rates almost exactly a year ago, March of 2022. Market’s changed. We’ll talk about how that’s impacted cost seg. But what are some things that you’re working on? What are some things that you’re excited about? What are some things that you’re seeing opportunities in today’s market that you think our audience can learn from?
Erik Oliver: Yeah. That’s a great question. One of the things that I think is really kind of a hot topic right now that we’re seeing a lot of is high W-2 earners investing in short-term rentals. So, I hate to use the word loophole because it’s not a loophole. A lot of people will call it a loophole, but it’s not a loophole. It’s actually right there in the tax code. But oftentimes as high W-2 owners or if you’re a passive investor, so you’ve got a W-2 job, you’re investing passively, sometimes you can’t use the deductions from your real estate because you make too much money or like I said, you have a W-2 job. But a lot of investors, we’re seeing a lot more investors investing in these short-term rentals and being able to use the deductions from these short-term rentals to offset their W-2 income. So, short-term rentals get treated a little bit differently than your multifamily or your single-family investment properties where they get treated almost like a hotel and show that you’re materially participating in the management of that property, then you can use those deductions to offset your W-2 income, which you may not be able to if you just have a long-term rental or a multifamily project.
So, we’re seeing a lot of that in the industry and I think with raising interest rates, I do think the market will slow down a little bit. We have seen a little bit of a slowdown in transactions but I think that for our industry, we’re in kind of a unique industry where when transactions slow down, tax rates go up. We’re kind of protected because people are always looking for cash flow. Whether they need a bigger down payment or they want to put more down so their monthly payment or cash flow is better, cost segregation is a great way to increase that tax flow. So, that’s kind of what we’re seeing on our end. Hopefully, that helps.
Josh Cantwell: Yeah. So, forgive me for my naivete but is cost segregation an option for residential or is that just a commercial play?
Erik Oliver: No. That’s a great question and really a misconception in the industry a lot. There’s been a lot of changes to the tax law over the last five years, starting with the Tax Cuts and Jobs Act back in 2017, where kind of the rules around bonus depreciation changed. And so, if you would have asked me five years ago, well, yeah, I guess five years ago, six years ago now, back in 2017, 2018, is it just for larger properties, commercial properties, multifamily? I would say yes. You know, smaller properties usually don’t pencil out in terms of cost segregation. But with some of the changes that have happened, we’re doing everything from a $200,000 single-family rental. We might save the clients $20,000, $25,000 in taxes depending on their tax bracket. So, definitely worth talking to your CPA about because, like I said, with those changes to the tax law, the new provisions, it’s definitely opened cost segregation up to a wider range of investors.
Josh Cantwell: Got it. Because what I’m putting together in my head, Erik, is if I’m a high W-2 earner and I’m looking at ways to reduce my taxes, so then I go buy maybe not just one, but a small portfolio farm full of Airbnbs, and then I can group those together and cost seg those out, now I’ve got a way to prove that I’m in the management of that real estate. It’s easier to prove that you’re involved in the management of the real estate on the smaller Airbnbs versus a 250-unit apartment complex where you truly are just an LP and you’re not on the operating agreement, you’re not in the GP. So, you buy a group of Airbnbs, smaller, you manage those, even though you might have a property manager, maybe you’re more involved, and then you cost seg that group of Airbnbs to create additional depreciation and additional write-offs. Is that something that you’re seeing?
Erik Oliver: Yeah, that’s exactly right. I’ll give you a real-life example. I had a tax problem. So, for 2022, I was going to owe the IRS some tax money. And so, instead of paying the IRS in April, prior to the end of 2022, I bought a condo up here near lake and paid 425,000 for it. And I’m going to get about $140,000 write-off that I’ll be able to reduce my taxable income by $140,000. So, 140,000 times a 35% tax bracket, that’s what is that? Can’t do that math on the top of my head. That’s 140.
Josh Cantwell: About $50,000.
Erik Oliver: $50,000. Right. So, my down payment was just under 100,000. So, I’m going to get half of my down payment back that if I didn’t make that play, I would have paid that 50,000 to the IRS. So, I got 50,000 of my down payment back plus I have a revenue-generating property that I’m going to treat as an Airbnb. Now, the key is being able to show material participation. That’s the key. If I live in Utah, which I do and I buy a short-term rental, I buy a condo down in Miami, Florida, it’s going to be pretty hard to show the IRS that I’m participating in the management of that property. Right?
Josh Cantwell: Right. Sure.
Erik Oliver: So, there are seven tests. The test that I use that’s oftentimes used is you have to show 100 hours of material participation. So, we bought the property at the end of 2022 in November. It took my wife and I over 100 hours to get that property up and running, get it set up. That’s the first key. The second test is you have to spend more time than anybody else. So, because we bought it at the end of 2022, we spent more time than the cleaner, more time than the maintenance folks on that property. And so, we qualify as showing material participation. Now, I may or may not show material participation in 2023 on that property, but that’s okay because I’ve already banked $140,000 deduction on my 2022 tax return. And it doesn’t matter if it were to switch over and I don’t show material participation. So, that’s a real-life example of how I was able to take an $80,000 tax bill, reduce it by 50,000, and put that 50,000 down on a revenue-generating property where otherwise that money would have just gone to the IRS had I not bought a property.
Josh Cantwell: Got it.
Erik Oliver: Yeah. It’s a great way for W-2 because we hear that quite often, especially with the tax law is so favorable right now, Josh, with the real estate investors that we’re creating these huge deductions, especially on syndication deals where I’m a limited partner. I don’t need $100,000, $200,000, $300,000, and $400,000 of depreciation because I’m a W-2 worker, right? So, I don’t have that kind of passive income to use that deduction. So, it just gives another tool for those investors to be able to offset some of that W-2 income.
Josh Cantwell: So, for our audience that may not understand, how did you create $140,000 deduction? What’s the actual logistics, the mechanics, the words, the definition that makes it actually come to life?
Erik Oliver: That’s a great question. I appreciate that. So, what I’m going to do is do a cost segregation study on it. So, a lot of people have heard that term or familiar with that term. And I’ll just kind of give you the quick elevator pitch on what cost segregation is. Cost segregation really is just accelerated depreciation on real estate assets. So, one of the great benefits of owning real estate is you get to depreciate that over time. So, for example, I’ll use this example, about a $420,000 property, where’s my calculator, if I don’t do cost segregation, I would take 420 divided by 39 years in this case and I would get a $10,000 write off every year for the next 39 years. Now, you do have to back out land. This is a condo, so there was no land purchased with it. So, $10,000 write-off every year is great, right? Let’s say I make 110,000 a year instead of paying tax on 110, I get this $10,000 deduction comes off my taxable income. Now, I’m only paying tax on 100,000. So, in that case, I would have saved $3,000 roughly if I’m in a 30% tax bracket. By doing cost segregation, we’re going to go in and identify the different assets within this condo and accelerate those deductions.
So, for example, this condo has LPV flooring. LPV flooring, according to the IRS, doesn’t last 39 years. It’s actually a five-year asset, so it gets depreciated over five years. So, when we go in and we put a value to that flooring, we’re going to see that flooring is worth $10,000 or whatever and divide that up over five years versus 39 years. Now, that’s what we do for a number of different categories, everything from flooring, cabinets, countertops, ceiling fans, window covering to the outside stuff. You’ve got curbs, gutters, asphalt, landscaping, all that outside stuff is a 15-year land improvement. So, instead of depreciating the one big whole building over 39 years, we’re segregating the different costs into different buckets, which allows us to take our deductions upfront. Now, Josh, as you can imagine, there’s a number of reasons why we want to do that. There’s time value of money and inflation is a hot topic. I want my deduction today because I want that cash today because that cash is going to be worth significantly less 39 years from now. So, give me my money today.
So, that’s kind of cost segregation and then there’s this added piece called bonus depreciation, which I had mentioned, which was part of the Tax Cuts and Jobs Act. So, as most of us know, Donald Trump revised the tax code back at the end of 2017-2018. And Donald Trump is a real estate investor and so it was very favorable to real estate investors. And one thing that came out of that was an increase in the bonus depreciation amount. So, at the time, bonus depreciation was at 50%. Let me kind of explain what bonus depreciation is. Bonus depreciation allows you to take your deduction sooner. So, at the time during 2017, if you were to go buy let’s say a bulldozer, Josh, you go buy a $1,000,000 bulldozer and the law is 50% bonus, you could take 50% of that bulldozer’s deductions in year one. So, on $1,000,000 bulldozer, you’re getting a $500,000 write-off in year one. The other 500,000 that’s left over gets spread out over the useful life of that bulldozer. Well, two things changed with the Tax Cuts and Jobs Act. One is the increased bonus from 50% to 100%, which was huge. So, any properties placed into service between 9-27 of 2017 and 12-31 of 2022 are eligible for a 100% bonus.
And they were pretty slick in the way they added a few words to the tax code. They said, “If the property is new to you, the taxpayer.” So, in the past, it said the property has to be new, meaning you couldn’t go buy a used bulldozer. You had to buy a brand new one in order for it to be eligible for bonus. They put a few words in there that said, “If it’s new to you, the taxpayer.” So, now I don’t have to buy a new bulldozer. I can go buy a used bulldozer and I’m not going to get 50% bonus. I’m going to get a 100% bonus, which in that case I go buy a used million-dollar bulldozer. I’m going to get $1,000,000 deduction because I get 100% of those deductions in the first year. So, that’s huge. And how it plays into real estate is I no longer have to go buy a new or build a new apartment building. I can go now buy a used apartment building, an existing building built in 1979, whatever, buy it for $1,000,000, do a cost segregation study, and segregate those different items. One thing I failed to mention is in order to be eligible for bonus, the asset has to have a useful life of 20 years or less. So, real estate, as I mentioned, is 39 years for commercial, 27.5 for residential. So, that’s over 20 years.
But if I do a cost seg study and I break that out into 5-year assets, 7-year assets, and 15-year assets, those are all eligible now for bonus. So, you’re getting 100% of those deductions in the first year. And so, usually, on a cost seg study, we segregate about 30%. So, going back to my original example, if I have a $420,000 building times 30% segregation, meaning I’m going to say on that $420,000 building that at roughly $126,000 worth of carpet, countertops, cabinets, driveways, parking lots, fencing, lighting, 126,000, I get to take 100% of those short term assets in my first year. And so, again, 126,000 times the 35% tax bracket, you’re at about a $47,000 tax savings. So, that was a lot to unpack right there but hopefully, that gives you an idea of how we got to that $50,000 in tax savings is by segregating those items into different buckets and then using bonus depreciation to really put it on steroids and take it all in the first year.
Josh Cantwell: Got it. So, the one thing you mentioned, I just want you to clarify, if you would, you mentioned the dates of September of 2017 until the end of 2022. Obviously, now we’re in 2023. So, what was the importance of those dates? Was that you had to buy the asset during that time?
Erik Oliver: Yes. You had to put it into service. The IRS says in service. So, it can be a little bit different than your purchase date but if you buy it and you’ve got tenants in there, then it technically goes into service that day you purchase it. But your in-service date, if you bought the building and it goes into service between 9-27 of 2017 and 12-31 of 2022, you’re eligible for that 100% bonus. Now, the great thing is, is that anything purchased in 2023, that 100% bonus doesn’t go away. They just lowered it down to 80%. If I buy a building in 2023, do my cost seg study, I’m going to get 80% of that deduction in the first year. The other 20% gets spread out over the useful life of those assets. So, you’re still getting a huge bump, 80% of a bump in the first year of the useful life.
So, if you think about it this way, Josh, we were doing class segregation when there was no bonus because we want to take assets that are normally spread out over 39 years. Let’s move some of that forward. Let’s split it out over 5, 7, or 15 years. That’s still better than splitting it up over– taking one-third. I’d take one-fifth way before I’d take one-thirty-ninth of an asset. Give me my deductions now.
So, when you have bonus of any amount, it’s just putting that on steroids and making those numbers even bigger. So, the bonus schedule as of right now, Josh, starts to phase out 20% every year until 2027 when we’re down to zero or when the tax law changes or we get a new administration or there’s a number of things that could happen. They were actually talking about increasing the 100% bonus into 2023 because the economy was this up forward to 2023, didn’t get past at the end of last year, so we’re at 80%.
But there is still talk that they could go back any time this year and say, hey, we want to extend 100% bonus into 2023. They could retro-date it and we could get 100% bonus because the government uses that bonus as a lever to stimulate the economy because people are going to go out and buy bulldozers, real estate, cars, whatever, if they get bigger deductions. And so, that’s kind of– I want to see how the economy shapes up this year, but that definitely could happen.
Josh Cantwell: Got it. Yeah, it would make sense to say we’re having to be walking into a recession, that it would stimulate the economy and encourage people to buy these larger assets and get things going. At this point, trying to curb inflation and trying to curb purchases and slow down the economy, maybe they’ll skip 2023 and then do the bonus in late 2024 when we’re truly into the recession and trying to restimulate the economy in late 2024 and 2025. That’s an interesting part of what we’re seeing as far as that inflation goes and recession is. The labor market is very, very strong and people are still working. And so, the market’s a little bit afraid that the Federal Reserve will have to keep rates high because people are still really working. They were expecting when rates went up that unemployment would go up. It’s actually done the opposite and plummets back down to a 53-year low. So, pretty amazing stuff there.
So, Erik, there are all these benefits of cost seg and you want to work with the cost seg company and work with someone like you, an expert, work with your CPA to do those kind of things. We’ve talked about if you don’t actively participate in the management as a general partner of commercial real estate. Again, we’ve talked about some ideas of ways to buy these Airbnbs, rental properties, and then use that as a management tool to then qualify to use your deductions. We talked about that. The one thing we haven’t talked about is the possible downside.
So, I own a lot of buildings. We’ve done 19 acquisitions. We’ve owned 4,500 units. We sold off some units in 2021 at the height of the market. We’re down to 3,000 units. We’ve done, I would say, a fairly conservative cost seg study on most of our assets where we’re depreciating anywhere from the high teens, 18% to 25% of the building instead of taking the full bonus and the real accelerated depreciation. But we do have one asset that we did the full bonus. And so, I got my K1 and a million-dollar loss on this massive building.
And then what happened was, because there was an interest rate cap on the loan and there were three years of interest only, there was talk that we would then get stabilization and then refi. Well, what happened was last year is rates went from 3.8% and it capped out at 5.8%. The cost of that mortgage went up. And so, my operating partners are now working on continuing to operate the real estate, but now they’re talking about, “Hey, maybe we should look at selling that building sooner than we originally had anticipated because there’s not as much cash flow because of the cost of the mortgage went up.” So, real scenario that we’re really in right now.
And so, the question then becomes is what if we end up selling this $100 million asset sooner and you have that bonus depreciation that you’ve already taken? I know not everybody was able to use all of that depreciation right away because of so much depreciation, maybe they weren’t able to use it and they’re carrying it forward over the next couple of years, but some people may have used it all. And then now, you sell the building, and now, there’s this what’s called recapture. So, talk a little bit about recapture, some of the dangers of recapture, and then also, just how to think that through and manage it so that you can use it the right way.
Erik Oliver: Sure. Now, that’s a great question. That’s a question we get asked probably most by, not only CPAs but also building owners is, hey, when I sell an asset, you pay two types of tax when you sell an asset, you pay your capital gains and you pay your recapture tax. And your recapture tax is calculated based on how much depreciation you’ve taken. And so, I’m sitting here telling you to front load and take all this depreciation up front, but then, investors will say, “Hey, but what if I sell the asset in a year or two years or three years? Don’t I just have to pay it all back?”
And the answer is yes and no. So, you do have to pay some of it back. However, you’re paying it back at a lower rate on a lesser amount and saving the spread. And I’ll kind of walk through how that works. So, you in your example, you got a million-dollar deduction. So, let’s say you’re in a 37% tax bracket, that million-dollar deduction was worth $370,000 because you reduced your taxable income by a million. And instead of paying tax on that million at 37%, you didn’t have to because you had that deduction. So, you saved $370,000.
Now, if and when you sell that asset, part of that repayment is going to be calculated at 25% recapture rate. That’s the highest. It caps out at 25%. Some will be lower than that, caps out at 25%. And then your capital gains tax on the rest is going to be at 20%. So, you took your deduction at 37%, you’re paying it back at 20% and 25% at the most and saving that spread. And that spread is going to be significantly more than the cost segregation study would have cost you on that type of asset. And so, everyone’s coming out ahead. That’s worst-case scenario.
In fact, you’re not actually going to pay it all back at 25%, 20%. You’re only paying a portion of it back. And I’ll walk through an example because I think it makes more sense. You buy a building for, let’s say, a million dollars. You sell it five years later for $2 million. If you don’t do a cost seg study, when you go settle up with the IRS on that transaction, bought it for a million, sold it for two, the IRS is saying that everything doubled in value and they’re going to charge you capital gains on that doubling, right? They’re going to say, “Okay, you bought it for a million. Everything doubled in value to $2 million and we’re going to charge you tax on that.”
Well, in that scenario, your carpet didn’t double in value. Your carpet is dirty and old. It’s five years old. It’s got stains on it now. So, your carpet doesn’t double in value, right? Your countertops don’t double in value. Your parking lot didn’t double in value. That stuff should not be part of that. Your walls and land doubled in value, but your dirty old nasty carpet didn’t double. But because you haven’t done a cost seg study, you just have one big asset on the books and you’re saying, “Hey, everything within this asset doubled. I sold it for two, and now, I got to pay tax on it.”
When you do a cost seg study, in your example, you did a cost seg study and you sell it three years later, you only have to pay back two years’ worth of those five-year assets because it’s already depreciated three years. It’s worth less than when you bought it for. So, you’re not paying it all back, you’re paying it a portion of it back. In that example I gave you where I bought it for a million and sold it five years later for $2 million, what are my five-year assets worth after owning the building for five years? What’s the book value? Zero.
Josh Cantwell: Yeah, zero.
Erik Oliver: Well, it fully depreciated. And CPAs will argue that all day long with the IRS because they’ll say, “Hey, IRS, you’re the ones that told this carpet only last five years. I’ve owned my carpet for five years. Now, the book value is zero.” So, kind of, in theory, I guess the most important thing and depreciation recapture can get pretty complicated. But for your listeners and for those out there, the most important thing to remember from the last minute and a half of what I’ve said is don’t sell your dirty, nasty carpet for more than you bought it for. And if you’re not doing cost segregation, you’re selling your carpet for more than you paid for it five years earlier, and you’re paying tax on that game and you shouldn’t be.
So, in summary, take your deduction at your highest ordinary rate, pay back a portion of it depending on how long you’ve owned it at the lower recapture or capital gains rate and save the spread. So, in your example, Josh, you’re going to come out ahead whether you sell it this year or hold on to it for another 10 years. You’re going to come out ahead.
Josh Cantwell: Yeah. Got it. Love it. Fantastic stuff. So, Erik, as you look at this strategy, tell us a little bit more about your journey. I’m always interested to hear the entrepreneurial journey, the growth journey from all of my guests and the things that they’ve done to create freedom, financial freedom, to create independence, to really kind of lead their own parade, if you will. And that’s one of the things I always like to bring out from every guest. So, tell us a little bit about your journey in real estate or your journey as an entrepreneur, your journey of growth, and what have you learned along the way. And what kind of advice from that journey would you give back to our audience that they can use in their growth?
Erik Oliver: That’s a great question. So, kind of my real estate journey, so I’ve been in sales for the last, I don’t know, 30 years. Got my degree in accounting, got into a sales job, loved it, did that for 15 years, got a little tired of that grind. And so, I had moved from Salt Lake to New York, was looking to come back, and so, came across this job, didn’t know what cost segregation was. I had one rental property at the time, my old house in Virginia at the time that I had sold. And when I went to New York, we kept it as a rental. It was kind of a train wreck. I got to be honest with you, Josh. We were trying to manage it from New York. It was in Richmond, Virginia. It was my first one firsthand. It was there for two months, paid rate, then stopped paying, stopped answering my phone calls. I had to drive down from New York and use a little muscle to get my money. And it wasn’t fun.
So, I had kind of a bad taste in my mouth about real estate. I’m like, well, I did it wrong. Moved to Utah, took this job, found out about cost segregation, didn’t know anything about real estate, been doing this for seven years just through cost segregation, learning about real estate, attending conferences. I realized what a great opportunity there is in real estate. And so, I started investing in long-term rentals. And then we bought our first short-term rental last year. And then we’re also invested in some micro apartments and huge opportunities.
I mean, the government, I’ve realized through the tax code and just being in this industry, the government lays out the tax code based on what they want us to do. So, there are very few pages of the tax code that says, here’s how you pay taxes. Everything else in the tax code is, here’s how you reduce your tax bill. One of them is owning real estate. And so, the government wants us to go out and buy real estate. It creates jobs, it creates transactions. There are a number of reasons. And so, in my short term here, just the seven years I’ve been here, I’ve realized that real estate is such a great opportunity. And so, that’s really how I got into real estate. I wish I would have got into it a lot sooner.
I’ve got a 15-year-old son who I’m like, listen, he doesn’t know what he wants to do. And I’m like, hey, have you ever thought about going into being a developer or real estate? Because I think there’s such opportunity there if you know what you’re doing and I wish I would have started that journey earlier. As far as advice to your listeners, I would say, definitely, don’t be afraid to jump in. I was afraid to jump in. I wanted to do it for a number of years. When I started working here, I’m like, hey, this is kind of cool. I think I need to do this.
And my personality is one of being very cautious. And so, it took me almost five years before I really jumped into it full-time. But don’t be afraid to jump into it, and then surround yourself with experts. I know tax, I know real estate tax, but I don’t know how to look for the best property. That’s not my expertise. And so, partnering with people, mentors who know how to do that, who can teach me how to do that, know your strengths and be humble enough to say, “Hey, here’s my weakness and outsource it.” We can’t be an expert of everything, so outsource your weakness and don’t be afraid to jump in because it’s been a great opportunity. And like you said, it’s created opportunities that I didn’t know were out there, financial opportunities. So, being able to take advantage, that’s been great.
Josh Cantwell: Yeah, fantastic stuff, leads back into the concept that we often talk about on the show about commercial real estate is a team sport, right? I played college football, played a lot of high school sports. I coach club volleyball now. Club volleyball, actually, out of all the sports, is my favorite. My audience knows that well about me because you can’t win a volleyball game with one amazing player. You need somebody to pass, you need someone to set, you need hitter standing outside, you need blockers in the middle. Everyone’s got to play.
It’s the ultimate team sport versus like football, if you have an amazing quarterback, you can win a lot of games. If you have basketball, you have LeBron James, you have one or two amazing players, you can win a lot of games. Volleyball, you need a cost seg expert, you need an acquisitions expert, you need a property manager construction company to execute your value-add improvements, and everybody works together. And if you’re just really good at networking and really good at pulling in experts and essentially managing the managers, you can be very, very successful in real estate, residential, commercial, or otherwise. So, fantastic stuff. Erik.
Listen, love the advice. There’s obviously a lot to peel back because tax and cost seg is very much on an individual person-by-person, building-by-building basis. So, everybody in our audience really should have a personal tax strategy and a building-by-building cost segregation strategy. So, with that being said, where can our audience go to learn more about you and kind of engage in your services?
Erik Oliver: Yes. So, the best place is just find us on our website. My contact information is out there on our website. It’s just www.CostSegAuthority.com. I always recommend for anybody to, if you own real estate, get a free quote. Most cost seg companies will provide you a free quote to give you an idea of what the fee would be and what the potential tax savings would be.
And then just last thing I want to leave you with is I have learned and I have seen more times than not, people leave significant tax money on the table because they’re too cheap to hire a tax advisor versus hiring a tax preparer. There’s a huge difference taking your tax forms to somebody who just inputs that into their tax software and spits out a number and says, “Here’s what you owe.” That’s a tax preparer. You pay very little to get those services. Not little, I mean, it’s still expensive. You pay a couple of hundred bucks, they do your taxes. You end up paying the IRS what you owe and move forward.
But please invest, as you guys start to build your portfolios, find yourself a tax strategist who’s going to sit down with you not just once a year when you have to do your taxes, but sits down with you three or four times throughout the year and says, “Hey, what’s the income looking like this year? What do we need to go by this year to shelter that income?” How does cost segregation play into this? I mean, if you guys have CPAs, if you own real estate and you paid a large tax bill and your CPA didn’t mention cost segregation, that’s a problem.
And again, I don’t want to bash CPAs. We work with, we partner with CPAs. CPAs are your general practitioners. They know a little bit about a whole lot of different subjects, but they need to partner and you need to partner with somebody who knows a lot about depreciation. And so, I don’t expect CPAs to know everything about cost segregation, but they should know enough to say, “Hey, you got a big tax bill, Josh. You own real estate. Let’s look into this. Let’s call an expert and let’s find out and see where we can save some money.” So, that’s my last piece of advice. This goes back to surround yourself, like you said, build that team. You’ve got to have a tax strategist, not just a tax preparer.
A lot of people say, “Hey, I got a CPA, someone does my taxes. I’m covered.” Well, not if your CPA is just taking the input, putting it through their computer and spitting out an output, they have to sit down and strategize with you. And so, it might cost you a couple of thousand dollars to get that done every year. But if you’re saving $15,000, $20,000, $50,000, $100,000 on the back end, who cares, right? Taking the money, you get an expert who’s going to strategize with you on your taxes versus just prepare your taxes, so.
Josh Cantwell: Fantastic stuff. Erik, listen, thanks so much for carving out some time today, and thanks for joining me on Accelerated Investor.
Erik Oliver: No, it’s been great. Thanks, Josh.
Josh Cantwell: So, guys, there you have it. Great show there with Erik. Really appreciated some of his insights and his ideas and some specific strategies, frankly, about the short-term rental properties to basically make sure that you’re now identified as the owner, the operator, the majority user, so that you now can take your limited partner deductions and actually use those against your taxes. So, really cool strategy there. If you enjoyed it, subscribe, like, rate, review it on all the different platforms. Thanks so much for being here and we’ll see you next time on Accelerated Investor.