Cost Segreagation & Bonus Depreciation

Video to come (Under construction)

Since Mr. Trump enacted new tax law, 100% Bonus Depreciation creates significant tax benefits in the acquisition year.

In one of my apartments $3M, 52-unit building is looking to get more than $266K in tax savings (at 37% tax rate) in his first year of ownership.

On syndications, depreciation is distributed to investors on the K-1 Form.

What is Cost Segregation?

Cost Segregation is the identification of building components and reclassifying the tax life on each of those components. Typical components that can be reclassified include a building’s non-structural elements, such as carpet, decorative lighting and trim, dedicated electrical and plumbing, and security systems; exterior land improvements, such as landscaping, curbs, sidewalks, fencing, and signage; and indirect construction costs, such as architect and engineering fees and construction permits.

Commercial properties establish a 39-year depreciation schedule, and residential properties establish a 27.5-year depreciation schedule. For example think of a 3 bedroom single family home in Birmingham, Alabama that is worth $100,000. Of that approximately $65,000 is determined to be the building value and $35,000 is determined to be the land value. Each year you can deduct 27.5th of the building value which is about $2,363 a year that can once again offset income gains. This can be taken for the next 27.5 years until all the value on paper is depleted. Unfortunately, you cannot deduct the land.

However, the IRS assigns a tax-life to each of the individual components.

Most components that qualify for accelerated depreciation can have their tax life reclassified to either 5, 7, or 15 years:

  • 5-year tax-life components: tangible, personal property assets (carpeting, decorative lighting and trim, dedicated electrical and plumbing, and security systems)
  • 7-year tax-life components: all telecommunication related systems (cabling, telephone, etc.)
  • 15-year tax-life components: land improvements (landscaping, curbs, sidewalks, fencing, and signage)

What is a Cost Segregation Study?

A Cost Segregation Study is a strategic, tax-saving tool that can be used by companies and investors who have constructed, purchased, expanded, or remodeled any kind of commercial real estate (including 1 to 4 unit residential rental properties). The study allows the owner to take advantage of accelerated depreciation deductions and defer federal and state income taxes on the reclassified building components mentioned above.

During a Cost Segregation Study, components of a specific property or leasehold improvement are identified and reclassified for depreciation over a shorter time (5, 7, or 15 years). For example, 30% to 90% of the total electrical costs in most buildings can qualify for 5 or 7-year depreciation. The result of a Cost Segregation Study is that a property owner’s tax obligation is reduced and his cash flow is increased.

Is Cost Segregation something new?

Cost Segregation is not new. On the contrary, it has been in existence since 1954 when the IRS allowed for certain personal assets to be accelerated into a shorter life class. However, it wasn’t until Hospital Corporation of America sued the IRS in 1997, and won, that the IRS revisited the issue of accelerated depreciation. The IRS ruled that property qualifying as tangible personal property under the former Investment Tax Credit (ITC) rules would also qualify for purposes of federal income tax depreciation under MACRS (Modified Accelerated Cost Recovery System).

The IRS Chief Attorney wrote a memo saying, “. . . Cost Segregation, for it to be properly applied, had to involve those with competencies in architecture, engineering or construction and/or construction techniques, in order for personal property assets to be accurately identified and segregated.” As a result of this memo, Cost Segregation became a viable tax-saving strategy allowed by the IRS.

What type of real estate is eligible?

Commercial real estate (including 1 to 4 unit residential rental properties) eligible for Cost Segregation includes buildings that have been purchased, constructed, expanded, or remodeled since 1987. A study is typically cost-effective for buildings purchased or remodeled at a cost greater than $100,000. A Cost Segregation Study is most efficient for new buildings under construction, but it can also uncover retroactive tax deductions for much older buildings.

What are the steps involved in the process?

From start to finish, the Cost Segregation process can be broken down into the following steps:

  1. Engage a reputable Cost Segregation firm that utilizes engineers and architects trained in Cost Segregation and its application to the proper allocation of assets.
  2. The engineer determines what documents are available (e.g. planning, construction, invoices, appraisal, and current tax depreciation) for reference and referral.
  3. The engineer then sets a schedule for surveying the subject property and gathering the available documents for review prior to arrival at the subject property.
  4. For those documents that are unavailable, time is then scheduled into the Cost Segregation process for document recreation using known industry standard costing data (Marshall & Swift and/or RS Means costing publications). After all necessary documents are acquired, it takes about 4 to 6 weeks to finish the process.
  5. The site survey is executed and completed. Time varies for each survey, but it can be completed within as little as an hour. During the survey, measurements are taken and all areas are photographed for IRS verification and substantiation of asset values.
  6. The engineer returns to the office and “crunches the numbers.” This is when all documents are reviewed in detail, assets are verified and measured against known costing data, and asset reallocation is applied.
  7. A review committee then examines the results of the analysis completed by the engineer of record to verify its veracity and confirms it meets and exceeds IRS guidelines per the Cost Segregation Audit Techniques Guide.
  8. Once approved, the study results are compiled into a final report that includes: all IRS tax code to substantiate the reallocated assets, spreadsheets identifying all assets categorized according to their building codes, representative photographs of the reallocated assets, and the engineer’s credentials for IRS review.
  9. Final report is issued. Digital copies are emailed to the client and the CPA of record for application to the client’s tax return.

Why bother? I’ll eventually get the deduction.

As investors, we like paper depreciation to occur earlier because that offsets gains earlier and gets more money in our pocket earlier. Just like you give a mouse a cookie…. Give an investor a dollar early and… they will turn em and burn em.

In other words, you are not creating more depreciation but you are shifting it earlier to take advantage of the time value of money concept.

On the project level in a single asset LLC arrangement the more you can lower your tax liability the more you can significantly increase your cash flow and create more value for investors.

A Cost Segregation Study in effect gives you an interest-free loan from the government for the first 15 years, which you will then repay interest-free over the remaining 25 years. Wouldn’t you rather have your money? There are also advantages to doing a study if the building is going to be sold (via 1031 exchange) or if the owner of the building dies.

How much will I save on taxes?

Most Cost Segregation firms will perform a free analysis if you provide your basic property information and tax rate. From the information you provide, they can provide a conservative estimate of the accelerated benefits you can expect, as well as their fixed fee proposed for the final study.

Typically, tax savings from 5% to 10% of the building’s original tax-basis are generated, but there are instances where it can be substantially more. Each property and circumstance is unique, so it requires a case-by-case approach to give you a definitive answer.

How much-accelerated depreciation can I get?

Certain types of commercial property can be grouped together to give us an idea of the percentage of those types of buildings eligible for accelerated depreciation. Your results may be greater, or less than those quoted here, but in general, property that falls into one of the following categories is most likely to result in accelerated depreciation within the specified ranges.

Commercial Property Types:

  • Apartment Buildings 15 – 25%
  • Dental/Medical 30 – 60%
  • Health Care 25 – 65%
  • Heavy Manufacturing 30 – 80%
  • Industrial 25 – 70%
  • Light Manufacturing 20 – 45%
  • Office Buildings 15 – 25%
  • Research & Development Facilities 30 – 75%
  • Restaurant 15 – 30%
  • Retail Centers 10 – 25%
  • Senior Living Facilities 15 – 30%
  • Warehouse 5 – 15%

Does Cost Segregation have other benefits?

Yes. Cost Segregation can provide additional tax benefits. It can reveal opportunities to reduce real estate tax liabilities and identify certain sales and use tax savings opportunities. Under certain circumstances, segregated assets may qualify for a special bonus depreciation allowed by multiple tax reconciliation acts enacted by Congress. Additionally, a Cost Segregation Study can

  • Maximize tax savings by adjusting the timing of deductions. When an asset’s life is shortened, depreciation expense is accelerated and tax payments are decreased during the early stages of a property’s life. This, in turn, releases cash for investment opportunities or current operating needs.
  • Create an audit trail. Improper documentation of cost and asset classifications can lead to an unfavorable audit adjustment. A properly documented Cost Segregation Study helps resolve IRS inquiries at the earliest stages.
  • Capture retroactive savings. Since 1996, taxpayers can capture immediate retroactive savings on property added since 1987. Previous rules, which provided a four-year catch-up period for retroactive savings, have been amended to allow taxpayers to take the entire amount of the adjustment in the year the Cost Segregation is completed . . . this alone is huge. This opportunity to recapture unrecognized depreciation in one year presents an opportunity to perform retroactive Cost Segregation analyses on older properties to increase cash flow in the current year.
  • Lower property insurance premiums. Since it generally costs less to insure personal property, versus real property, building components reallocated as personal property should reduce your insurance costs as well.

How much does a Cost Segregation Study cost? 


On average, the total fee will generally fall between 5% and 20% of the estimated Net Present Value tax savings shown on your free analysis. This can be impacted by how large or small the real estate project is. In addition, the location, accessibility, and quality of the records and documents impact the ultimate cost. Minimum fees can be as low as $2,000 for small projects, and some firms GUARANTEE a minimum of 500% ROI (fee vs. tax recovery) on projects over $500,000.

How long does a Cost Segregation Study take?

The time that a Cost Segregation Study takes depends on the size of the project and the completeness of the documentation that you can supply. Generally, it takes about 4 to 6 weeks from the time the appropriate documentation is received and recreated.

What is required of me to have a study done?

You need to provide as much of the original documentation pertaining to planning, construction, and current tax depreciation as you can. This could include a complete set of construction plans, current tax depreciation records such as tax returns, building cost budget information, final AIA (American Institute of Architects) application and a document of certification for payment or other cost information, change orders, direct or indirect costs paid by the owner that are not included in other documents, and other information depending upon the project.

What if I lack some of the needed documents?

Even if you lack some of the necessary documentation, a study can still be performed for you. Construction, engineering, and other specialists will do an extensive site visit. They will measure and estimate using currently accepted costing techniques and pricing guides (such as the IRS-recommended costing publications Marshall & Swift and RS Means) to determine the costs that qualify for shorter recovery life periods.

Can’t my CPA do a study for me?

CPAs are not qualified according to the IRS guidelines. However, most Cost Segregation firms will gladly work with them on a consulting basis to complete the work for you. Remember, the IRS Chief Counsel issued a memo that made it clear what constitutes proper “methodology” in applying Cost Segregation, and it must be done by people who are competent in architecture, engineering or construction and/or construction techniques. See “Is Cost Segregation something new?” above.

Will a study increase the chance of an audit?

A study conducted by a reputable Cost Segregation firm should strictly adhere to the IRS Cost Segregation Audit Techniques Guide. The type of study most firms perform actually decrease your chances of an audit because the study places you in Internal Revenue Code Tax Compliance. However, be aware there are six different Cost Segregation methods allowed by the IRS, and not all are of equal merit. There is currently no standard method, and there is still some ambiguity about which method is best. If you have heard conflicting information about what is, and is not possible regarding Cost Segregation, this is probably why – it depends on which method is being used.

Will I be assisted in the event of an audit?

A reputable Cost Segregation firm can assist you in the event of an audit. They will focus on doing the Cost Segregation Study to create documentation and support for conclusions so that these are easily communicated and resolved with the IRS. In fact, you should expect a final report that is “all inclusive.” It should quote specific Internal Revenue Codes related to the reallocated assets. Additionally, it should provide photographic evidence of these same assets for complete substantiation of the assessment.

Conclusion:

The Pro’s

  • Reduction in tax liability
  • The deferral of taxes
  • Bump in up front cash flow

The Con’s

  • Costs typically range $4,000-$8,000, depending on property size/asset value
  • Accurate and complete documentation is required and requires effort to collect
  • Cost segregation is not feasible below $100,000 property value

Cost Segregation studies is one of the easiest and quickest way to squeeze a little extra profit out of an investment. If you played race video games in your youth (or still do) it’s like paying for the inexpensive computer chip upgrade, its a no brainer. If you don’t get that reference, its “low hanging fruit.”

If this is a concept new to you, you may be able to go back to previous years taxes and get back some benefits this year. Often times getting a quote is free and quick.

A recent quote I got back for a few properties.

 

Who do I call for more information?

For more information on Cost Segregation or a free analysis, contact John Collins, Cost Segregation Specialist at Segregation Holding LLC: (907) 227-2440 or jcollins@segregationholding.com.

Segregation Holding LLC performs Cost Segregation Studies in all 50 states and throughout the globe for US tax-paying citizens owning investment property outside the US.

Addition Resources

Dental Smile Example

Pre-Construction Example

Ranch resort Example

Video

Combine this with an Opportunity Fun Zone deal and wow!

Ep. 14 – Nate Busch of Busch Tax Company – Podcast download here

Sample K1 Form

Hacking your HSA / FSA / Flex Spending accounts

I’m going to start out by saying please do not take this as legal/tax advice!

One rule I follow is “pigs get fat but hogs get slaughtered.”

But if there is a tax code or loophole within reason/ethical good faith you should exploit it as much as possible.

In 2017, I purchased a half acre in a turnkey Coffee farm in Panama in my Health Savings Account (HSA) for about $15,000.

HSA’s are truly awesome! You add money to an account tax-free (like a pre-tax 401k), don’t get taxed on the gains (like any retirement account), and you don’t have to pay taxes when you use it on Eligible Health Expenses (like a RothIRA).

You need a High Deductible health plan to be eligible for an HST. I’m going to get a little political here… health costs are on the rise because it bails people out for not being accountable (good diet, sleeping habits, stress, and exercise program). The company famous for the yellow Twinky bars cited rising health cost as their reason for going bankrupt… go figure.

You WILL have health expenses, MAY have retirement expense… in other words, you will likely die and have health expenses before you retire. So it makes sense to fund an HSA account before any 401K, Roth IRA, IRA, etc.

Here is some information for your entertainment purposes to see what you can start to use your HSA for:

USA Today article

More resources

Getting a doctor to sign off on your medical purchase as necessary will need a template:

Sample Letter of Medical Necessity for Hyperhidrosis Treatment

[Date]
[Insurer name]
Attn: [Name of individual]
[Address]

re: [Patient name]
[Policy number]

Dear [Insurer name]:

I am writing on behalf of [Patient name] to document the medical necessity of [insert treatment option here] for the treatment of hyperhidrosis. This letter provides information about the patient’s medical history and diagnosis and a statement summarizing my treatment rationale.

Hyperhidrosis, or excessive sweating, is a medical condition that can have a devastating effect on a patient’s quality of life, causing physical discomfort, secondary skin problems, social/emotional  sequelae such as anxiety and depression, and disruption of occupational and daily activities. This has certainly been true for [Patient name], who has been impacted by hyperhidrosis for [insert duration of symptoms here].  Specifically, [he or she] has had difficulties with [insert quality-of-life, social/emotional and/or career/daily living problems here].

[Discuss patient’s diagnosis, treatment history, and degree of illness]

[Insert patient’s name] has tried the aforementioned therapies thus far without success and I, therefore,  recommend [insert treatment option here] as the next logical choice for treating [his or her]   hyperhidrosis.

In light of this clinical information, and this patient’s condition, [insert treatment option here] is medically necessary and warrants coverage. Please contact me at [(000) 000-  0000] if you require additional information.

Sincerely,
[Physician’s name]

Here is what I put together to get massages for stress from dealing with SPC listeners who don’t listen to the podcasts before booking a call or people who don’t take action:

[2018.11.8]
[Insurer name]
Attn: [Lane Kawaoka’s HSA servicer]
[Address]

re: [Lane Kawaoka]
[Policy number]

Dear [Insurer name]:

I am writing on behalf of Lane Kawaoka to document the medical necessity of massage for the treatment of mental stress and muscular discomfort. This letter provides information about the patient’s medical history and diagnosis and a statement summarizing my treatment rationale.

“Mental stress and muscular discomfort”, is a medical condition that can have an effect on a patient’s quality of life, causing physical discomfort, secondary skin problems, social/ emotional sequelae such as anxiety and depression, and disruption of occupational and daily activities.  Specifically, he has had difficulties with discomfort performing his duties at work and exercise routine [insert quality-of-life, social/emotional and/or career/daily living problems here].

[Discuss the patient’s diagnosis, treatment history, and degree of illness]

Lane Kawaoka came into the office in early 2018 where we ran a cardiovascular and blood assessment.

Lane Kawaoka has tried the aforementioned therapies thus far without success and I, therefore, recommend massage as the next logical choice for treating him.

In light of this clinical information, and this patient’s condition, massage is medically necessary and warrants coverage. Please contact me at [(000) 000-0000] if you require additional information.

Sincerely,
[Physician’s name]

Paying your mortgage of in 4 to 8 years with “mortgage rate arbitrage”

Flip the Script on the Banks

Summary: Pay a 30-year mortgage in 5 to 8 years by paying back your mortgage with simple interest instead of amortized interest.

I recently discussed this in my Forbes article here.

Is this something new?

We all know it’s a sellers’ market, with the lack of deals out there and the majority of the Simple Passive Cashflow Podcast listeners looking for something to invest their cash in. Good times, if you ask me. This strategy is nothing new but now the strategies that are, “trending,” like bell bottoms, tights, and neon colors but forgotten. One of these old plays from the playbook is called the Mortgage Equity Arbitrage Strategy also known as, the Australian Banking system.

First off, let’s talk about good debt versus bad debt. Obviously, an 18% interest rate paid on something like a credit card is bad debt. But taking a 4% HELOC (Home Equity Line of Credit) or loan from your life insurance policy can be good debt. Especially, if you are putting the loan proceeds into AHP at 12%, a MFH Syndication at 20%, a Turnkey rental at 30%+, or another higher risk syndication at 35%+. Just don’t buy jet skis or other doodads with the money… I don’t know why it’s always jet skis as the example. Maybe something to do with the fact that it is a mini-boat, and boats are known as the worse purchase known to man.

What you do with the liquidity from the debt is what really matters. Traditionally, it has been good to go into debt for a college education paying 4-8%… unless you are getting a glass blowing degree… or maybe a psychology degree so you can trick yourself into thinking college was worth it… or Asian studies degree because you are going to have to get used to ramen noodles in your adult life… or a Communications degree to be able to spin your financial reality. Ok I admit, I had a pretty depressing college experience…

 

Other Resources:

Podcast #105 – Jordan Goodman – Affiliate connections + mortgage rate optimization + Dolphin mentality

 

SPC028 – Chris Myles explains the downside to using Helocs to pay off mortgages & a teaser on life insurance

HELOCs in Hawaii

 

Sample Inspection report

I would say this is a bad report because it’s not Prescriptive. It is very important to have a chat with your inspector so they know it’s not going to be a warm and fuzzy home to live in but a rental property. They will need to avoid citing nitpicky things because the seller is likely another investor and more sophisticated than a regular homeowner and will call BS at your repair requests.

This is where an hour of coaching will go a long way to maximize what you get at the negotiation table.

Now back to SimplePassiveCashflow.com/turnkey

 

   

Hui Mastermind – Tony Robbins UPW in LA

Reserve your spot before Thanksgiving – soft commit form

We are forming a group mastermind like the last one in Sonoma.

We will be attending Tony Robbins Unleash the Power Within (UPW) in Los Angeles Convention Center on March 14-17, 2019. 

I attended it in 2016 and it was the inspiration behind my story in my book.

I’m normally not an excitable person (there is a lot of jumping around and dancing – which I’m not too big of a fan) but this UPW event the real deal!

Lowest prices through November 26th (I am currently negotiating an upgrade one or two levels so let’s plan on buying the General Admission for now)

General Admission tickets-regular price $1095-current price 2 tickets for $1095 or through me only 1 ticket for $547.50

Executive ticket-regular price $1395-current price 2 tickets for $1395 or through me only 1 ticket $697.50

VIP ticket-regular price $1695-current price 2 tickets for $1695 or through me only 1 ticket at $847.50

Diamond ticket-regular price $2395-save $500 through me only $1895 at this time

Diamond Premiere-regular price $2995- save $500 through me only $2495 at this time

Here is the direct link to Tony’s website.

I suggest bringing an accountability buddy or significant other. The worse thing is to come back to normal life without someone speaking the same “language” around you.

I see these motivational events as “baths” which you need to take from time to time. Even if you are someone who is internally motivated, this will take you to another level.

Why join the Hui:

  1. Learn the framework to be happy – best video segment ever
  2. Connect with people like minded
  3. You will leave this event changed – as silly as it sounds “things will never be the same”
  4. This event will be held in a smaller venue (12,000 people) which I was really excited about when I was planning this because it is a lot better environment than the normal sports arena setting where everyone is captive in their rows.
  5. You get to walk on burning coals!
  6. Learn more about the event here – note the LA event is not yet listed

Details are still being formed but we will likely get upgraded one or two levels if we come in as a large group. 

I am also arranging for a Monday decompression meeting to connect with other investors who attended from the Hui.

This event is more for personal development than investing. But it is certainly investing in yourself! After all… getting the passive cashflow is Simple but what you do after is the hard part.

I don’t personally guarantee investments because of course there is always a risk but I WILL guarantee your ROI if you come to this event! Call me and I will share my experience.

See what Tim Ferriss says about this event (last quarter of the end of video)

Reserve my spot (Due by Thanksgiving) – soft commit form

Trust me it’s going to be amazing!

After going in 2016, I made these goals in 2017. Some of which happened so of which I overshot.

Ultimate Living List of Self Directed IRA Custodians

List of SDIRA Custodians in no particular order based off feedback from other Hui Deal Pipeline club members.
Accuplan
Advanta IRA
American Estate & Trust
American IRA
Asset Exchange Strategies
Broad Financial
CamaPlan
Capital IRA
Central Bank
Checkbook IRA
Community National Bank
Crowdfund IRA
The Entrust Group
Equity Trust Company
First Trust Company of Onaga
GoldStar Trust Company
Guidant Financial Group, LLC
Horizon Trust Company
iPlanGroup
IRAvest
IRA Advantage
IRA Club
IRA Express, Inc.
IRA Innovations
IRA Resources
IRA Services Trust Company
Kingdom Trust Company
Lincoln Trust Company
Madison Trust Company
Midland IRA
Millennium Trust Company
Mountain West IRA
Nevada Trust Company
New Direction IRA
New Standard IRA
Next Generation Trust Services
Nexus Direct IRA
NuView IRA
PENSCO Trust Company
PGI Agency
PolyComp Trust Company
Preferred Trust Company
Premier Trust
Provident Trust Group
Quest IRA
RealTrust IRA Alternatives
Safeguard Advisors
Self Directed
Self Directed IRA Services, Inc.
Sense Financial
Sovereign International Pension Services
Specialized IRA Services
Summit Trust Company
SunWest Trust Company
Trust Company of America
uDirect IRA
Vantage IRA
401kCheckbook
The Self-Directed IRA Graveyard
American Pension Services
I don’t personally like these accounts for my own investing even though the future gains and withdrawals are tax-free because you can’t use the best Fannie Mae or Freddie Mac loan products when investing in your IRA.
Unless you are using a QRP (Qualified Retirement Plan).
With syndications using leverage (as most good deals do) you will be likely opening yourself up to UDFI etc taxes.
In the end, I want the freedom to enjoy the money now and not have to wait till I am 60 something.

133 – Veteran’s VA Loans & Other Financial Wisdom

SimplePassiveCashflow.com/133va
David from Military to Millionaire
Currently still enlisted in Army and spent some time as a recruiter
Don’t blow you money on a nice car
VA Loan – 0% down home loan for a primary residence with no private mortgage insurance (PMI)
You can buy up to a 4 unit
Move and buy at each difference duty station
Generally, 410K loan is the max with exceptions for high price areas like Hawaii
Relocation benefits
Do you stay enlisted in the military
Don’t underestimate the tax-sheltered allowances and perks

134 – Investing in Diamonds

I currently have a verbal agreement to put together a long-term joint venture.

I’m engaged and in the due-diligence period with multiple extensions.

Traditionally a down payment for such a transaction is a ring. Hopefully, if you have not gone through this experience before, you will learn about procuring this rare commodity. If not, I hope you find it entertaining.

For those who haven’t caught on yet – I’m talking about diamonds.

I think everyone knows that you get ripped off at a retail brick and mortar jeweler… even Fred Meyer Jewelers because you have to pay for all the overhead and compete with unsophisticated buyers. Plus I don’t like all the sleazy sales tactics and it is a huge time-sucking experience.

In the back of my head, I know the diamond market has to be rigged sort of like the sunglasses world where all the brands are owned by Luxottica and there is price rigging involved.

Now some people say they can haggle for a better price in person, but that takes time. Also, I am in the “first stage” of learning: I don’t know what I don’t know.

I turned my attention to the top 3 sites using Google and Reddit forums.

1) Blue Nile

2) James Allen

3) Rare Caret

I was happy with getting approximate “market value” on the website. I trusted the overall grading system in an online store.

What I really like about these websites is that they allow you to sort hundreds of diamonds in online spreadsheet form with a sort feature based on different attributes.

This might be review but the big four C’s are Carat-weight, Colour, Clarity, and Cut. Unfortunately, you cannot buy the 5th C – Confidence.

(Not to be confused with the three C’s of evaluating people into your network: Character, Competence, Commitment.)

If you would like to know more than the 80% of people, take 10 minutes to read this article to determine the quality & value of diamonds, via the famous 5cs of diamond grading.

Now, in my humble opinion … real talk here…  the most important factor is size. So Carat Weight is numerouno. Most people cannot tell you the difference between the other three attributes; they only see how big the freaking thing is.

For those who know a thing or two about diamonds, Cut is the second most important thing. Cut is the sparkle-factor, how much the diamond shines based on the angles of the Cut. I went and got the top grade Cut because that is a big wow-factor (second to of course how big it is).

The other two attributes, Colour and Clarity, I frankly don’t really care. Some people could actually like a little color or whatever that clarity thing is. So I set my search criteria to have all the levels in those two categories. One exception is that I just did not put the worst-grade Colour and Clarity in my selection. This for no good reason other than not wanting to have the worst one (as vain as it sounds). Call me dumb, but I feel embarrassed when I order the cheapest wine on the menu…I always go for the second cheapest.

Rare Caret seemed to have the best selection of diamonds, but their ring selection seemed to be lacking. So after a side by side comparison of Blue Nile and James Allen, I found James Allen to be ~5K cheaper for the same diamond.

At the end of the day, I knew what my budget was so I was just trying to get the best bang for my buck. In other words, the money was allocated and this is how I mentally process non-income producing assets.

Unfortunately, I was not able to use Mr. Rebates – a go to for getting a few percent points of cashflow by going through a simple shopping portal. Nor was I able to find many coupon codes using RetailMeNot.com or navigating their email digital marketing campaign. Most sophisticated marking emails are laced with smart links to kick out a discount coupon based on what links you click in the email and if you do not buy right away to get you off the fence as a buyer.

Sign-up via my link for all your future online shopping: http://www.mrrebates.com?refid=413597

You can spend a fortune on Carat-weight, Colour, Clarity, and Cut…but the most important 5th “C” of all, Confidence.

A lot of my high net worth single friends (who by the way get a lot of dates) don’t see the value of getting married in this modern era (other than if you would like to have kids). I definitely understand that perspective to some extent. This makes buying an archaic stone that may or may not have been a blood diamond just another thought to complicate things.

But as a recovering cheapo – simplepassivecashflow.com/cheapo – I understand that money is not evil and can buy a variety of things including freedom, time, and happiness. This purchase is a perfect example of that.

The way I see it, marriage is a lot like playing with leverage. It is a little more risk than going it alone, but the reward (if done right) is disproportionately greater (per the Shape Ratio’s risk-adjusted return).

My first plan was to make the big reveal in a new Honda CRV. Note – at this moment I’m over the whole Mercedes, Tesla, wealth-based off of the car I drive. Instead, I am striving to achieve the financial freedom level I am looking for.

I even had my VA scrape a lot of Honda contacts to do my normal email blasts to put multiple dealers against each other. By the way, I lease cars because I did the math and it makes more sense for sophisticated investors who get higher than average returns.

I got the car but scrapped the idea because my buddy mentioned… “dude – you don’t want to propose at a car dealership.”

Takeaway here is that everyone has a blindspot and its good to have people around you to bring up counterpoints.

Thanks for following Simple Passive Cashflow. Onward and upward.

 

Opportunity Fund Zone

I did some research on this new Opportunity Fund Zone tax benefits. Below are some notes and ideas.

Note: I’m not a CPA or attorney just putting it out there to help inspire some ideas.

An Opportunity zone (OZ) is a tax-favored investment for people with capital gains.

6-pages in the tax document in the new 2017 Tax Cuts and Jobs Act
Goal to encourage long-term investments in low-income communities across the US.
Every major city has some OZ.
Most of Detroit is an OZ plus large portions of Baltimore.
Allows investors to sell their appreciated assets and invest their realized capital gains into one or more designated OZ.
EVEN STOCKS! Non-like kind assets are OK!
After your selling your appreciated asset you have 180-days.
The longer you hold the more benefit you get (up to 10 years).
1) Defer your original capital gain tax obligations until 2026 or until you sell your OZ investment.
2) Discount of 10% or 15% on the taxable amount of your original gains. If you hold more than 5 years your original cap gains decrease 10%
3) If you hold 10 years or more. You will pay NO capital gains tax on any appreciation.
You can self-certify so you do not need an intermediary like in 1031 exchanges.
No investment minimum.
There are some items that get a little unclear… where you should really consult your CPA.
Check out the IRS opportunity comes frequently asked questions page and additional resources below.
Resources to Google: community development financial institutions fund, CDFI Fund map.
Note: Spending $100 dollars to save $20 dollars is not a wise idea. Just like buying a rental next to Grandma’s house because of your travel there. A lot of specifics are still being played out but something intriguing to augment an already good investment.
Other ideas: Look at the OZ map and try to find the smaller slivers of OZ. This is called “buying on the line” whereas areas improve on the edge of development you greatly benefit.
I would ask your CPA if they know about these opportunity fund zones. If they don’t you might need a new CPA. If you are a current Hui Deal Pipeline Club member I would be more than happy to refer you to some people and then you can see if you work well together.

Of course, the news is blowing this out of proportion to sell attention. Wall-Street Journal article.

WSJ 2

WSJ 3

There is a lot of rumors floating around how this tax will be implemented later this year. One of these rumors suggests that we might not qualify for the Opportunity Zone Fund. See second to the last page of the attached where they state that we have to do improvements that is the same as the basis in order to qualify.

Resources: Article on Opportunity Fund Zones – https://drive.google.com/open?id=1F8wDToyb9olvq52U9LRMD8cBrJILm8q_

Kohlers article

***If you are a Hui Investor please email me for the secret report on these Zones***

Cost Segregation & Bonus Depreciation