(9.18.17) Assets boast solid tenant rosters and offer strong cash on cash returns

Eric Singer

As most of our investors know, OAD’s fundamental work is to acquire and manage real estate assets that provide outstanding annual yields and IRR over the life of the investment. Our broader goal, however, is to provide a friendly and efficient way for our investors to preserve wealth through the unique benefits of real estate ownership, and one of the most important tools that we employ in that effort is called a Cost Segregation Study. Here’s how the Cost Segregation Study works.

Each building has value, and over time that value lowers due to normal use and deterioration. A tax deduction called depreciation reflects this loss of value over time and allows a property owner to recover the costs of wear and tear.
In the past, a building was treated as a single asset, and each of the internal components that made up the building were all calculated into one single asset value which depreciated over 39 years. This meant that over the term of 39 years, your tax deductions would remain the same from year to year. The problem with this approach is that it is not tax efficient. The fact is that most components within a building do not last 39 years. Such components include carpeting, lighting, heating and cooling systems, landscaping and land improvements. It is very tax inefficient to have to depreciate an asset over 39 years that will truly be disposed of over a 5-year period or less.
A more favorable system exists that allows us to depreciate the individual assets within the building and accelerate the tax deductions much sooner, thus creating substantial wealth and cash preservation for our investors. With Cost Segregation, an IRS-recognized and approved technique, the individual assets are expensed based on their individual depreciable lives as opposed to being part of the building as a whole.
Short-term asset segregation of building components that are non-structural in nature include fixtures, flooring, cabinetry, internal piping, landscape, parking lots, land improvements, mechanical systems, lighting systems, special electrical work and building finishes. When you segregate these assets from the structural portions of the building, cost segregation can become a powerful tax planning tool for maximizing tax deductions that lead to great wealth preservation by allowing us to manage your investment in the most tax-efficient manner.
In the past year, OAD commissioned a series of cost segregation engineering reviews of eightdifferent properties. The cost segregation benefit included a reclassification of 39-year depreciation class life assets into 5 and 15-year class lives, resulting in a combined accelerated tax benefit of $21,547,171.60 for eight property purchases and improvements. A 481(a) adjustment was filed for catch up in total depreciation of $7,667,650 on all properties.
Legitimate, proactive tax planning along with a diversified approach is another way that investing in real estate assets with OA Development makes great sense as part of your overall investment portfolio strategy.


– Eric Singer, Partner, OA Development, Inc.