Cost Segregation Studies offer real estate investors the opportunity to increase post-tax cash flows from their property by accelerating depreciation expense and deferring income taxes. The study works by assessing all the components of a property and reallocating value that had been originally attributed to the building as either personal property or site improvements. This takes advantage of the fact that personal property and site improvements can both be depreciated over a much shorter time span than real property. Specifically, personal property is depreciated over 5 or 7 years and site improvements are depreciated over 15 years, as compared to real property that is depreciated over 27.5 or 39 years.
Many smaller scale investors (as well as institutional buyers) like to invest in single tenant net lease (STNL) assets because of the lack of managerial duties for the owner. As previously mentioned, these properties are normally good candidates for Cost Segregation Studies. In a typical pharmacy, 8-15% of the value might be able to be reallocated to personal property with 5 or 7 year depreciation lives. With a bank, this could be 15-25%. Other STNL properties will fall somewhere in between. In addition, site improvements with 15 year depreciation lives are considered.
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Jonathan Hipp
Jonathan Hipp began his career in real estate over 25 years ago. In his early years as a broker, he ventured into the net lease industry and quickly began leading the US net lease market, closing over $3 billion in transactions. In 2005, Jon founded Calkain Companies, a company focused solely on net lease investment services. As President and CEO, he has been instrumental in building the firm into one of the leading Net Lease real estate companies, transacting over $12 billion of net lease deal volume over the past 13 years. He has expanded Calkain’s services to include brokerage, advisory, asset management, capital markets, and industry research. He has become a well-known resource, panelist, and speaker at various Net Lease and Industry conferences and is a regular contributor to GlobeSt.com on real estate trends. In June 2015, Jon’s passion for the real estate business was again recognized as he was nominated for the Top Real Estate Player in the DC area by SmartCEO magazine.
