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Investing Strategies

Apartment Investing: Powerful Tax Benefits

wonderGreetings, Moguls. Chris Urso here, bringing you a powerful truth in this lesson about the tax benefits of investing in apartment properties.

I have a lot of reasons for investing in multi-family properties. One reason is, of course, because they generate great income, but another reason is because I enjoy helping people establish a personal plan to build wealth, preserve their capital and create a family legacy investing in or through direct ownership of apartment complexes. 

Pause & Rewind

Before we get moving on this lesson, I want to remind you about my investing experience, which will explain why the heck you should listen to me anyway…

My real estate investment company, URS Capital Partners, has over $70M of acquisitions; over 1,300 units throughout the Midwest and Southeast. In the process, we’ve raised over $22M in private capital.

My consulting platform, Elite Apartment Coaching, helps private real estate investors explode their net worth while protecting their nest egg. And I’ve written a book, “Smart Investors Guide to Buying Apartment Buildings,” which contains all the things I wish I’d known when I first got started in the industry.

As you can see, I’m pretty well-qualified to give you this great lesson that’s coming your way. So let’s get to it…

I’m going to give you valuable info on the amazing tax benefits that are associated with investing in multi-family real estate. Our investors, our capital partners and our private clients, too, are buying properties for their own portfolios and receiving huge tax benefits.

I’m going to walk you through a scenario with actual numbers of how a real-life deal can save you a tremendous amount of money on your taxes when you buy multi-family properties.

Quick disclaimer: I’m not an attorney, and I’m not an accountant. So make sure you contact your own professionals before proceeding on any part of this process.

Our Example Deal

I’ll start with an example of a $3M purchase price. The normal depreciation on multi-family properties is about 80% of the purchase price per building and 20% to the land. 80% of $3M is $2.4M.

taxesThis can be depreciated over 27½ years. That calculates out to $87K a year. This can be deducted from any cash flow that’s generated. The IRS allows this tax break.

The above is how 95% of accountants would set this up. But we want to be part of the 5%. Our accountants are real estate accountants and they go a step further...

So, 10% of the purchase price is applied to furniture, fixtures and equipment – this would include refrigerators, stoves, cabinets, countertops, hot water tanks and so on. That 10% would be $300K. If you have a 100-unit property, that means you have 100 refrigerators, 100 stoves and so on. In our business, this could add up to more than $1M on some of our transactions.

This 10% can be depreciated over 7 years, which is an additional $42K a year of depreciation.

So now we have $87K and $42K, which equals $129K per year. At least for the first 7 years.

What Does This Mean for You?

We bought the deal for $3M. Let’s say we brought 30% cash to the table for the purchase. We needed $900K to buy this property. This would be either by myself or with my investors. A typical real estate deal can produce a 10% cash-on-cash return. That means $90K a year of cash flow (after paying expenses and debt service).

From that $90K, the IRS says I’m allowed to apply depreciation to this amount. I now deduct $129K depreciation. Technically, at the end of the year, I would then show a net loss of $39K.

So while the property is generating $90K cash flow, on paper it shows a loss. This is one of the most powerful benefits of investing in multi-family real estate.

True Wealth-Building

When people ask us why don’t we just go buy stock in a multi-family REIT, I say that’s just a piece of paper. There are no tax benefits, and there’s no leverage.

There is true wealth-building through the tax benefits here that you will not get any other way.

Also at the same time, I’m paying down my mortgage on my $2.1M debt that I have. I am building my $900K into a $3M asset. All while making cash flow that is tax-free.

This is a very simple example, so it’s imperative that you consult your own accountant. When we have interested investors come to us, tax benefits are one of the first things they want to know. Sophisticated investors will use these “losses” to apply to other income-generating investments that they have. This makes the tax benefit even more attractive.

I’d encourage you to take a look at multi-family properties that are available in your market, consult a real estate accountant and consider jumping into this niche with those enticing tax benefits.

What’re Your Thoughts?

I find that many investors are unaware of these amazing tax benefits – does that describe you? I would love to hear from you. Leave your comments below.


Do It To It! Immediate Action Steps

Consult your own real estate attorney and real estate accountant when it comes to tax strategies.

Conduct your own due diligence with regard to building wealth via multi-family properties.

Understand how your apartment-investing business can show a loss while you’re pulling in cash flow all year long.

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