Episode 8: The Amazing Benefits of Real Estate Depreciation

In this episode of “Financial Independence – A Better Perspective”, Lance and Randy give an overview of the amazing benefits of depreciating real estate assets. Depreciation is almost like finding money on the street. It’s guaranteed income, and the IRS wants you to have it! You will definitely want to learn more about this under-appreciated income stream called “Depreciation.”

What you’ll learn in this episode:

• Depreciation credit is a key part of the guaranteed return you get by owning real estate. The IRS assumes that a property decreases in value in a linear fashion over the next 27 ½ years.The depreciation can work at any income level.
  
• All returns on real estate ownership depend on having tenants pay rent. But even if the tenant doesn’t pay, you’re still going to get the depreciation because it’s built into the IRS code.
• Depreciation is part of the ROI. Typically, that number is from 2.5 to 4%. It’s more cash flow to you and less that you’re paying in taxes.
• Relationship between the value of the dirt and the value of the building. You want the purchase price to be 10 or 20% land and 80-90% building because then you get to depreciate it.
• There’s a 27 ½ year depreciation schedule for a straight-line residential property, and 39-year schedule for a commercial property.
• You can speed up depreciation because the 27 ½ years applies to the building; the improvement on the land.
• Componentizing.
• How to bypass the $25,000 a year cap on how much depreciation.
• Lance introduces the concept of “Depreciation Capture.”
• Randy offers closing advice: “When you’re investing money in your property, ideally, you want to find a way to call what you’re doing an expense, so you can write it off immediately. If you can’t, then you want to see if you can defer it over time and if you can use one of these accelerated schedules to get it done faster than would otherwise be normally applied. So, again, repair, write it off immediately. Improvement, write it off over time.”

Resources:

LanceSchool.com

Grab a FREE Copy of Lance’s Best Selling Book, How to Make Big Money in Small Apartments here.

Get Access to Lance’s Best-selling Small Apartment Wholesaling Course here.

Get Randy’s The Financial Independence Toolkit ℠

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