The thing with real estate is that it might be the ultimate entrepreneurial business. I know a number of these folks who have launched the Greenville, SC brokerage for Trinity Partners. Trinity Partners is established in Charlotte, Raleigh, Columbia, Atlanta and now Greenville, SC.
It’s hard to go wrong with brokers here in the Upstate of South Carolina. There are many of them. The folks who started this brokerage under the umbrella of Trinity Partners were successful young brokers at a couple of other brokerages here in the Upstate. They now offer a full service brokerage firm including property management services.
I wish them all well as they launch out on their own to build their own opportunity in commercial real estate brokerage. The Upstate Business Journal has a good article about Trinity Partners Greenville and how they continue to grow this real estate brokerage.
In the competitive world of commercial real estate (CRE), every advantage counts. As a broker or agent, your goal is not just to help your clients close deals, but to add value that sets you apart from the rest. One underutilized strategy that can enhance client relationships, generate referral fees, and potentially lead to future transactions is cost segregation. This tax-saving tool can transform how your clients view property investments and open the door to significant financial benefits for both of you.
What Is Cost Segregation?
Cost segregation is a tax strategy that allows property owners to accelerate depreciation on specific building components, such as lighting, flooring, or specialized wiring, rather than depreciating the entire property over 39 years. By reclassifying certain assets into shorter depreciation schedules (5, 7, or 15 years), property owners can dramatically increase their tax deductions, often realizing significant tax savings in the first few years of ownership.
These upfront savings enhance cash flow and enable property owners to reinvest in their business or even expand their property portfolio. Given these benefits, cost segregation should be a standard part of your conversation with clients, particularly for those who own or are considering purchasing commercial real estate.
Why CRE Brokers Should Offer Cost Segregation
1. Value-Added Service for Your Clients
Offering cost segregation positions you as more than just a broker; it positions you as a strategic partner invested in your clients’ long-term success. The tax savings that clients can achieve through this strategy are substantial—sometimes as much as 20% to 40% of a property’s purchase price can be reclassified for accelerated depreciation. This kind of savings can lead to increased cash flow, allowing your clients to reinvest in their business, upgrade facilities, or even acquire additional properties.
2. Strengthen Client Relationships
Cost segregation creates an opportunity for brokers to strengthen client relationships by providing a service that has tangible financial benefits. When clients see that you’re proactively looking for ways to save them money, they’re more likely to return to you for future transactions. More importantly, when the savings from cost segregation enable a client to purchase another building, who are they likely to call? The same broker who introduced them to the strategy in the first place.
3. Earn Referral Fees
Not only can offering cost segregation be a value-added service for your clients, but it can also be a direct revenue generator for you. Many brokers are unaware that they can earn a referral fee for recommending a cost segregation study. This additional stream of income can be a nice bonus, especially when paired with the potential for repeat business as clients reinvest their savings into new properties. Also think about this…why leave an opening for your competition to eventually reach out to your customer / client and talk with them about cost segregation. They might wonder why you didn’t say anything about it.
4. Make Clients’ Properties More Attractive to Buyers
For brokers involved in sales transactions, presenting cost segregation as part of the package can make a property more attractive to potential buyers. When buyers understand that they can benefit from accelerated depreciation after purchasing a property, it can make the financial proposition of the deal much more enticing. In essence, you’re not just selling a building; you’re selling a future tax strategy that can significantly boost the buyer’s return on investment. My experience is that about 6 out of 10 building owners have never heard of this before. Many of their CPAs won’t make mention of it either. You should make sure all your clients and prospects know about it.
5. Staying Ahead of the Competition
The commercial real estate market is becoming more competitive, with brokers and agents vying for the attention of property owners and investors. Offering services like cost segregation distinguishes you from the competition by positioning you as a full-service consultant who can bring more to the table than just listings and negotiation skills. This depth of service helps to solidify your expertise in the eyes of clients, giving you an edge in a crowded marketplace. Consider marketing cost segregation as a service you offer – because you do! You just have to offer it!
Cost Segregation and the 2017 Tax Cuts and Jobs Act
The benefits of cost segregation certainly accelerated and became even more attractive since the 2017 Tax Cuts and Jobs Act (TCJA). One of the key provisions is bonus depreciation, which allows property owners to deduct 100% of qualified improvement costs in the year the property is placed in service. The TCJA has a stair step downward each year or bonus deprecation. For properties placed into service after Sept. 27, 2017 and by Dec. 31, 2022, they could take 100% bonus depreciation. (They still can with a lookback study…so if they haven’t done cost segregation, they can still do so). In 2023, bonus went to 80%. In 2024 it’s 60% and it lowers 20% each year until it is zero again in 2027. Congress may vote to extend bonus depreciation but given the way things are in Washington, DC, no one really knows if this is going to happen. Brokers should highlight the current bonus depreciation ability window to clients, stressing that now is the time to act to maximize tax savings.
Practical Steps for Brokers
If you’re a commercial real estate broker interested in offering cost segregation, here are a few steps to get started:
Partner with a Reputable Cost Segregation Firm: Not all cost segregation studies are created equal. Partnering with a firm that employs engineers and tax professionals ensures that your clients will receive a comprehensive and accurate study. Find a great rep who will be professional and responsive to you and your clients.
Educate Your Clients: Many property owners may not be familiar with cost segregation or may not realize it applies to their properties. Take the time to explain the potential benefits and how it could impact their bottom line. This is where your cost segregation partner can come in handy to help with the education. You don’t need to be the expert.
Highlight Potential Savings Early: When discussing potential purchases with clients, make it a habit to mention cost segregation. Highlighting the tax advantages upfront can make the financials of a deal more appealing to buyers. Some brokers also use cost segregation estimates to help them with their listing marketing.
Leverage Success Stories: Share testimonials or case studies from other clients who have benefited from cost segregation. This provides real-world examples of how the strategy can boost cash flow and open doors for further investments. Once you have an owner or two who saves $50, $100, $200k on their income taxes, you’ll become a true believer yourself.
Don’t Forget About Your Own Investments
Remember if you own commercial property or residential investment property, cost segregation can be a huge help to commercial real estate brokers. Discuss this with your own tax advisor, but normally you qualify for as a Real Estate Professional or REP, in the tax code. This means that all of your income is active so if you have real estate and can generate say a $200,000 depreciation expense, that very well might lower your income that year by $200,000 saving you probably $60,000 – $70,000 in income taxes. Might it be worth it for you to spent $4-$7k or so on a cost segregation study? I think so.
Conclusion
In today’s fast-paced commercial real estate environment, brokers need every tool in their arsenal to add value, build strong relationships, and stay ahead of the competition. Cost segregation is one such tool—a tax-saving strategy that not only benefits your clients but can also enhance your business by generating referral fees and encouraging repeat transactions. By offering this service, you position yourself as a forward-thinking, value-driven broker who is committed to maximizing your clients’ financial success.
Now is the time to unlock the hidden value in your clients’ properties and take your real estate practice to the next level. As I like to say, we help squeeze everything out of that property. There’s often money still remaining in many buildings and owners and brokers just are not aware. Let us take a look and see if we can help. There’s never a cost or obiligation to have us run the numbers.
I work all over the U.S. and would be happy to have a conversation with you. I partner with CRE brokers around the country to help them offer this service. I’m backed by a phenomenal company in CSSI. It still blows my mind how few commercial real estate brokers utilize cost segregation as part of their core services offered.
Congratulations to Cheyenne Putnam of Aline Capital in representing the seller in getting this large deal done in Charlotte, NC. The retail center sold for $14,995 according the release from Aline Capital on LinkedIn – published below.
Aline Capital is a commercial real estate advisory firm in Greenville, SC. Cheyenne Putnam is their Director of Retail. It’s nice to see there are some big deals still getting done.
I work with a lot of commercial real estate brokers around the country but it’s just a tiny fraction of the number of CRE brokers who should be using cost segregation in their practices. It’s a missed income opportunity for the broker but more importantly it’s a missed opportunity to provide a very powerful value-added service that will have a material positive impact on your commercial real estate client. You also leave yourself exposed that someone else might call them up to make mention of it and start to build a relationship with that client.
As the key point of contact in a transaction and tip of the spear so to speak, commercial brokers work with buyers of commercial real estate to go through the financials, due diligence, market opportunity and pricing of all kinds of buildings. Why not discuss cost segregation with your clients at the same time? It’s a key part of owning commercial real estate. It can help improve an owner’s cash flow, reduce their immediate tax liability and help them have a better understanding of their building. It definitely affects the proforma in a positive way. You don’t need to be the expert. You should have a partner in the business to whom you can connect your client for a no cost, no obligation consultation and estimate.
If you’re a commercial broker and you don’t have a trusted partner for cost segregation, consider giving this short video presentation a watch. It’s 11 minutes long. I provide professional, engineering-based cost segregation services all over the country. Our firm is one of the largest and oldest in the country. We have experience with all properties types and classes in all 50 states. We’ve now successfully completed more than 50,000 studies.
By implementing cost segregation into your commercial real estate practice, you will not only get paid referrals from us, but you will gain new clients and close more deals. It will happen. Everyone’s looking for an edge and I’m telling you, THIS will give you an edge in the marketplace. Give this a watch and then reach out to me for a conversation.
If you go back to my home page, you’ll see a map of many of the properties we have studied in the past couple of years. Under the “Projects Completed” tab on the home page, it has a drop down so you can see pictures of the buildings our team has studied. Many of these projects have come to us by referral from commercial real estate brokers. Some also come to us from CPAs and building inspectors.
Reach if you’d like to talk about this program to incorporate cost segregation into your commercial real estate practice.
This post is especially for commercial real estate brokers who own buildings and have extended their 2023 taxes. Assuming you have some tax liability for your earnings in 2023, if you own a commercial building(s) and/or residential investments and you have not done cost segregation on those buildings, this would be a great time to see if this can work for you. This may be especially beneficial if you have a significant tax liability and if you are planning on holding your buildings. This also goes for those who aren’t CRE brokers but own commercial real estate. If you own a profitable building that you plan to hold for another 3 or more years, why not look at the impact a cost segregation study could have on your tax liability and cashflow for the property.
Get an estimate in your hands so you can have an informed conversation with your own tax advisor to see if doing a study now makes financial sense.
Photo: SVN Blackstream Greenville, SC – John Murphy presenting cost segregation to CRE brokers
One of the things I enjoy about the work I do is getting an opportunity to speak with commercial real estate brokers. I can do this for residential brokers as well as they will often be working with investors or they might be buying their own property.
If you work at either a residential or commercial real estate brokerage and are looking for a speaker for your meetings, I’d be happy to come in and speak as long as you’re within a reasonable driving distance for me. I’m based in Greenville, SC so I certainly anything here in the Upstate is accessible. Also, the Charlotte metro and Columbia are only 90 minutes away.
Here’s a presentation I recorded to help commercial real estate brokers understand cost segregation.
I get asked to come in and present to commercial real estate brokers, financial advisory firms, CPA firms and occasionally a college might ask me to speak to their accounting students. The the folks who are consistently really interested in learning more about cost segregation are the CRE brokers…as well they should.
This is not only easy money but it’s a great value-add service that you can tell your clients about which in turn might lead to another deal. How so? Let’s say you help a buyer purchase a new building. As part of your due diligence, you get an estimate for cost segregation. It’s likely the owner is not familiar with cost segregation. You might end up saving that owner $30, $50, $100k+ on his/her taxes. It might even be enough that they want to buy another building with you. You can earn a referral fee on business you send our way. Of course it’s nowhere near what you earn with real estate commissions but it all helps at the end of the day. Telling your clients about cost segregation and getting them an estimate is a win-win-win for everybody.
I recorded a presentation that I recently used to help educate many commercial real estate brokers. It’s not meant to be an in-depth study of cost segregation but hopefully provides enough of an overview to help you understand the power of cost segregation and why you should have a trusted source to help you and your clients maximize their building’s cash flow while minimizing the taxes for the owner.
Presentation about Cost Segregation for Commercial Real Estate Brokers
“We are excited that NAI Columbia is officially rolling into our business family,” Jon Good, CEO of NAI Earle Furman said in a news release. “This collaboration will mutually benefit both of our firms with more manpower, added support and additional resources. Together we will be able to better serve our clients throughout South Carolina and beyond.”
This sure seems to make a lot of sense especially in the world of commercial real estate where there are some very big players with large networks who serve the Upstate and Midlands area.
My experience is that 8 out of 10 building owners aren’t aware of this incredible tax application that boosts their cash flow and lowers their taxes… commercial brokers, insurance brokers, tax and financial profressionals and property managers are all trying to reach buildling owners and yet few if any are having conversations about cost segregation. You don’t need to be an expert. Just ask if they’ve done it yet to their building. It’s a missed opportunity all the way around.
If you don’t ask, you’re missing out on potentially really helping a client. In some cases you might gain a new client because of it. Maybe you end up writing another policy or pick up more money to invest from them. Or maybe with the extra money they save they end up buying another building with you…or you pick up a new tax client. Plus you can get paid a referral if you join our referral program. It’s easy and costs you nothing. Contact me to join our program and let’s keep business and building owners in business and profitable! Note: financial services cannot be paid a referral due to regulations. However, let’s say you help someone save $50-$100k on their taxes…perhaps they will reinvest some of that tax savings with you buying financial / life insurance products.
Commercial brokers play a very important role in the ongoing development and improvement of a community. They are often in-the-know of what’s happening in a particular area…who’s developing what and which companies are moving in and/or expanding. They help business owners, building owners and investors of all kinds with sourcing or developing a building or project to suit the prospective owner’s needs. They often can help give recommendations on financing, inspections, engineering, surveying, insurance, renovations, construction etc. The one area they are weak in is in cost segregation.
Why should commercial brokers have a trusted source for cost segregation amongst their mix of other expert advisers whom they can readily share with a prospective client? It’s pretty simple….commercial brokers should introduce cost segregation to every client and have each building evaluated. There’s no cost to do this and the upside is significant certainly for the client. The commercial broker can also generate another income stream for his brokerage by partnering with us to deliver this service to his clients.
We know the upside for the client on cost segregation but why wouldn’t the commercial broker also participate in creating another revenue stream? Ask me about our referral program. It can help pay for some office lunches, outings and year end parties. But the bigger thing is that the broker will have helped his client maximize his/her building by saving a lot of money on taxes. The tax savings provided to the client might actually be enough to help that building owner go buy another building of which the broker may represent him/her on that and make another commission.
Remember, not every building or every building owner is going to need to actually do a cost segregation study. Some buildings aren’t profitable and maybe won’t be for some time. Some owners aren’t particularly profitable either and so they don’t need the tax deductions. However, every building should be evaluated so you at least have it on hand and can reference it each year as you review your particular tax situation for that year. Perhaps you don’t do cost segregation for a variety of reasons in 2022…maybe not even in 2023. But by 2024, it probably makes more sense. Well, a smart business owner, building owner and investor is going to know what that might look like for him or her. There’s no reason they should not have an estimate on hand and in their files. It should be part of a normal business and tax review process if not quarterly…at least annually.
Cost segregation will save big money for most owners. They might see between $30,000 – $70,000 in income tax savings per $1 million in building cost or basis. We can do studies on buildings with a cost or basis as low as about $175,000.
Lastly, I will say that as I speak with building owners, 8 or 9 out of 10 have not heard of cost segregation. Of those that might be familiar with it, there’s a lot of misperceptions as to it’s value vs. it’s cost. It’s very common for me to quote estimates that demonstrate a 10, 15, 20:1 return on their investment in the study. That’s a 1,000 – 2,000% return. Most commercial real estate delivers returns in the 5-8% range…we’re talking massive returns here with cost segregation compared to the investment in the study. The most likely way a building owner would hear about cost segregation would be through the commercial real estate broker. Please share the information…make an introduction and let’s help building owners maximize their buildings, lower their taxes and increase their cash flow.
Be sure to reach out and I’d love to help – John Murphy, 864-276-1448
