If you own a mobile home park and plan to keep it for the next few years or longer and if you haven’t done cost segregation, you may want to take a look at it. Mobile home parks are profitable so even if this is a passive income stream for you, you likely owe taxes each year because of this investment. If you do cost segregation, you’ll be able to defer taxes for years most likely. I’d be happy to talk with you about it.
Category: Mobile Home and RV Parks
Cost Segregation Explained for Mobile Home and RV Park owners in 2 minutes. These are great assets for cash flow and the depreciation these parks generates is second only to C-stores and tunnel car washes. It’s not uncommon to see 50-90% of the property get reclassified so it can be accelerated.
What does this mean? Let’s say you purchased an RV Park for $2.5MM and the land is worth $500,000. That leaves you with a cost of $2MM which as it sits is 27.5 year property. But what if you could reclassify 75% of it by doing cost segregation? That’s $1.5MM in property that has been reclassified as either 5 or 15 year property. In 2023 you can take 80% bonus depreciation. So the owner could get a depreciation expense of $1.2MM in year one of owning the property. If he/she took straightline 27.5 year deprecation without cost segregation, the depreciation expense would be a maximum of about $72,000 that first year depending upon when they put it into service.
Remember that cost segregation is based upon cost and not appraised value. If you have a property that you paid $200,000 for 20 years ago and now it’s worth $1.5MM, a study isn’t going to help you much unless you’ve done a ton of improvements along the way. What we are seeing is a number of these parks are either being developed or they are trading hands. Once that happens, the new owners should definitely look at doing cost segregation.
I work all over the U.S. in all 50 states and get calls from all over the place to help with cost segregation not only on these assets but all types of commercial property. I’d be happy to talk with you at no charge and if you’d like our team to run the numbers for you, just let me know. Connect with me on LinkedIn or Twitter.
We all know that mobile home parks and RV parks kick off tremendous cash flow for the owners. It’s a phenomenal real estate investment. There are many different groups of investors who have been trying to buy as many of these parks as they can get funds to do so. In part what they do is they buy these and then immediately cost seg them for massive income tax savings.
If you’re reading this blog post you probably already have a pretty good idea about cost segregation, but in case you don’t, cost segregation is a tax planning strategy where the owner segregates or reclassifies real property into shorter class lives. This allows the owner to take a bigger tax deduction earlier in the ownership of the property.
Mobile home parks and RV parks are some of the best assets for cost segregation. I will often get asked…”how might a specific property do with cost segregation?” I can usually give them a ballpark figure and then have our team run an estimate but other than C-stores and tunnel car washes, there isn’t another asset class that performs as well with cost segregation as does a mobile home park or RV park.
It’s very common for us to see 50-70% of the overall cost be able to be accelerated – i.e. depreciated in the first year of ownership. Let’s say you buy a mobile home park for $2.5 million. The land is worth $750,000. That leaves $1.75 million in cost basis. We would run an estimate for you and note that you could expect $800,000 – $900,000 in increase accumulated depreciation expense. But the actual results might reach as high at $1.5 or $1.6 million potentially. Of course we would not know that until we completed the study. So what happens in these situations is many times these owners have other parks that kick off massive cash. They have big tax liabilities because of that. But now they buy this new park, cost seg it and get maybe a $1 million tax deduction in that first year of buying the new mobile home park. They don’t need that $1 million to offset the income from this newly acquired park but they do need it to offset the other income from their other parks and properties. A cost segregation study like this might cost somewhere in the neighborhood of $5,000 – $7,000 depending upon the complexity of the property.
What kinds of property can be accelerated? Below is an example of what you might see in a cost segregation study for a mobile home park. In this particular study, the owner would be able to accelerate $2,141,369.70. At a 37% federal income tax rate, that would be an income tax savings of $792,306. I don’t know what this study cost but let’s say it was $6,500 which is a business write off. That $6,500 after tax is $4,095 making the ROI 193:1….that’s 19000% return on investment. Crazy but it’s legit.
If you’d like to learn more about cost segregation or would like us to run an estimate for you, please reach out. We are happy to run numbers for anyone no matter where you are. There is no charge and no obligation. I can study properties anywhere in the United States and am happy to help.