Apartment and multi-family new construction declined significantly. Jay Parsons is a leading consult in the field and always publishes great information. Here’s some very interesting stats where he shows just how slow starts have been for many cities throughout the U.S. See his LinkedIn post below.
Tag: Multi-Family
Make Drywall Great Again!
Drywall is a phenomenal creation but we end up with WAY too much of it in landfills. It’s a problem. By using Green Zip Tape you can help your community by keeping drywall out of your local land fills. It makes for a FANTASTIC pitch by the way to city and county councils as you are seeking your approvals. There are also fantastic tax benefits to be had.
If you are building a hotel, multi-family, office or medical facility and you are not using Green Zip Tape, you are missing out on many opportunities to improve your project from all facets…construction, environmental, tax, cash flow and value.
$10MM+ construction projects
Let’s talk about it. Give me a call anywhere in the U.S.
For those who have a lot of income and tax liability who are building multi-family and hospitality properties, consider the following. It’s unlikely your tax, financial and construction advisors are taking all of these strategies into account.
Build with Green Zip Tape. By doing so, about 10% of your construction costs will move from 39 year life to 5 year life allowing you to take bigger depreciation deductions earlier. This is above and beyond what you would normally get with cost segregation. $10MM project might see an additional $1MM in 5 year life. At a 35% tax rate that’s $350,000 in income tax savings or deferral. No brainer.
Utilize 263(A) if you qualify. This allows you to EXPENSE indirect costs associated with the construction of your building. This works for self constructed assets. Must be a small business and fall under the government requirements (about $30MM in revenue or less). Can’t be a syndication. If you are building this for your own investment or own use, look into it. $10MM project could see 10-15% written off as EXPENSE and not capitalized. Also can be utilized in a tax year prior to your building going into service – say you started construction in 2024 but won’t finish and go into service until 2025…you an write off some of this on your 2024.
179D – Energy Efficiency Tax Deductions….this is for buildings with 40,000 SF or more (our requirement – not the government’s). We say 40,000 because there’s a cost vs the deduction analysis. At 40,000 it definitely makes sense. It might work at 30-35,000 SF. Might see a deduction of $.88/SF to $1.16/SF…could go all the way to $5/SF but many hurdles for that. Let’s call it $1/SF…that’s a $40,000 deduction for a 40,000 SF building. Nice thing is this deduction essentially comes out of the 39 year class life. It is not subject to potential limitations of bonus depreciation. If you’re going to hold the building, it’s also a no-brainer if you need to maximized deductions.
Cost segregation – of course this is the BIG tax deduction. Many building owners will see 20, 25, 30% of their building reclassified to 5 and 15 year life giving them a massive up front deduction. Without cost segregating your building, you will deduct 2.5% per year of the building cost (1/39). $10MM building cost could see $2-$3MM in depreciation expense moved to 5/15 year life. Depending upon the bonus depreciation rules at the time they might be able to take part or all of that either in year one or early on in their ownership.
As with all of this, please consult with your tax advisor before proceeding. If you’d like to discuss your project or any of these items noted above, please let me know. Connected with me on LinkedIn.
I follow Barrett Lindberg on LinkedIn and he is the founder of Savoy Equity Partners which invests in Opportunity Zones (OZ) properties in Dallas, TX. If you are sitting on capital gains and would like to try to figure out a way how to defer them, you may want to look at investing in Opportunity Zones. There are plenty of details you need to pay attention to and you should consult your own tax advisor. Also, I cannot personally vouch for Barrett as I don’t know him and have not invested with him. Do you own due diligence on his investments and management. He does seem to be a straight shooter when it comes to talking real estate investment and Opportunity Zones specifically. It looks like they have a long track record of multi-family investing. He seems to have a great grasp on Dallas and Opportunity Zone investments.
I am copying a post Barrett Lindberg published today on LinkedIn about deferring capital gains by investing in Opportunity Zone property in Dallas, TX. I thought it was particularly insightful on the topic.
Barrett Lindberg, Founder Savoy Equity Partners – Opportunity Zones
The stock market is up 23% over the past year and 100% since March 2020.
For many investors, this creates a challenging dilemma: you’re sitting on significant gains but hesitant to sell because of tax implications. This paralysis is costing you opportunities in other markets.
What if you could deploy those gains into real estate while legally deferring your taxes?
Let me share how we’re using Opportunity Zones in Dallas to help investors solve this problem.
Here’s our strategy:
๐ญ. ๐๐ผ๐ฐ๐ฎ๐๐ถ๐ผ๐ป ๐ฆ๐ฒ๐น๐ฒ๐ฐ๐๐ถ๐ผ๐ป
We target prime Opportunity Zone locations in Dallas’s highest-growth corridors. These federally designated areas offer unprecedented tax advantages while positioning investors in the path of progress.
๐ฎ. ๐๐ฒ๐๐ฒ๐น๐ผ๐ฝ๐บ๐ฒ๐ป๐ ๐๐
๐ฒ๐ฐ๐๐๐ถ๐ผ๐ป
We’re building boutique multifamily communities that:
โช Generate steady cash flow
โช Meet critical housing needs
โช Target the “missing middle” of the rental market
โช Create long-term appreciation potential
๐ฏ. ๐ง๐ฎ๐
-๐๐ฑ๐๐ฎ๐ป๐๐ฎ๐ด๐ฒ๐ฑ ๐ฆ๐๐ฟ๐๐ฐ๐๐๐ฟ๐ฒ
The Opportunity Zone program offers three key benefits:
โช Tax deferral on invested capital gains until 2027
โช Significant depreciation benefits during the hold period
โช Zero capital gains tax on appreciation after 10+ years
๐ฐ. ๐ ๐ฎ๐ฟ๐ธ๐ฒ๐ ๐๐๐ป๐ฑ๐ฎ๐บ๐ฒ๐ป๐๐ฎ๐น๐
Why Dallas? The metrics tell the story:
โช Leading the nation in population growth
โช Top 5 in job creation
โช Major corporate relocation destination
โช No state income tax
Our track record speaks for itself: Since 2011, we’ve developed and sold nearly 2,000 units in the Dallas market. We understand this market and how to execute successfully within it.
๐๐บ๐ฝ๐ผ๐ฟ๐๐ฎ๐ป๐ ๐ง๐ถ๐บ๐ฒ๐น๐ถ๐ป๐ฒ:
While the Opportunity Zone program runs through 2047, the window to invest capital gains closes at the end of 2026. This program has become the most successful economic development initiative in U.S. history.
This strategy works for:
โ Stock market gains
โ Cryptocurrency profits
โ Business sale proceeds
โ Any capital gains
Are you looking to diversify your portfolio while minimizing tax impact? Let’s connect. I’m happy to share more details about our approach and current opportunities.
#RealEstateInvesting #OpportunityZones
Here’s an example of how a developer who is building a $30,000,000 multi-family property can defer $1,000,000 in income taxes over the first 5 years by utilizing Green Zip Tape rather than standard sheetrock tape. The video below is 3 minutes long. Green Zip Tape works on projects $10 million or more.
Green Zip Tape leverages financial incentives to build sustainably and drive positive environmental change and will revolutionize the way you manage your real estate construction portfolio.
- Tax Savings: 5-10% of your construction costs move from 27.5 or 39 year class life to 5 year class life allowing for faster depreciation
- Environmental Impact: Eligible for up to 25 LEED Credits (17 direct, 8 indirect)
- IRS-Approved Asset Reclassification: The only tape approved by the IRS to convert interior non-load bearing walls into 5-year depreciable assets. Allows for potential wall relocation and drywall reuse.
- Improved Remodeling Process: Enables quieter, quicker, and cleaner demolition, remodels, repairs, and retrofits
Let’s connect on LinkedIn or follow me on Twitter and Instagram @costsegbuilding.
Looking for models to help you make decisions on your multi-family investments? Be sure to check out Spencer Vickers on LinkedIn. He publishes a lot of tremendous content around real estate investment and particularly in the area of multi-family investing. He is working on a number of things and I believe will have some big announcements soon about a business or service he may be offering to the public.
There has been lots of discussion and articles written about the rising costs that are starting to hammer commercial property owners but particularly multi-family owners in parts of the country. Rising operating expenses and slower rent growth are squeezing the returns many of these investors and operators had been accustomed to over the past few years. Huge jumps in insurance costs particularly in Florida, Texas and along the East Coast have investors crying for help. In Texas, they have an additional problem with sky high property taxes.
Everyone always thinks Texas is a low tax or no tax state but that’s for personal state income tax. There isn’t any. But the government has to operate somehow and a big part of their funding comes from property taxes. Residential taxes are high as well as commercial and multi-family. Here’s a helpful article on commercial property taxes in Texas.
Owners are trying to squeeze what they can out of these properties. If they have not done cost segregation yet, that might be something that they should at least evaluate. There may be some significant tax savings sitting there for them that could help them with their cash flow or just help build up their rainy day fund. We typically see that owners will save between $30,000 – $70,000 per $1 million in building cost or basis. So if they have a $10 million multi-family building, that tax savings might be $300,000 – $700,000 +/-. The cost of the study is but a small fraction of that. If you’d like to know more, don’t hesitate to reach out. We offer a no cost, no obligation quote to see how cost segregation might help you as a building owner.
Mulit-Housing News is out with their annual list of the top development firms building multi-family housing across the U.S. in 2022. There were some massive numbers put up by the top firms in 2022.
Top 10 firms are:
- Greystar
- The Related Cos.
- Trammell Crow Co. / High Street Residential
- LMC, a Lennar Co.
- The NRP Group
- Mill Creek Residential
- Crescent Communities
- The Bainbridge Cos.
- ZOM Living
- JPI
Despite the constant state of negative business news in general, multi-family continues to plough ahead with consistent development. From Mulit-Housing News, “Despite rising construction costs in recent years, multifamily development has maintained a strong pace. A recent supply update from Yardi Matrix predicts deliveries will exceed 420,000 units by the end of the year and expects multifamily completions to hit north of 430,000 in 2023 and more than 450,000 in 2024.”
There has been lots of doom and gloom about real estate ever since the Fed started to raise interest rates. And it may well be warranted. I suspect these deep pocked firms will be just fine and will weather whatever choppy market we face in the coming year or two.