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We educate investors and potential investors on the in's and out's of investing in rental property. We focus on residential and multifamily investing, but include commerical, storage, mobile home parks, and more. We interview industry experts on tax strategies, property management, vendor selection, syndications, capex, and more.
I find it in as years go by, the more selfless that I get, that's amazing how the opportunity that arise in the relationships that are fostered from Sure.
Nicholas Cook:Hey, investors. Welcome to the retire on rentals podcast. I'm your host, Nicholas Cook. And in this show, we explore how to optimize real estate investing, create passive income, discuss operational tactics, and ways you and your family can retire on rental income. If you wanna invest in real estate or currently do, then this podcast is for you.
Nicholas Cook:Alright. And today's guest is the man, the myth, and the legend, Jonathan Frizzell. He's an expert in cost segregation and fixed assets. Jonathan, you're with Kevil and Kevil now?
Jonathan Frizzell:That's That that is correct.
Nicholas Cook:Awesome. Great. Well, excited to have you back on for a lot of different reasons and speak to you. You're obviously, you know, a premier expert on cost segregation. That's music to real estate investors' ears.
Nicholas Cook:Right? Whether that's commercial or multifamily or otherwise. And there's been some changes kind of on the horizon. But before we jump into that, for people who, you know, don't really know who you are, could you tell me a little bit about or tell us about, you know, your journey into cost segregation? Like, what drew you into this niche?
Nicholas Cook:I I I doubt it's something that you grew up wanting to do, and so somehow you ended up in this place. Maybe give us some quick background on
Jonathan Frizzell:that. Sure. There was a childhood friend of mine, David, that introduced you to the service back in August, September '6, and he knew I was in the hospitality industry and then I made a jump to wholesale lending up to five units and then he knew I was great with service and people but great with numbers as well. Yeah. And so I spent about two or three weeks learning about this professional service and then I started literally Labor Day week of 'six in September.
Nicholas Cook:Okay. All right.
Jonathan Frizzell:Yeah. Nineteen years ago next month.
Nicholas Cook:That's a good run.
Jonathan Frizzell:Nineteen years ago actually, what is this? This is the third? Yeah. It's it's gonna be it's gonna be nineteen years ago tomorrow. There you go.
Nicholas Cook:Congratulations on the anniversary and the profession. Thanks. Cool. So for people who are not familiar with cost segregation, for some people, this is, you know, still a new topic, especially people even who've been in the business for a long time. Maybe you could just break down in simple terms, like, what cost segregation is all about.
Nicholas Cook:Like, what does it mean? Just in,
Jonathan Frizzell:you know, kinda high level view for people. Well, it's an acceleration of depreciation, and how you go about that is by reclassifying assets into smaller depreciable lives, most commonly five and fifteen year. Single family and multi family properties are in a twenty seven and a half year life. All other commercial property is in thirty nine year. Technically STR, short term rentals.
Jonathan Frizzell:Things have changed a little bit since last time
Nicholas Cook:you were 90.
Jonathan Frizzell:A big Whole
Nicholas Cook:new industry.
Jonathan Frizzell:Yeah. But short term rentals technically should be in thirty nine year. LTRs, long term rentals should be twenty seven and a half. But I'm gonna carve out into some in some cases, hundreds of pieces, depending how large the property is, into five and fifteen years. And whatever's left over will be in the in the section code.
Jonathan Frizzell:And forgive me for the acronyms, they are anything $12.50 real property. Whatever's left over will be back in the longer life buckets. It's also, and something we can talk about again, we haven't for many years together, about how you can use it as an asset management tool too because then you're gonna know the value of the roof or the RTU or the HVAC or what what have you. Yeah. And then when you replace it, you get to write off the remaining capitalization, but I'm getting ahead of myself on that with you, but that's something else to think about for insurance policy.
Jonathan Frizzell:But at the end of the day, you're accelerating the depreciation. Your IRR, your internal rate of revenue is always gonna go up, and even your debt coverage ratios on acquisition is you're breaking that out. Yeah. But I can't I can't touch the cap rate cap rate and don't want to.
Nicholas Cook:Sure.
Jonathan Frizzell:Yeah. But that's basically what it is. I mean, with the risk of oversimplifying it.
Nicholas Cook:Okay. No. That makes sense. So, you know, ultimately, the benefit of bringing depreciation forward into shorter terms is you get to take the benefit sooner than later. Right?
Jonathan Frizzell:Is that That's correct.
Nicholas Cook:The idea.
Jonathan Frizzell:I wish they would have taught that in in, you know, in the South Public Schools or even at the University of Washington. You know, the dollar today is always worth more today than it will be tomorrow.
Nicholas Cook:Yeah. Time, value, money.
Jonathan Frizzell:Time, value, money. Absolutely.
Nicholas Cook:So what are some of just kind of examples for people just so they can kind of understand it? You you kinda circle around it a little bit. But some of the biggest tax, you know, savings opportunities that cost segregation can unlock in real estate.
Jonathan Frizzell:What do mean by, actual real estate type?
Nicholas Cook:Well, just in terms of, like, you know, if I own a building, like, what is, like, an clear example of where it's like, hey. This study can save me money.
Jonathan Frizzell:Gotcha. Well, let's go with the the the short acronym, reclass, which means reclassification. Okay. I can give you the combination of the five and the fifteen year percentage wise of that basis, then we'll bring in and answer your question. But, you know, if you look at self storage facilities, whether they're room temperature or not, you're looking anywhere from 25, 30 to 45% of that basis is gonna be reclassified into smaller lands.
Jonathan Frizzell:If you want a multifamily, you know, class B or C surface parking, you're looking anywhere from 27, 28% reclass to about 35. What does that mean? Well, depending on what an owner's, you know, their tax rate, you're still looking, rule of thumb, about seven to 10% for every million dollar basis. Okay. 70 to 100 k.
Jonathan Frizzell:Know, you can comfortably, but then from a depreciable standpoint or acceleration standpoint, you can go as low as roll lean, underutilized, maybe some light industrial, some light industrial really produces good yields, but it's a pretty bare, you know, I mean, Yeah, as low as 18%, you know, and then you go as high. I think my record is, I don't know, 49.5 or 51.5% on the basis.
Nicholas Cook:So, but
Jonathan Frizzell:yeah, it depends on But you know, the naked eye deceives us because there's a lot of things that we're estimating that go beyond the naked eye and the walls. This includes electrical as well.
Nicholas Cook:Yeah. So, yeah, that's interesting.
Jonathan Frizzell:Yeah. So in other words, the property doesn't have to be sexy to get a high yield. Sure. In fact, some of the least sexiest properties out there perform I have some pretty high yield, especially manufacturing light industrial and interior because of the heavy electrical, the hydraulics.
Nicholas Cook:Oh, yeah.
Jonathan Frizzell:But that goes for just a lot of different self storage again. You know, if it's room temperature or controlled temperature, HVAC that normally is in thirty nine year with the IRS quote unquote business activity, the HVAC is specific to a business activity, it becomes personal property. And then then you have units or a combination thereof or different buildings, they have to break it out.
Nicholas Cook:Got it. So this is something that applies to new and existing assets. So whether you're building a brand new building or you're acquiring something that's existing, you can run a cost segregation study.
Jonathan Frizzell:That's correct. It finally became part of the IRS code in 2004, cost segregation. It goes back to the late eighties is when that term came up, and it stems from Tip O'Neill and President Reagan, the Tax Reform Act of '86. It used to be called, a very distant cousin, a non engineered service called component depreciation, but that all went away in '86 with Tip O'Neill. And then of course major court cases with Walgreens and Hospital Corporation back in the nineties.
Jonathan Frizzell:So the IRS finally made it part of the code and I think it was in 2004. I used to have the ref proct memorized but I don't anymore. But the the good news is is that, you know, if you're gonna be a long term holder of at least five, six years or longer, it makes sense to do it. Yeah. So you can pay down the principal or go buy another property or give your property manager a raise or what have you.
Nicholas Cook:Whatever it happens to be. So maybe you can just walk us through a little bit of what the life is like for someone like you, just cost segregation. I mean, you know, everyone kinda knows what a home inspector does, right, or a property inspector. They're out there, you know, crawling around, climbing around, doing that kind of stuff. How does this, like, actually work in real life?
Nicholas Cook:I mean, are you just kind of do you need to go on-site? Do you need building plant? Like, how do you do what you do?
Jonathan Frizzell:Well, what we do, you know, in our world, too little is too little, enough is never enough, and too much is about right. So when I'm doing that discovery before, during, and after engagement Yeah. And it's never ending, and you know about that from a forensic. I mean, it's just constant discovery. That's all we're doing all day long.
Jonathan Frizzell:And then I can I'm gonna do an on-site or one of my engineers are gonna do the on-site visit. I normally do those. Now there are some wiggle room during COVID
Nicholas Cook:Sure.
Jonathan Frizzell:Because of the obvious what was going on there back in 2021, but there's no more wiggle room on that. And the IRS ATG, audit techniques guide that's open to the public, do want a qualified professional to actually do the on-site. So to answer your question, once I've gotten all the docs that willing to make an effort to give me, I know they have, sometimes they have more, but they can't find her, maybe it's an older property, and there's always a reason. Sure, yeah. That's a separate podcast.
Jonathan Frizzell:And so what happens is that at the convenience of the property manager and the tenant, I gotta have happy tenants, happy property managers, happy owners. So we want to schedule an on-site visit And the first thing I'll do is I'll take some good full money shots for the cover of the study because I've forgotten them because I get so wrapped up right away to start counting. And that's what I'm doing. I'm quantifying and counting and I'm also documenting with my camera whether it's, I mean, we'll start with the parking lot, wheel stops, drainage, you know, light poles, how many wall packs do we have on the building. It goes on and on and on.
Jonathan Frizzell:So, and then, you know, it's not in The US constitution, but, you know, it should be, but all commercial property, not all suites are created equal.
Nicholas Cook:So per
Jonathan Frizzell:the final change of property regulations that became final in late twenty thirteen, 01/01/2014 final, know, want IRS wants UOP, which is the acronym for units of property. So you have to treat each suite, not not to be not to be confused with each you gotta create your own units of property in the building envelope. Yeah. But we gotta do that with the suites as well.
Nicholas Cook:Okay.
Jonathan Frizzell:And so I gotta visit each suite, so I always tell my retail clients, it's paramount important that, you know, can your CPM or your RPA or can your your property manager be on-site with my engineer or myself to ensure a 100% success rate? Yeah. Because I don't wanna be asking to take pictures because we couldn't get in there. So it's important that we have that 100% success because it's it's in the benefit of the owner. And then so I try to bond with the property manager that we both have the same client, the owner.
Jonathan Frizzell:Yeah. And we're trying to we wanna be in their best interest. So, anyway, that's what I'm doing. I, you know, whether it's cable or DSL. Sure.
Jonathan Frizzell:You know, lighting, and we get into primary and secondary, lighting and plumbing, electrical. You know, primary is structural twelve fifty code, long lives, you know, specialty in nature, secondary is twelve forty five personal property. So unlike in multifamily, I'm looking for drop down pendants, sconces, you know. Yep. You
Nicholas Cook:guys are itemizing this stuff. I might
Jonathan Frizzell:take a picture of that. And I'll, you know, landscape irrigation or is it this through hoses or is it piping? Gosh, I could go on forever. There's hundreds of thousands of things on that. And, you know, it's interesting.
Jonathan Frizzell:It's a practice just like a doctor or a dentist. Every time you're doing it, you know, you get I mean, I've been comfortable for many, many years in what I do, but it's amazing. You know, you just it it almost becomes second nature. Like retention ponds. You see they're real big in the South.
Jonathan Frizzell:You see them here. Now more and more and, you know, that's fifteen year land improvements all day long, but now they're doing retention ponds underground. I don't know if you've seen
Nicholas Cook:much Oh, of interesting.
Jonathan Frizzell:Yeah, it's very interesting. Maybe because dirt's getting more expensive per square foot, but they're laying down water retention ponds underground. It's really you see a lot of that in Bellingham. I just did a ton of townhomes for an existing And so just when you think you have it down, you don't. You don't need to see a retention pond with a naked eye.
Jonathan Frizzell:It may be under your underground.
Nicholas Cook:Yeah. Well, you're always learning. I I think property management is very much very much the same way. I'm always discovering new things despite, you know, being in real estate twenty years and property management seventeen. But one one quick second.
Jonathan Frizzell:I'm gonna
Nicholas Cook:turn on these lights.
Jonathan Frizzell:Really appreciate These ones are You're handling that a lot better than I was. Yeah. In fact, you know, I I may have to patter myself over you. You're you don't let that bother you. And I've and
Nicholas Cook:Yeah. Those ones are they're they're sensor based and sometimes for whatever reason the sensor likes to not play nice. And then it so I just leave these on because if they go off then it keeps the light consistent.
Jonathan Frizzell:Oh, that's fine.
Nicholas Cook:My maintenance guy is supposed to look at that because they're supposed to be set up to never turn off because but I think it's some it's like the sensor pattern or something like fatigues with it. It's it's kinda hot.
Jonathan Frizzell:But Maybe it's my maybe it's my my quiet inside light. Yeah. That's cool.
Nicholas Cook:Yeah. This will definitely help with the lighting, though. But okay. Cool. So, you know, so you're basically, you know, getting, you know, drawings.
Nicholas Cook:You're getting all the information you can on a property. You're gonna go walk it. You're you're working with other trades to kind of unpack that, like an engineer or something like that.
Jonathan Frizzell:Yeah. Well, we well, we all our stuff is in the house and
Nicholas Cook:Okay.
Jonathan Frizzell:That, you know, I've you know, there's been a few recovery to pray pray you know, people who do appraisals that are cost seg. Yeah. But mostly it's construction. Now, you know, the Kebel family, if I may
Nicholas Cook:Yeah. Absolutely.
Jonathan Frizzell:Yeah. They're John Kebel the second, the patriarch, which is my business partner's son and also his older brother, Orion. You know, my competitors, I belong to the American side of Cost Segregation Professionals, and when they found out that I had joined Kevin Kellow, maybe principal, said, Hey, man, How'd you find out about them? I said, You know, that's John. He's the godfather of CASE.
Jonathan Frizzell:And I almost didn't believe him. I knew about the name. Sure. You know, I worked with the youngest at CBRE Group, Casa Sergei Gage Group at CBRE, but he's a recovering architect, believe it or not. And so he knows his blueprints and drawings, obviously.
Jonathan Frizzell:Yeah. He's been doing John Kebel the second, his father, I think he's almost 80. Beautiful fellow. He's been doing fixed asset review since '81 with the big four. Even before the tax reform at 86.
Jonathan Frizzell:And then he started his own firm in 2001, which is still one of the longest standing cost seg providers, excluding the big accounting shops, KPMG or
Nicholas Cook:whatever. Sure. Or, you
Jonathan Frizzell:know, Moss Island, which is golled up by let's forget the name of it, it doesn't matter. But they're Deloitte and all
Nicholas Cook:the of Deloitte.
Jonathan Frizzell:Yeah. And all the rest of them. But yeah. And so so both sons have been drinking Kase Kool Aid since high school.
Nicholas Cook:It's in their DNA.
Jonathan Frizzell:Yeah. It's in their DNA. Would you rather have some construction background, construction engineering? Civil engineering is important. Sure.
Jonathan Frizzell:Even I didn't even knew when I worked with it was a structural engineer. But, yeah, to your point, there's there is a lot of people working on their kitchens on this industry. We'll get to that to another
Nicholas Cook:another time. Yeah. I do wanna definitely talk about that. But just kind of, you know, staying on this, you know, kind of introductory lesson here on some of the cost segregation. One of the terms that people hear, you know, is bonus depreciation.
Nicholas Cook:Can you maybe explain that a little bit? Because, you know, again, it's just we hear these terms, people don't necessarily know what they mean or how they apply. So obviously, you're the
Jonathan Frizzell:only Certainly. Bonus the genesis of Bonus started in 2002 by President Bush in Congress, but it was really retro back to 09/11. 2001 when all hell broke loose in New York to kick start the economy. And what makes it unique in the fact, when the way it was written back then, bonus is defined as ending twenty years or less in depreciable lives, But it was only for TI's leasehold improvements and new construction. And then the first term of President Trump, I never thought I would see it in my lifetime, but he actually got it through Congress on acquisition.
Jonathan Frizzell:Oh, yeah. Which was huge. Yeah. I mean, you remember back in the day. And then we'll certainly get back to July 4 what happened here recently when you're ready.
Nicholas Cook:Sure.
Jonathan Frizzell:But a 100% bonus is defined as anything twenty years or less, which the most notably in the reclassification or I'll call it reclass, is five and fifteen year. And then of course we've had them scaled down. It's sunset at 100% bonus I think and it was at New Year's Eve at 20 '2 and then, you know, eighty, sixty, and then until things recently changed. Yeah. But bonus is very powerful and I always tell my clients, I ran across one only, thankfully just one only.
Jonathan Frizzell:I don't know why the elected out of bonus depreciation, but she never let out because it's hard to get back in when she let out.
Nicholas Cook:Oh, that's good.
Jonathan Frizzell:You do nothing or do a LACT. Do nothing or or a lack. Yeah. But don't ever lack doubt. But a 100% bonus is very powerful.
Jonathan Frizzell:You know, if and whatever whatever you don't use, you don't lose.
Nicholas Cook:Oh.
Jonathan Frizzell:You carry that forward. Things have changed since last time you and I talked. Yeah. But there's but you carry it forward. There's no no no no net operating loss and a three year carryback that we like to used to be in o eight, o '7.
Jonathan Frizzell:The good news is, you know, whatever you don't use, you don't lose.
Nicholas Cook:That's great. That's great. So for people who are, you know, their ears are perking up about this, and they're like, oh, maybe I've got a building that, you know, has been in the family for a while, or maybe it's something that they're building now. What is this typically cost? Like, who's the audience for this type of thing?
Nicholas Cook:Is it, you know, a pretty is it a big opportunity for people, or is it really kinda more specialized? What can people expect to pay for something else study? I'm sure it varies based
Jonathan Frizzell:on size of
Nicholas Cook:the asset and all that. But
Jonathan Frizzell:Yeah. You know, it varies on the on the size of the property. I mean, the median is a range. I've done a lot of small properties because of the advent of STRs. Mhmm.
Jonathan Frizzell:And I work all over the country. Did 51 single, 52 single families in Arkansas. That's where I met fellow CCIM.
Nicholas Cook:Oh, interesting.
Jonathan Frizzell:And basis was smaller and of course I had economies of scale where, you know, I just sent my guy out there for five to six days and that's all he's doing is visiting these little smaller homes, but it worked out well for the client, the referral source, and I also do his properties as well. You know, I find it as years go by, the more selfless that I get, that's amazing how the opportunity that arise in the relationships that are fostered from that.
Nicholas Cook:Sure.
Jonathan Frizzell:And to answer your question, it's usually 5 to as high as $10.
Nicholas Cook:Yeah. So these definitely pay for themselves. I mean, they may
Jonathan Frizzell:have savings All way big time. Yeah. And I don't charge on estimated savings. I don't believe in that. Plus the IRS frowns on even the big four to get away with it all the time.
Jonathan Frizzell:But, you know, I mean, I had a you know, I'll look at you know, a lot of they say you need a million dollar basis or 800 k or 500 k. Mhmm. I'll look at smaller. I mean, I'm nothing more than a a son and a grandson of a a shopkeeper, small business. So I grew up in a small house.
Jonathan Frizzell:I'm still in one. Yeah. So, you know, I I like working with smaller investors. I try to tell my when I was recruiting years ago in 1413 to create a team in Oregon. And of course, nobody listened.
Jonathan Frizzell:But, you know, I had to learn the hard way myself, by the way. Yeah. You know, when you're out picking apples, you know, it's okay to fill the basket with Granny Smith's because the basket's full. Yeah. And the Red Delicious and the Jonathan and the apples and the Fuji and the Gala, The cut was it the Cosmic Crisp?
Jonathan Frizzell:Think it's Yeah.
Nicholas Cook:That no. Yeah.
Jonathan Frizzell:That is it.
Nicholas Cook:That's a new one.
Jonathan Frizzell:Know, those are fine and dandy. Even organics, you know, they want they want more money per pound for those. But at the end of the day, your job is to bring value because big deals never come from big deals. Big deals always come from smaller deals.
Nicholas Cook:Yeah. Absolutely.
Jonathan Frizzell:You know? And so a guy like me had to learn that. It took a little longer back in o six, o seven, o eight, but it's generally 5 to 10,000. But I've worked in economies of scale where I've got quite a few properties and it's gonna be less than that. But I just I wanna make sure that my engineers get paid and that maybe I'll get a candy bar afterwards or something.
Nicholas Cook:And yeah. So, you know, obviously, you mentioned engineers, and so you're working with engineers who are helping out with this part. Do have any examples of maybe, like, fun or unexpected, like, reclassifications you guys came across for something maybe like a you you mentioned landscaping before where you're just like, wow. We didn't realize there's gonna be savings here. And it I'm you know, you do this day in, day out, but, you know, I'm sure there's some moments that, you know, shifted your thinking or surprised you.
Jonathan Frizzell:Well, it's a good the one that comes to my mind is for a client in Kitsap County, which is where I live up. I'm a ferry ride away from Seattle and highly, you know, respected client who continues to come back to engage with me. They had a veterans outpatient and it was very involved and there was quite a bit of IT in there as well. And it was suit to bill, build to suit. Okay.
Jonathan Frizzell:But I thought, you know, it was mostly gonna be seven year. And then of course it was a government tenant. So then you get into ADS, alternative depreciation, so five year is really ten year.
Nicholas Cook:Okay, yeah.
Jonathan Frizzell:And then 15 is really 20 and '39 is really fifty year. That's called alternative depreciation. That's for nonprofits in any kind of government agencies that are tenants. Well, and I can't remember the specific code, but we worked out the discovery with the engineers in the back office. I think that's when I was with CBRE.
Jonathan Frizzell:I'm pretty certain.
Nicholas Cook:It depends on what year, but you might
Jonathan Frizzell:have seen Yeah, what year it was. But we ended up getting that all in the five year, and that was a big pop.
Nicholas Cook:Yeah. And
Jonathan Frizzell:that and, you know, and that was something I learned on the job with humility because I know that's a government, that's a federal government tenant. Yeah. And I know that come hell or high water, that's on ADS, and whoop, there goes the carpet right underneath my feet there. So that's something that pulled out nicely. And so I rely heavily, not as much as I used to, but, you know, I rely on the back of the house to find that kind of stuff.
Jonathan Frizzell:My job has not really changed since 'six. I've always been, as you probably could gather, pretty hands on. Yeah. So I'm one of many hats And, you know, I found a team the last several years and including with the current brand that I'm with now, now I'm an owner as principal, is that you know what engineers really like, Nicholas? Certainty.
Jonathan Frizzell:They that that is correct. They do like certainty. That's good. That's that's correct. They love somebody from the other side of the aisle to go ahead and just do all the discovery, all the clowning with the client, trying to get docs out of them and
Nicholas Cook:The relationship.
Jonathan Frizzell:All the relationship, all this. They just wanna do the work. Got it. Yeah. They they want the entree given to them or maybe set up an introduction to do for them to do the on-site visit.
Jonathan Frizzell:But guess what? The everything is there. They don't wanna have to look for it. They don't wanna have to ask for it. Yeah.
Jonathan Frizzell:And I thought and I didn't it took me years to find this out all by myself. Wondering why I was getting along with John Keller the third so well at CBRE and then later working with his family, which is my I wanna we're going on record here. That's my last stop. And I, you know?
Nicholas Cook:Yeah.
Jonathan Frizzell:And I really I got to understand and I kinda knew it subconsciously, but it really became an moment when we started working more and more together and working with the Kebel and Kebel brand as well. Is that not to oversimplify, but they just wanna do the work.
Nicholas Cook:Yeah.
Jonathan Frizzell:And, you know, that sounds it sounds pretty right and pure. Just wanna do the work. They don't wanna have to talk about it. They don't wanna they just wanna do the work. And so I'm hell bent, Nicholas, and and I've been that way imperfectly early in my career.
Jonathan Frizzell:But, you know, from the not only the relationships, origination, engagement, and all that, and but the discovery, you know. But I like, last night at eleven I was looking at a federal tax depreciation schedule referred by a CCIM broker, I've known forever, when I was in wholesale lending and he was on the retail side of lending back in o four. And he gave me a client who used to be a Washington resident, now an Idaho resident, kind of a common thing.
Nicholas Cook:Seen some flight from some areas. Yeah.
Jonathan Frizzell:Yeah. And but he's got some property in Seattle. He's got this property in Bellingham. And I know it's new construction, but he didn't tell me that I mean, I know it's an acquisition, but I thought it was raw dirt. Well, there was a Latino Mexican restaurant there.
Jonathan Frizzell:So I'm reading this from biblical, like scrolls. Reading this federal tax depreciation schedule goes back to 'six, 'seven, and I'm trying not I'm hell bent, you know, from May till seven at night and it happened to be about 10:30, eleven last night. I don't wanna double count. I don't wanna undercount, but I gotta know what it is. I have to know.
Jonathan Frizzell:And you know, you wanna know was it was it Rod Dirk that was acquired? And you look at Lambases. Anyway, the client got back to me about quarter to seven this morning on the phone, the Ernie Riser, our time. And so he told me what the purchase price was, and then of course the construction I'm gonna cost. So we're trying to determine it.
Jonathan Frizzell:So that gives you an idea. That's just one little part. Yeah. I mean, and so when I and when I, you know, I don't have any blueprints and drawings, then there's a thing, reverse engineering, where I have to go to the outside looking in. And then, of course, we use spectometry and then we have ProGoogle Earths.
Jonathan Frizzell:Of course, we're looking at the property as well. If I'm doing the on-site or somebody else is, one of my engineers. So but it's it that's that constant. And then, you know, I joke about it with my back office. You know, I do the best I can.
Jonathan Frizzell:I don't know what I don't know, but it's a pretty nice entree for them to look at the team and to go and just do the work. And I didn't realize this. It was a very humbling with the risk of me repeating myself. They just wanna do the work.
Nicholas Cook:Yeah.
Jonathan Frizzell:And, you know, that that sounds sounds pretty good, but it's true. Yeah. And why in hell couldn't I figure that out in o six? They just wanna do the work.
Nicholas Cook:Yeah. Well, that's kinda, you know, maintenance is similar to that. We've got maintenance guys on our team and, you know, they don't wanna go look for the work. They want it to be handed to them. This is what we need to be doing, and then they love doing the work.
Nicholas Cook:They love doing the repairs. Mhmm. And so, yeah, you've gotta you know, obviously, it's part of a total ecosystem. You know, you've gotta have some some complimentary skills and supporting skills and so forth. But Absolutely.
Nicholas Cook:Yeah. I mean, it sounds like you're doing a lot of, you know, work up front, though. But I imagine, you know, you guys wanna get it right. Right? Because if, you know, the IRS questions a study, you've got to defend that.
Nicholas Cook:Right?
Jonathan Frizzell:You gotta defend that. Yeah. And I always say quietly, you know, we're only as good as our client. And, you know, I I and I try at at least at bare minimum anyway. Yeah.
Jonathan Frizzell:Terms of
Nicholas Cook:them giving you the right information.
Jonathan Frizzell:The right information and documentation. You know, it's yeah. It's interesting. I without mentioning names or product type or even state, there was a client that, you know, was rubbing his nickels and Sure. Yeah.
Jonathan Frizzell:And was was, you know, wanting to take the pictures or just pull them from the appraisal and
Nicholas Cook:Oh, yeah. And trying
Jonathan Frizzell:to Yeah. That's that's a tough deal. Because, you know, I I really I review I I mean, I get on the ATG out of techniques got IRS at least quarterly. Bare minimum biannually, but I'm I'm on that quarterly looking at now that you take time stamping. When I first started in o six, there was no time stamps.
Jonathan Frizzell:During the recession in o eight, they started time stamping, you know, in your revisions or whatever. Yeah.
Nicholas Cook:It's actually helpful.
Jonathan Frizzell:Yeah. Yeah. Is because it gives you a streak. Yeah. They needed you back in o six.
Nicholas Cook:Yeah.
Jonathan Frizzell:Yeah. There's no time stamps on anything. It's weird. That's changed. But yeah.
Jonathan Frizzell:I mean and, you know, it's it's wonderful. It's very powerful. It's any it's in any kind of real estate that's in a for profit entity. Not to be confused for not for profit. You know, credit unions and medical insurance providers, their buildings, believe it or not, not for profit.
Jonathan Frizzell:Yeah. Their buildings are held in a for profit status. I know if you knew that or not.
Nicholas Cook:No. I didn't know. I mean, that makes sense so they can take advantage of it.
Jonathan Frizzell:Take advantage of that. I
Nicholas Cook:did a big big big big
Jonathan Frizzell:campus when I was at CBRE. The office broker was a paternal buddy of the CEO of a very big medical insurance provider, and it was quite was quite an it was $7,580,000,000, but it was very intricate and Pegahus, yeah. And so I was happy to do that. We did our section 170 E PAC study which we can maybe talk about later, energy study, energy efficiency study
Nicholas Cook:as well.
Jonathan Frizzell:But I, you know, I don't wanna get in the way of your questions there, so sorry about that.
Nicholas Cook:No. You're good. You're good. Definitely. So, you know, how would you say like, do people use, you know, this concept, people who are maybe more well versed with just the the ideas of cost segregation, do you see that influencing how people, you know, renovate or, you know, adapt to reuse of like, you see that change people's behavior ahead of time before they even have the cost segregation done?
Nicholas Cook:Meaning, you know, you've got some clients who they own the building, now they're doing this because they've owned it for a while, and there's other people who are like, because I know this, I'm gonna do things differently.
Jonathan Frizzell:Well, lighting can be if there's more specialty lighting, that's gonna be a personal property in nature. Mhmm. You know you know, I do a ton of auto dealerships as well. Okay. And the skins.
Nicholas Cook:Got it.
Jonathan Frizzell:I mean, I said, you know, he always see it regardless of brand, Honda, Audi, Porsche, whoever, Chevrolet. Notice how they're always changing the look of their dealerships. That's that's driven by the manufacturer and their that are that are beholden by the bylaws as the franchisee or as the owner.
Nicholas Cook:Yeah. I've seen a couple of those happen just recently, actually.
Jonathan Frizzell:Yeah. And so, you know, they they qualify another acronym, QIP, qualified improvement, which is that's back when President Trump's first term, but that's automatically fifteen years. But yeah, you do see some more accents in different components if the architects and some architects are familiar with cost seg too. Okay. But really what I found is there's, of course, that the standards of energy efficiency have gotten so much higher Yeah.
Jonathan Frizzell:And, of course, it didn't always pencil out twelve, fourteen years ago. But then and, of course, during this, you know, the boom that we had, a lot of tenants were requiring it, whether it be Facebook, Google, because they can afford the
Nicholas Cook:Yeah.
Jonathan Frizzell:The dollar per square foot on that. But
Nicholas Cook:Well, man, one of the things that we're looking at here in Oregon that they're wanting to implement, we'll see how far this gets, is that they want to mandate that landlords provide cooling in their properties, which, you know, if you're building new, okay, that's gonna cause rents to be higher, which is part of the affordability problem. So that's kind of an interesting take. But this would also apply to existing buildings, and some buildings are not designed for this. But this might be something like, you know, if somebody had to go install a bunch of, like, PTACs or heat pumps, could they use cost seg for those types of improvements?
Jonathan Frizzell:You know, it's it's a great it's a good question. So, you know, I just did finish one up. Actually, finished two up. Same owner, different tax entities, same property manager, same broker. Know, they wanted to get rid of the tenants they had or have, and they want to attract the ones they've got and retain the ones they have.
Jonathan Frizzell:Major HVAC. And even though they had existing, it was a big number to get it done. And so we'll do the cost seg study on the property. They're gonna find out the value, whether they can find the study or not. They can take right off the old one.
Jonathan Frizzell:Right? This is the back of the old TPR, Tangible Property Regulation days. Okay. Back in 1314. But she gets to write off the remaining capitalization of that old HVAC.
Jonathan Frizzell:But far as buildings that don't have any existing HVAC at all or any kind of air of any kind, that, you know, it would still be considered section code twelve fifty rail. Okay. For the exception of server rooms and self storage at room temperature because that's specific to business activity.
Nicholas Cook:Got it. Okay.
Jonathan Frizzell:But you can still squeeze, I call it, call it squeezing. You can still squeeze the building though and do a cost seg setting, that may very well pay for the HVAC. Yeah.
Nicholas Cook:You know what I mean? That's a point.
Jonathan Frizzell:It's another way to look at it. That goes for rooftops and membranes as well, roofs. You know, repair versus replacement. Know, you can write off the remains remaining capitalization of a roof when you when you put in the new roof. So
Nicholas Cook:Cool. So, you know, we've talked a lot about kind of just kind of the general overview of what cost segregation is and some of the benefits of that. Obviously, there's always two sides to every coin. There can sometimes be, you know, drawbacks or pitfalls. Is there anything that comes to mind that, you know because investors like simple things.
Nicholas Cook:Right? They like predictable things. Are there things that you would advise people, you know, that they should be doing to prevent potential headaches where, you know, you show up, you're working with a client, you're like, man, if you had done this, then this would have been a lot easier. Or, like, what are some kind of challenges and things that come up in this
Jonathan Frizzell:Well, it's interesting you say yeah. You asked that. So, you know, you don't they say, oh, they say don't shoot the messenger, I guess, is what they that's what they say.
Nicholas Cook:They do say that.
Jonathan Frizzell:They do say that.
Nicholas Cook:The messenger still seems to get shot regularly, unfortunately.
Jonathan Frizzell:I'm trying to remember that old Elton John album, don't shoot me on the piano player or something like that. '73, '74, '72. Whatever you know, what happens is, and I try to do it as quietly as I can, just to let them know going forward, you see some pretty good sized numbers depending on the size of the scope of the product, the real estate, the building, But, you know, the sizable numbers are always gonna be HVAC and rough. When I say always, almost always, 909% of the sometimes it's not just o six, o eight, or twenty seventeen, 20, It's just it's on a closed this goes back to TPR, statutory regulation. It it was like last year, and it's already been filed, the return.
Nicholas Cook:Oh, yeah. And so,
Jonathan Frizzell:you know, the IRS allows you per the final tax part regulations in an open tax year that has not yet been filed, you know, you can write off the remaining capitalization of that roofer HVAC system and get it off the books. Let's say it's only been, that it was bought three years ago and it's been on the books for three years. Well, 36, thirty ninth of whatever value that we're gonna place at as a result of the high quality cost saving study, you get to expense that and take this bone, this head it right down there, and that's an expense. And then of course, yeah, go ahead and capitalize the new HVAC at 39 year. So that's society is another one that can be a big number sometimes.
Jonathan Frizzell:Mhmm. And so, yeah, that's a great tool. Got it. So
Nicholas Cook:when you get a cost segregation study and you've kind of broken these things out into the different components, five, fifteen years, stuff like that, Do people ever, just for strategic reasons, say, well, I'll I'll utilize these five year items because that's gonna serve us well based on our projected, you know, income, but these fifteen year ones are probably gonna hold off on because we're doing it. Like, are you able to to do that kind of, like, pick and choose from the list how you might wanna apply something to a return, or is that more of a CPA question?
Jonathan Frizzell:Well, it could be a Jonathan question, but it's gonna be a it's gonna enrolled agent CPA or tax professional activity.
Nicholas Cook:Got it.
Jonathan Frizzell:So what I'm finding is, and we just had a presentation at Oregon CCIM chapter, know, Jonathan McGuire at Aldridge,
Nicholas Cook:CPAs,
Jonathan Frizzell:and he's also a fellow sponsor. He talks about some of these real estate professionals that are starting to do Section 179 to expense it, right? Yeah. Well, the 100% bonus is a new point, especially if it's twenty years or less, but you know, we'll do a high quality cost segregation study with wonderful backup detail and then it's only going to be our business and what they do with it. Now if a look back study, the IRS calls them look backs, I call them catch up studies, one year or more, We'll calculate the four eighty one adjustment and then do the eight pager, the change in accounting method 3,115, draft that up, and then draft it all up, and then to make sure our calculations are correct, and then they just fill in the LLC and we'd answer all the SMO questions for them and stuff.
Jonathan Frizzell:Got it. But the bottom line is that, you know, got a lot of clients, know, at truck stops and C stores and gas stations, they get special treatment, provide one of the bright line tests the IRS says 51% or more of petroleum activities. Well, it's all five and fifteen year, and I tend to have two buckets of clients, one a little bit more than the other. I said, well, if it's all five and fifteen year, I guess we don't need you, right? If it's a 100% bonus year, it's expensive on that acquisition.
Jonathan Frizzell:Or if it's a five, seven, eight, nine, ten year and they for some reason stuck at 39, which is a gross misclassification by the way, especially with that type of But I'm finding a my lot clients, East Indian and Egyptian clients that have a lot of these type of product types, they come back to me because they wanna pick and choose, which is their election, not mine. So it goes back to the
Nicholas Cook:Got it.
Jonathan Frizzell:Sewing. If it's a new acquisition or it could be even new construction, they will they wanna see that beautiful breakout detail. Of course, the summary, they'll get it too. Yeah. But they may just take the bonus on the fifteen year to protect themselves in case they get offered a big price Sure.
Jonathan Frizzell:So they can minimize recapture or capital gains. You know what I mean?
Nicholas Cook:Yeah. That So makes
Jonathan Frizzell:I always let them back in early in my career, you know, I would being so service driven and such an advocate of a client, sometimes you get in the way of yourself if you do that to the extreme, and I did by the
Nicholas Cook:way. We all make mistakes. We all learn.
Jonathan Frizzell:Well, it's interesting. If you, you know, you try to keep the client happy. Yeah. But sometimes you're muddying the waters of the application of the study all by itself, but I have one client that says, well, you don't have to put that in there. I'm gonna owe section one seventy nine then.
Jonathan Frizzell:I don't expense it. And then, you know, eeny, meeny, miny, moe, and it becomes a hot mess. How about if I just do my job? You know? And then I'll present it to you, and then you do whatever you want with it, which will be always your business or your election.
Jonathan Frizzell:So I'm getting I've gotten pretty good at that the last ten, twelve years, maybe even fifteen of the nineteen that I've been in it that, you know, they can always contact us on, you know, how to apply it, but they get to pick and choose what they want. But a lot of my clients and the manufacturing home communities, which is mostly five and fifteen, if
Nicholas Cook:not all. Yeah. Makes sense.
Jonathan Frizzell:And receive stores and gas stations and truck stops. Is there any others? RV parks, got a high reclassification percentages as well, but some still want it done may just because fifteen years is good pop, especially if it's a 100% bonus. Yeah. And they may they may just line the five years instead of taking it all on the first year.
Nicholas Cook:Makes sense.
Jonathan Frizzell:So I kinda yeah. So once again, cost segregation study being used as an asset management tool, when to hoe, when to fold, to pick and choose. I hope I answered your question. I
Nicholas Cook:think Yeah. No. You definitely gave some clarity on that and just like how different users might utilize report differently.
Jonathan Frizzell:Yeah.
Nicholas Cook:You know, one of the things that, you know, obviously has become more and more like cost segregation, you said it's been around for a while in different forms. You know, I think that, you know, in the last five years, I've seen more people advertising this type of service, which is probably a lot to do with just, you know, the activity and interest rates and all this kind of stuff happening. But, you know, like anything, whether it's an attorney, a CPA, you know, not all people are created equal. And sometimes I wonder, you know, from an outside standpoint, because this is not an area of expertise I have, is, you know, are people out there practicing or saying they're cost segregation experts, but they're not? And, you know, because you again, you gotta be able to stand up to an audit potentially.
Nicholas Cook:Right? Mhmm. So have you seen that? Have you seen people, you know, holding themselves out in regard to being experts when they're not or is that not something really happens in that Well,
Jonathan Frizzell:I appreciate it. Pretty much since I started in o six, I've seen there's a lot of people working out of their kitchens and, you know, you know, it's not about selling, about and it's not even about being right. It's being correct and being diligent on what the expectations are of the IRS and of course even the tax professional as well. And but yeah, I'm seeing a lot of people claim that they're experts. I won't mention any names of my competitors.
Jonathan Frizzell:That'd be a cardinal sin.
Nicholas Cook:Sure.
Jonathan Frizzell:But or maybe not. But they're, you know, they'll they'll talk about something else. We know what they do. They they perform cost segregation studies. They're trying to drum up business, you know, and I don't I'm not an incasc engineer.
Jonathan Frizzell:I I do what I do best, which is pretty much all the front end work, I am also involved in continued discovery, you know, with the client long after engagement. But, you know, I remember a CPA telling me, he says, you know, Jonathan, this is a long time ago, when I first CCM presentations back in 2010. He says, you know, whether we like consultants like you or not, we're down on what we don't know, we're up on what we do know. And so what I always say, you know, let the bread man bake bread. So Jonathan, go bake bread.
Jonathan Frizzell:And that was and he was the other panelist, and then we had the CCIM past president that was the moderator, but he's correct on that. And so I've gotten really intimately aware of how it works behind the curtain, you know, and the application of it all. And then of course I've had a real big nice dose. I mean, I've worked with some companies that didn't, beginning of my career, didn't knock on the level of detail that we have today. So yes, you see a lot of that and I made it I kinda have an moment about two weeks before I lost my mother in 2000.
Jonathan Frizzell:I got my first large portfolio. So I was you know, it was back in May 2008 and I was grateful that she got to witness that. She thought, well, maybe maybe my son's actually gonna make a living with this because, you know, it it was, you know, 'six, 'seven, I mean, gave up a lucrative wholesale lending background, you know, I was do I was doing okay. Yeah. You know, of course, you know, that's a that's a whole another different podcast on what was going on back then, and you know Sure.
Jonathan Frizzell:Well aware of what was going on. That's wild. Might be two podcasts, actually.
Nicholas Cook:But,
Jonathan Frizzell:you know, I'm grateful for where I am today and I never say or mean anything more than what I really am or what I know. And I've relearned that at times, but I've always known that. But, yeah, you're seeing a lot of it's all about just getting see if they can get some bites. So
Nicholas Cook:maybe overpromising Overpromising and selling
Jonathan Frizzell:more than illustrating, and then they try to switch gears with a double class transmission and go into illustration, but they're still selling. And then sometimes they're getting the narrative. It's just not correct in what in what they're stating. So I do see that.
Nicholas Cook:Something that's like could be easily challenged.
Jonathan Frizzell:Easily challenged, yeah. And, you know, that's the industry, it's a complete for a lot of the obvious and not so obvious reasons. It's really changed. I mean, when I started in 'six, the level of detail was a lot different than the level of detail today that's required by the IRS. I mean, it's it's it's changed.
Jonathan Frizzell:It's a complete different product, if you will.
Nicholas Cook:Yeah. Great. Well, no. This is a great conversation. Fascinating stuff.
Nicholas Cook:It's a reunion. It is a reunion. We're gonna take a quick commercial break, and then we will be right back. This show is sponsored by SleepSound Property Management, one of Portland's largest and top rated management companies that specializes in multifamily and residential real estate. They can help you acquire, operate, protect, and sell or exchange your properties.
Nicholas Cook:If you want to invest in real estate, give them a call or visit them online at sleepsoundpm.com. That's sleepsoundpm.com. And we're back here, Jonathan. And so one of the things that I want to talk about, obviously, it's new news, but it's the big beautiful bill that just rolled out in July here. Maybe you could just tell me what's in there that you're excited about.
Nicholas Cook:Maybe it's new stuff. Maybe it's stuff that they're keeping. But, you know, for people who are listening, what came out of that bill that that you're really focused on?
Jonathan Frizzell:Well, it'd be specifically this one thing, and I'll stay in my lane and on fixed assets only. Then we'll get into r and d and and some other, you know, services. But truth of the matter, it's it's kinda it's the bonus depreciation, stupid. You know? Yeah.
Jonathan Frizzell:Yeah. That's what it is, really.
Nicholas Cook:And that was at risk of expiring or sunsetting or something like that.
Jonathan Frizzell:180 a hundred and eighty, sixty, forty, twenty. And I still can't find the discovery, but it of why they picked after I think it's after nine nineteenth or January 18. Why it had to be one of those day? Why couldn't we just make it the first? You know?
Nicholas Cook:That is odd. Yeah.
Jonathan Frizzell:After August 19. After on January 19 on any acquisitions, new construction, TIs, leasehold improvements, 100% bonus, it's been it's permanent in nature. So it's it's huge.
Nicholas Cook:That's huge. Yeah.
Jonathan Frizzell:And, you know, it's the same man, the same president that brought 100% bonus appreciation on acquisition. Know, Jonathan Maguire Aldrich, and I can say this for some disclosure, I'll and confirm it, but I'm confident he's correct. But, you know, the president Trump, that was he's the only president that's actually had two tax reform acts.
Nicholas Cook:Oh, yeah. I guess that's a good point.
Jonathan Frizzell:Yeah. Because the last one we had was '86 with Tip O'Neill and president Reagan. So it's it's very interesting. And so when I said stupid, by the way, you know, was you know, it's economy stupid. Right?
Nicholas Cook:It's the
Jonathan Frizzell:everybody, you know, everybody kinda thinks they understand about bonus appreciation. Right? Yeah. As I was 17 or 18, and it's interesting. And now it's become a common word and in some degrees, cost segregation.
Jonathan Frizzell:Cost seg has a little bit more as you in the last seven, eight years. Yeah. And so this, you know, this juicing of the 100% bone, you know, juicing and squeezing the property, it's gonna be a shot in the arm for the industry. I noticed this recently when even president Trump signed it in July 4. I mean, eventually, I am pretty certain I was gonna close the deal originated, but, you know You never know.
Jonathan Frizzell:Right away. I mean, once that was a done deal. Yeah. So it's helpful to my book of business, but it's really about the client. I've stayed pretty busy when it was ratcheting down to eighty, sixty, 40.
Jonathan Frizzell:Certainly, the 100% years, you know, it was it was an interesting shot in the arm for for many.
Nicholas Cook:Yeah. Does the 100% just mean, like, it doesn't ratchet down anymore? Is it just
Jonathan Frizzell:That's correct. Yeah. It's a 100%. Wow. And, you know, I'm I'm gonna look in the code again.
Jonathan Frizzell:When they say when they say permanent or or some or somebody else, some authority, tax authority says it's permanent, I found here in The United States Of America, nothing's really permanent, you know, for certainty. But I think it's until 2029, if I'm not mistaken. Okay. Bottom line is it's a 100% bonus, and it's not ratcheting down. You know, I try to be mindful and selfless for the client.
Jonathan Frizzell:I don't recommend a cost segregation if you study if somebody's gonna sell the property next year for the obvious reasons. You know, in the old ten thirty one rule days, you could squeeze the relinquish as well as the replacement property because it was your deferring gain, not only all gains, but also recapture or deferring twelve forty five. Well, that changed when president Trump was trying to negotiate and save ten thirty one and his advisers as, you know, twelve forty five is still recognized now in ten thirty one purchases. Okay. Once again, that's another conversation, another time, but Sure.
Jonathan Frizzell:You know, a 100% bonus is great if you can use it.
Nicholas Cook:Yeah. Yeah. You've gotta have some taxable income to Yeah. To make that worthwhile.
Jonathan Frizzell:So That's the biggest takeaway in the big beautiful bill for the most part. Everything else, there's some special applications on manufacturing. I still gotta dive into that, but the 100% bonus still applies. That's probably the most important thing on fixed assets is TI's leasehold improvements, new construction, and acquisition. Anything on or after 01/19/2025 is now scheduled and confirmed in law a 100% bonus, which is huge.
Nicholas Cook:2025 or 2026?
Jonathan Frizzell:2025.
Nicholas Cook:Oh, okay.
Jonathan Frizzell:So it's retroactive. Yeah. Retroactive. That's correct.
Nicholas Cook:2025. Wow.
Jonathan Frizzell:Yeah. Thanks for clarifying that. Yeah. And once again, if anybody's gonna do it, ask the man that's in the mobile office. I mean, it's you know, to make to make bonus appreciation that its original attention was to create jobs on T.
Jonathan Frizzell:Z. Soldapurna's new construction when president Yeah. Bush
Nicholas Cook:Serve him trades and
Jonathan Frizzell:Trades and, you know, get you know, build things. And it's interesting how that that it got passed on that. So
Nicholas Cook:That also probably catalyzes, like, energy efficiency. Right? Because if you know, maybe you can invest in a system with TIs, you can justify it or at least fund it easier if you've got the opportunity to, you know, depreciate that out sooner.
Jonathan Frizzell:Absolutely. Well, that you see you see it in different parts of the country, not so much. You see more of it in the city Northwest, Seattle, Portland, but solar panels are a big thing in California. And, of course, they're they're section code twelve forty five. They're personal five year all day long.
Jonathan Frizzell:I and
Nicholas Cook:Especially in their personal because they're attached. Right? Because, like, fixtures typically are attached to something.
Jonathan Frizzell:Well, they're fit they're fixing it up, but you can still take them off.
Nicholas Cook:Oh, yeah. And so they're considered five year.
Jonathan Frizzell:That's but, yeah, there's you know, we won't get into the so called inflation reduction act of the previous administration in congress, but, you know, they're juiced Irony
Nicholas Cook:of the title is there.
Jonathan Frizzell:The title will stay with me for the remainder of my adult life. Yeah. Yeah. But they did he juiced up some, you know, the section one, some a and b, which is an energy study. That's up up to up to $5, over $5 a square foot from the old $2.60, $2.80, $3 a square foot.
Jonathan Frizzell:And that's a different I've also got a partner had partner a company that does performs those studies partly with. And but that's another way to also get some deductions, but it doesn't have the same yield, you know, as the cost segregation study does.
Nicholas Cook:Yeah. I mean, is there anything in the bill that you've seen that you think investors maybe have overlooked or things that they should be, like, planning to take advantage of? Obviously, this maybe changes some of their improvement timelines, things like that. But is there anything that you spotted so far? Again, I know this is a very new, piece of legislation.
Jonathan Frizzell:The question. When it comes to fixed assets and real estate, the short answer is no. It's really just a bonus and know that that's back. It's a it's a it's a reunion of the the drug standard times of depreciation, '18, '19, and '20. Yeah.
Jonathan Frizzell:You know? It's it's very powerful, you know, and whatever you don't use, you don't lose. You carry forward. You know, I would like to talk if we have. I don't if we have time or Sure.
Jonathan Frizzell:Yeah. But, know, the CASEG study I mentioned earlier in the podcast can be used as an asset management tool. Yeah. And everybody I know wants the losses. They want the tax dollars.
Jonathan Frizzell:They want the tax savings. I respect that. Yeah. You're like, I honor that. But it's, you know, once the client gets familiar with the studies and they come back for more or they work intimately with a cost seg provider provided it's a high quality cost seg provider, you know, and when they work with the property manager, if they happen to be the project managers for these improvements, and 99% of the time it seems like they are, you know, you can get some of, you retire some of these assets off the books.
Jonathan Frizzell:I mean, still, I think I mentioned in the podcast before with you and your partner, but we have tens of hundreds of thousands of millions, billions of double assets on the books. So you mean by that? We have two roofs. Oh, Yeah. We got a acquired property.
Jonathan Frizzell:Let's say it's a $10,000,000 office building and it requires it's in really bad, you know, they bought it five years ago and it needs a roof and it needs a full replacement, full on, and we'll just use rough numbers, but it's a million dollars for the roof.
Nicholas Cook:Sure.
Jonathan Frizzell:Well, the remaining capitalization of that roof, five and thirty nine is $34.34 39. Mhmm. We can get that off the books, and that that can turn into significant tax dollars. There's no reason to keep it on the books. Yeah.
Jonathan Frizzell:I just we just tore it off. And so you're seeing that with small, medium, and large cap companies, privately and publicly held, that they got double assets all over the place, and they're still Got they haven't had a CAS, even if they've had a CASEX setting, there's still double assets to the book. Amazing to me. A lot of my tax professional friends, because it was heady times, as David Giffin would say, heavy times. You know?
Jonathan Frizzell:But during the temporary tangible prop regulations that started, I believe, in o nine, if I'm not mistaken, and then they finally became final in the 13 for 01/01/2014. Well, I'd tell you, thirteen and fourteen, it was Hotel California, man. I mean, we're all working and working, you know, to help out the tax professional to get these assets retired. Yeah. Boy, they made that a distant memory by sixteen seventies.
Jonathan Frizzell:It's amazing how many people don't think about that, whether it's the owners or the tax effect, because they've got other things going on. Sure. And it's a distant memory. So I'm kind of bringing that back as a friendly reminder per the final TPR's, tenant power regulations, in an open tax year, it's not a closed one. So in other words, if you were to say it's February, March '5, even though right now it's in September, and you made some improvements in 'twenty four and they're significant to that subject property, I'll quietly suggest to the client that they extend because I want to take a look at those improvements as well as the acquisition basis too, of course, whenever they bought it.
Nicholas Cook:Sure.
Jonathan Frizzell:Let me see if we can retire some of those because I don't want you to file yet because once I file, then I'm not allowed to take the dispositions. The acronyms on that, Nicholas, are PADs and FADs, partial asset dispositions and full asset dispositions. Okay. And so, you know, I don't I'm one of those guys, you know, that wants to turn over every stone. It doesn't have to be low hanging food every time.
Nicholas Cook:Sure.
Jonathan Frizzell:Yeah. You got you got two bread crumbs.
Nicholas Cook:You're thorough. That's good, Derek.
Jonathan Frizzell:You got two bread crumbs on the dining room table necklace. You know, you got one for the cookie crumbs and one for the bread crumbs. Right? Yeah. Get a nice baguette, nice put cookie when you get done with it.
Jonathan Frizzell:Right? Yeah. Yeah.
Nicholas Cook:I like that. I like that. Well, I guess, you know, for people who are eager to take advantage of these opportunities that we're kinda talking about, You know, what's kind of an immediate step that they can take and prepare themselves for before they reach out to someone like like you?
Jonathan Frizzell:Well, if it's properties that are you know, everybody everybody, meaning almost everybody, they always like to reach out to a cost seg provider with its new acquisition or new construction, and they oftentimes forget about the look back studies. The IRS calls them look backs, I call them catch up. So, you know, I'll look at their new acquisitions, but, you know, and I'd be happy to sometimes I I mean, I'll offer a sign an NDA or a CA, but I really would like to holistically, because it's no obligation, no cost to them, Yeah. I like to look at your whole portfolio, at least the properties you plan on holding, and I'll do I'll do the hard work too. I know I wanna earn your I wanna earn your business.
Jonathan Frizzell:But let me take a look at properties that have been in service for a year or more. In that case, to answer your question Yeah. That'd be, you know, it'd be a 2024 on extension. If they've already filed for '24, it'd be a 2023 federal tax depreciation schedule and a physical address. That's all I need.
Jonathan Frizzell:And I'll take a look up in the clouds, providing I have a correct physical address, then with that federal tax depreciation schedule, and then I'll take a look at it and I'll submit what I recommend to the engineers and we'll bring something back in the EOB proposal. That includes one year or more in new construction because it is gonna make it on that schedule, that federal tax depreciation schedule. If it's a new construction or I'd like to cease the hard and soft costs if they have it handy. Some of the more formal, you know, schedule values is another term, and then get real formal or a little more formal GL seven zero two, seven zero three, the AIA document. That's also considered schedule values.
Jonathan Frizzell:But whatever they had in hard and soft cost, that's something I wanna talk about often that my clients forget to give me. Soft costs have the same value as hard costs. Why is that? Because soft costs are gonna mirror the reclass percentages of the hard costs. So if you've got a $10,000,000 building in construction, we'll say mixed use multifamily, and we know with the way things are with us, particularly on the West Coast, we know we're probably gonna have a million bucks.
Jonathan Frizzell:Yeah. We're the soft cost. And and then, of course, architectural drawings, that's probably another $50, $75. It goes on and on and on. Right?
Jonathan Frizzell:Yeah. Well, they have the same value as the hard cost, so they have equal importance and so I always want to make sure that I get the hard and soft costs so that in the spreadsheet. You know, if it's an acquisition, I'd love to see a closing statement. One of the things my competitors oftentimes don't ask and I always do, I'd always wanna separate, be diligent, but, you know, is it a straight purchase or a ten thirty one? Oh, yeah.
Jonathan Frizzell:Because that makes a hell of a difference. It really does.
Nicholas Cook:Okay.
Jonathan Frizzell:I mean, you can't double dip on the deferred game. Right? Sure. Yeah. And, you know, I mean, you know, I've had a few people ask me if they can.
Nicholas Cook:That's a good point. No. That's a really
Jonathan Frizzell:good point. Yeah. You really gotta know that there's a former company I was with, and they've been merged with somebody else. He was, what was he, the director of tax. I learned a lot from that man and he calls it the net excess to preschool basis minus land.
Jonathan Frizzell:So, whatever that basis says after you calculate the deferred gain, that number we're gonna strike from, we'd like to have that. On a ten thirty or on a straight purchase, we'd still like to look at the final closing statement and we could do an estimate split whether it's eighty twenty split or whatever, but that's really about it. You know, I'd like to see a final closing statement because then I can ask less questions. Sure. Yeah.
Jonathan Frizzell:You know what I mean?
Nicholas Cook:Yeah. No. That's always helpful. Great. Well, that has been an excellent conversation.
Nicholas Cook:One of the other questions I have has to do with, you know, using cost segregation in the state planning. Is there ways to kind of, you know, utilize this to benefit in that, or is this this not really a vehicle for that?
Jonathan Frizzell:Well, it's interesting that that that portfolio I picked up before lost my mother in o eight, I learned from that experience. Without mentioning names, it was a 10 property portfolio, nine were self storage, and then one was in Grant, assisted living facility. I created over $10,000,000 of depreciation expense. I put 3.1 or 3.2, I can't remember, of tax dollars in his pockets. And unfortunately the client passed away three years What I learned about that, and again, you know, be intelligent and discovery, you know, you will learn things as the years go by and as the days and months go by.
Jonathan Frizzell:What happened is on the state, you know, to answer your question, Nicholas, the state planning, you got a step up basis. So a lot of my patriarchs and matriarchs that I work with, families, mostly held families, they don't care what their basis is when they pass away and they shouldn't.
Nicholas Cook:Yeah.
Jonathan Frizzell:And so, you know, you hear the old term from IRA Advantage, you know, David Moore in Lake Oswego, and it says swap until you drop, and then, you know, well, actually swap until you drop, but you cost second until you drop too. Yeah. Because you don't really care about the bases. You're gonna have capital gains one way or another anyway.
Nicholas Cook:Sure.
Jonathan Frizzell:And so what's kinda neat about that is, and it's called the section seven fifty four adjustment, and I've seen seven forty two on schedules, but whoever the heir apparents are, they get a step up basis. Remember in the last set of four years, they were trying to take away that.
Nicholas Cook:They're trying to, yeah.
Jonathan Frizzell:Take that away. So the short answer is from a financial planning or advisor, you know, they're tax professional, they really should be cost segging everything and then find a cost seg provider that if there's minimal benefit to still perform the high quality studies, and then obviously we'll get work when there's a basis to work with because it's important to get it because I don't know if I wrote a paper on that or not, but I always talk about there's no recapture when one passes away. True. Right? Yeah.
Jonathan Frizzell:It's just a step up basis. Yeah. So it's kind of neat that way. So that's one way from an estate planning standpoint is that, you know, whoever is currently in control of the real estate before there's any gifting going on or before anybody passes away, go ahead and squeeze your portfolio.
Nicholas Cook:Yeah. Cool. Well, no. That definitely answers the question and good perspective on the on the long term planning here. So we're gonna kind of wrap up by pivoting a little bit and asking a few questions about Jonathan just so the audience can get to know you a little bit more.
Nicholas Cook:We're always, like, asking three questions kind of at the end of the podcast. And these are off the cuff, so no one's gonna hold you to the answers. But, you know, what is your favorite go to comfort food? Like, you had to pick one, you've got something that you just absolutely love. Wow.
Jonathan Frizzell:You know, I love grilling. I love grilling, and I really like a good porterhouse.
Nicholas Cook:Nice.
Jonathan Frizzell:Or I like a good rib eye. Yeah. Bone in or otherwise.
Nicholas Cook:Sure.
Jonathan Frizzell:I just picked up some American Wagyu, Snake River Farms, New Yorks.
Nicholas Cook:Nice.
Jonathan Frizzell:And and then I and I picked up some of their prime too, and I tried that. But I just love a good steak. Well, I tell you. I mean, I really do.
Nicholas Cook:There's nothing like it.
Jonathan Frizzell:Yeah. There's nothing like it, man. Charred, medium rare. Perfect. You know?
Nicholas Cook:Perfect. Yeah. Love it. And then also just kind of, you know, thinking about, you know, over the last five years, mainly looking back over COVID and so forth, how do you think that whole experience has maybe changed you? Like, have you noticed any differences in your perspectives and how you live your life, or just how did that whole event change things?
Jonathan Frizzell:Wow. That's a separate podcast.
Nicholas Cook:That definitely could be.
Jonathan Frizzell:Yeah. You're always good about this. You and Matt both did it last time we did this seven, eight, nine years ago, whatever it was. You know, it it's once again, it's a damn good question. You always do this at the end of the podcast.
Jonathan Frizzell:You know, I I tell you what it is. Know? And I'm doing a fast, soft rewind right now. Sure. But for me, what happened, you know, during the pandemic, the COVID, was there was changes in, you know, in the company I was with and yet there was relationships that were already established and fostered.
Jonathan Frizzell:And, you know, I wasn't the easiest guy to be around back in May '20 if I remember correctly. But, you know, I always and it is what it is. Right? No matter how much of a producer you are and how much swag you have and and how hard you've worked, things change. Yeah.
Jonathan Frizzell:Especially in the big aircraft carrier companies. Right? Oh gosh. And for sure. Yeah.
Jonathan Frizzell:And so what happened was is that, you know, you talk about always make sure you have good balance. And then I went on to another firm and I did really well for him. And and then when I look at now, know, I was made principal with Kebble and Kebble, which I'm very grateful for. But that never woulda happened. Mhmm.
Jonathan Frizzell:That never ever ever ever woulda happened if I wasn't on that previous aircraft carrier.
Nicholas Cook:Sure.
Jonathan Frizzell:You know? Yeah. And so what do I mean by all that? Just because things are the way they are, they don't always have to stay the same, and this never lose never lose sight of who you've been as a professional, as a friend because you never know if it'll ever pay dividends and likelihood it will.
Nicholas Cook:Yeah. So
Jonathan Frizzell:I hope I've answered your question on that. No.
Nicholas Cook:Yeah. These are your answers. There's no no wrong answers.
Jonathan Frizzell:Always good questions. Yeah. I can count on that.
Nicholas Cook:Definitely. And then, you know, the other question I have is and some people don't like this term. I use the term bucket list because it doesn't bother me, but some people don't like the illusion of it. But is there anything that you have on your, you know, bucket list or to do list that you're, you know, really wanting to, you know, accomplish over the next five years, ten years? Maybe it's traveling somewhere.
Nicholas Cook:Maybe it's, you know, learning a new hobby. Is there something that you've got that you're you're excited about, you're looking forward to checking off?
Jonathan Frizzell:Well, you know, it's I appreciate that. Yes. I I got married back in '21, my lovely wife, Shannon, and I made a promise to her that she wouldn't go anywhere in the world for a couple three weeks plus
Nicholas Cook:Yeah.
Jonathan Frizzell:Whenever she get the time off, and I'd take her wherever she wants to go. And And I've worked so much over the years, even as a younger man. And I mean, I've swelled the roses, but I've really never been really international travel, travel, travel. And that's changing the last few years. And but it'd be nice, you know, you know, I'd like to just cover that if I could.
Nicholas Cook:Sure.
Jonathan Frizzell:Yeah. Cover that cover Spain all the way to Turkey or Greece.
Nicholas Cook:Yeah. Cover awesome. Just, you
Jonathan Frizzell:know, just kinda cover that coast. You're gonna see so many similarities and yet differences. Mhmm. And I I I would love to cover that. I'm going back to Italy to Italian friend of mine where he grew up in La Comino and Ischia right outside of Napoli, and we know each other for four past years, man.
Nicholas Cook:Wow. Oh, wow.
Jonathan Frizzell:That's a long time. Opened four of his stores, houses, you know, back when was in the hospitality industry. Yeah. Cool. Shannon, my wife, was really taken aback last year when we visited him.
Jonathan Frizzell:She saw a complete different person. It's like
Nicholas Cook:a new a different version. Yeah.
Jonathan Frizzell:A different yeah. And she was quite taken aback, and she's looking forward to it. But Yeah. But I yeah. Travel is definitely you know?
Jonathan Frizzell:Because I I just take the laptop, put it around my neck, and, you know, and continue to work. Yeah. But, yeah, I I definitely wanna I wanna continue to travel more for sure.
Nicholas Cook:That's awesome. You know, I discovered this well, I didn't discover it. Someone told me about this last year. There's an app out there that's on your phone, and you can try it out for free for a couple trips, then I think it's pretty inexpensive to just have. But it's called TimeShifter.
Nicholas Cook:And TimeShifter is a app that basically helps reduce substantially jet lag. And so you basically put in your flight information, and it pulls that and then tells you days in advance, okay. This is when you wanna wake up. This is when you wanna go to bed. This when you should have coffee.
Nicholas Cook:It augments your routine leading up to your travel, and then, like, through your travel, and then, like, when you land, there's a couple things. But it basically is designed to slowly, you know, adjust that internal clock. Wow. And I tried it when I went to Asia last year, and I was like, holy smokes. It definitely I mean, it's not like a complete get out of jail free card, but it made a noticeable difference.
Jonathan Frizzell:Time shifter. I'll have to look that up, Nicholas. Yeah. So Yeah. That's really something.
Nicholas Cook:So on your trip, it'll leave
Jonathan Frizzell:you my wife, she'll she'll be climbing in there quick enough on the App Store on that one.
Nicholas Cook:Yeah. No. It it's it's amazing. And I've I've told a bunch of people about it, and I'm like, wow. This is this actually legitimately works.
Jonathan Frizzell:You know, and you really get to know your partner too when you travel too. Oh.
Nicholas Cook:100%.
Jonathan Frizzell:That I'm I'm very clear that's a separate podcast.
Nicholas Cook:That oh, that definitely could be. I mean, I went to Spain and Portugal with Julie when, you know, we were still pretty new in our relationship. And we had a wonderful time, but it definitely you know, there are some times where the waters were tested because, you know, you've got some jet lag. You're in a place you don't know. Sure.
Nicholas Cook:You know, this person, you know and so it ended up working out, and we've done more traveling, and we're gonna Well, I always
Jonathan Frizzell:enjoy seeing you guys as pictures, and you guys are a cute couple, and very amical, and it's just great for me to see. I I love it.
Nicholas Cook:Yeah. I appreciate it. I
Jonathan Frizzell:I want everybody to be happy, man. You know, life is way too short.
Nicholas Cook:Yeah. Speeds by.
Jonathan Frizzell:Learn that. You know, I wanna thank you for the invite. You know, it's it's it's it seems like yesterday, but it's at least seven years. Yeah. It's
Nicholas Cook:been a while. I know. It's a
Jonathan Frizzell:It seems you know, I don't know what year it was. I I tried to find it up. It couldn't pull it up.
Nicholas Cook:Yeah. We'll have to look at the the original episode when we were doing the other podcast. But yeah. No. A lot of time has passed, but I you know, I'm really grateful that you reached out and let me know you're gonna be in town because Yeah.
Jonathan Frizzell:If you ever get up north, we'll suck down some oysters or something.
Nicholas Cook:Or Yeah. That sounds great.
Jonathan Frizzell:I I'm down here a lot in Oregon. I I love Oregon CCM. Yeah. I've been coming down here since 'nine, but I do quite a few properties down here. But I'm all over the country.
Jonathan Frizzell:You know, I got injuries scattered all over the country. But, you know, there's something especially unique about the Oregon CCIM chapter. I mean, have my backyard watching CCM chapter, which
Nicholas Cook:I
Jonathan Frizzell:was in Bellevue. But I just love seeing all the brokers in Eugene and Oh, yeah. Portland and Some good. One thing they never lose sight of, because not everybody needs to like or love or respect each other, but they know that you they never lose I know that sounds oversimplified, but it's amazing how many people forget. Nothing happens unless you have a buyer and a seller.
Nicholas Cook:Very true. Very true.
Jonathan Frizzell:But, you know, in certain circles in life and real estate trade organizations, they lose sight of that. Yeah. It's it's it's fascinating. So
Nicholas Cook:That's a good observation. Well, Jonathan, it's been a pleasure as always. Thanks for being here. And It's good seeing you. Last thing is is, you know, what's the best way for people to to reach you if they wanna hire you?
Nicholas Cook:Because, obviously, you cover the whole country. Your shop does. And so, you know, is it by email, by phone, website? What's well, we'll put some stuff in the show notes as well, but if there's anything
Jonathan Frizzell:you wanna share now. You know, you my phone number, direct mobile number is area code (206) 399-7769. And, you know, the email address is is a lot simpler than the last couple three brands. It says jonathan@kevel.com. And it's just Jonathan, jonasinNancy,atanjonathan@kevel, k as in Kellogg, e as in bridal, kellel, v as in Victor, I l dot com.
Jonathan Frizzell:Great. And and then kellel.com. You know, if you go in there on the kellel.com, there's a press release a couple years ago last May that I finally made it finally made it public that I was you know? But it I'm just grateful to be there. I mean, it's it's wonderful to have a front end of the house and a back of the house that really works together.
Nicholas Cook:It's awesome. Great. Well, thank you, Jonathan.
Jonathan Frizzell:Thanks, David. It's my privilege.
Nicholas Cook:And that concludes today's episode of Retire on Rentals. But we do have a quick favor to ask before you jump off. If you haven't already, please go ahead and like and subscribe. More engagement means better content and more excellent guests. And we look forward to joining you on your real estate journey.
Nicholas Cook:Now remember, stay focused, stay driven, so you can retire on rentals.