How to decide what to invest in next? Is it ok to pivot to another asset class in real estate? How to look for and create opportunities where disaster strikes, and lessons learned in the real estate business over the last year. Bronson Hill, Managing Member at Bronson Equity, shares his insights.

Read the entire interview here: https://tinyurl.com/ymukzsfn

How do you decide what to invest in next, and what are you working on right now?

The biggest factor for me is that I’ve had over 25 one-on-one phone calls with high-net-worth investors. A lot of times on these calls, I’ll ask, “What are your goals? What are you trying to accomplish?” And most investors don’t know. Then, I’ll ask, “Do you want cash flow? Do you want tax benefits? Do you want appreciation?” And they’ll usually say, “Yes, I want all of them.” And I get that; I want all of them too. But the real question is, what’s most important right now? The challenge for many of us is that we don’t know what we want. For investors, it’s really important to get a clear idea.

Today, a lot of people say, “Real estate used to produce cash flow, but it’s really hard to find now.” So, the question becomes: what assets are producing cash flow today? Once I identify that my main goal is cash flow, there are a few areas I look at.

Real estate debt funds. There are partners and funds out there that typically provide monthly cash flow, and these days we’re seeing annual returns in the 10–15% range, paid monthly. This is usually a lower-risk position, especially when you’re in the first position or senior debt, meaning there are no other creditors ahead of you. Low leverage makes it even better—around 50–60% loan-to-value. That makes a very safe, real-estate-backed asset where you’re basically becoming the bank, or part of a pool of loans providing lending for people buying properties.

What's something that you learned in the last year, maybe in real estate or in owning your own business, that you think is important for people to also learn from your experience, not their own?

Reinvention is really important to be able and willing to learn and try new things. As a passive investor, sometimes it's great to be a certain type of investor, and other times it's great to do something different. Like in our business, we've continued to reinvent where this multifamily worked well for us for a while, and then we were raising capital and doing deals, and then we just realized that we're just not seeing the cash flow there. And also, a lot of investors have lost their appetite for doing lots of family stuff. We're doing different things that actually we find exciting, and that we feel like a lot of investors are there just wanting to try to find ways to make it work.

Being willing to look at new things like the chat GPT is amazing just to ideate, to come up with ideas. Somebody said, if you were to write down what the biggest goals are in your life? Personally, your legacy with your kids, with your spiritual life, your health, and then you had somebody sitting right next to you that had a one in 10,000 person IQ, and they were helping you to solve these problems. That's what ChatGPT is. It doesn't always get it right. It does hallucinate. You've got to filter everything. But in a way, I get that the ideation is huge. A lot of times, we fail because we're not willing to keep coming up with new ideas and keep trying new things, and I think Chad is really great at helping with that.

Bronson Hill

Bronson Equity

Text Cashflow to 33777 to get his Favorite Cashflow Investments Guide

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Can you take 100% bonus depreciation on parts of your property? What is the difference between accelerated depreciation and bonus depreciation? What are some other things you may now know to depreciate even more in real estate? Tom Brodie from CSSI shares his insights.

Read the entire interview here: https://tinyurl.com/4pver7wk

There have been some updates this year with the Big Beautiful Bill. Let’s start with Section 1709.

The biggest one, as far as the Big Beautiful Bill, is a 100% bonus depreciation, which means anything less than a 20-year asset can be written off 100% of its value right now. That was in place from 2017 to the end of 2022, and it started dropping by 20% a year. This bill brought that back. The current tax law was going to phase it out by 2026. It was 20% starting after 2022. It was 100% in the drop, 20% a year, which was going to be gone. They brought that back with the bill, which is significant.

The other thing is that Section 179 was an energy-efficiency tax deduction. You give some, and you take some. By bringing back the 100% bonus, they’re going to phase out Section 1709(d) in 2026, where this is really beneficial. If someone built a larger building, for example, 40,000 square feet, there is a dollar value per square foot that you can claim as a deduction if your building is more energy-efficient than the building standard from 2007. Anything built in the last 5 to 6 years, or even maybe longer, is going to be more energy-efficient than something from 2007. That is all found money because all you have to do is engage us to have a study done, and we can get you a deduction.

What is the difference between bonus depreciation and accelerated depreciation?

Accelerated depreciation differs from what most CPAs do today. Typically, they depreciate a building over its full economic life. For example, the economic life of an office building is 39 years. With accelerated depreciation, we break the building down into its realistic economic life. That can be 5, 7, or 15 years, while the structure itself is 39 years old. When you break it down into those component pieces, you’re accelerating the depreciation, which is a misnomer. In my world, you’re actually depreciating it correctly. If you’re depreciating something over 39 years, it’s not going to last only five years. That’s wrong. The IRS has accepted this method. To differentiate it from what’s happening now, and what most CPAs do, they call it accelerated.

What bonus depreciation does is it takes the 5, 7, and 15 years and says: if you’re eligible for 100% bonus, you can write off the total cost of those assets right now. That’s what 100% bonus depreciation is. It’s looking at everything that’s not structural and writing that off.

Cost segregation is the study that breaks down a building’s assets into their component parts. Once the assets are broken down, you can apply bonus depreciation or use accelerated depreciation based on the economic life units.

Tell us about the green zip drywall tape.

It's a green mesh tape is a type of drywall tape that can be removed. You apply it like regular drywall tape, then mud over it and paint it. The great thing is that if you ever need to remove the drywall, you can take off the baseboard, grab the bottom of the tape, and pull it up. Because it’s a nylon mesh, you can pull it up to expose the screws, then unscrew the drywall and take it down as one piece.

The fact that you can remove it so easily makes it a reusable asset. The IRS recognizes this as a five-year asset. Since it’s a five-year asset, everything connected to that wall can now be classified as a five-year asset.

Tom Brodie

CSSI - Cost Segregation Services

(713) 906-3710

tom.brodie@cssiservices.com

www.CSSIServices.com/tom-brodie

How did I make money on my first and worst investment? I’m going to be breaking down my first and worst investment and how I ended up making money on it and getting a free storage facility even after closing the business for 2 years.

Read this entire interview here: https://tinyurl.com/mr22f6mx

Top lessons learned from this experience:

- Don’t ever get into an asset class that you know nothing about without first going to industry specific events, building relationships, asking questions, and getting an advisor to help you analyze and purchase your first deal.

- Buying portfolios can be a great thing, you get multiple properties at a discounted rate, and after you buy them, you split them up and sell a few at market price, while keeping the others.

- This is not really related to car washes, but I have heard that the first offer you get is typically the highest offer you will get, and it turned out to be true in this case. When I decided to sell them while they were still open, we got an offer that was higher than the one that we ended up taking, but I turned it down because at that time the properties were not distressed and our sales price was based on actual NOI. However, it confirmed this theory that the first offer that you get is typically the highest offer you will get.

- Work with a broker that exclusively sells that specific asset class, and follow up with them on a regular basis to make sure you and your properties are on top of their mind. I’m a believer in showing up and following up because people easily forget about you, whether you are selling or buying a property, you need to keep people accountable. This is not to say that the broker wasn’t working on them, but it was to keep reminding her that I was really interested in selling them. My follow ups were about once a month/once every other month.

- There’s a known saying in real estate that “You make money when you buy”. And because I got these properties at a great price, and even though the deal was a complete failure, that is another reason why this worked out. Proving another real estate theory to be true.

Three years after purchasing these properties I decided that it’s not worth my time to try to fix it, and that I’d put the car washes up for sale, and close them completely. Not knowing when I was going to be able to sell them. I decided to take the hit on the mortgage payments until I sold them because my time was not worth the time that I was spending trying to solve that problem. The mortgage payments were cheaper than my time. The car washes stayed closed for two full years. Last year I managed to sell one of them, and this year I sold the remaining two, two years after completely closing them.

I hope that you can learn from my lessons learned, so that you don’t have to make the same mistakes that I made. To better investments!

www.montecarlorei.com/investors