The other day I was sitting with a long time friend who owns a number of investment properties worth ten’s of millions of dollars. Some of them are multifamily apartments while others are commercial real estate properties, including office and retail buildings. He was telling me about a large tenant with whom he was about to sign a lease, and the fit out that they were planning to do.
As Cost Segregation is the professional world in which I live, right away my antennas went up and I asked how he is treating the fit out for accounting purposes. His response was that he is not actually performing the fit out, but rather is giving the tenant a rent abatement. I asked him the question as to whether he considered the ramifications of the trade off for the loss in rent versus the revenue that he should have received. I didn’t need a response. His facial expression said it all.
The first question that most folks ask me when I discuss the general Cost Segregation concept with them is “can’t my accountant do this?” The answer I always tell people is that yes, to some extent in some instances they can. The proper practice of Cost Segregation, however, is an engineering and accounting exercise, and although I am a CPA and can explain the nuances of a Cost Seg study as well as the benefits of a decrease in Income Tax liability, I couldn’t perform a Cost Segregation Study without the engineering team doing their part.
All this got me wondering. So many times we all try to do things on our own, such as my friend was doing by not getting his accountant involved, but are we really saving in the long run? Often, we are not. The bigger point to keep in mind is that many times we don’t even know what we may be missing. That must be where the expression comes from….penny wise and pound foolish.