Our villa marketing company, having developed a steady stream of luxury travelers through several significant channels, is actively seeking villa inventory for its portfolio. For instance, we have recently negotiated an exclusive relationship to offer our villa inventory through our new marketing partner, one of the world’s largest travel aggregators, doing $1.3B in sales through its nearly 800,000 accommodations offered to its 1000 corporate clients representing 120mm individuals (3mm active travelers). We will provide the only luxury villa product to their clientele…
This one resource may well be the sole marketing resource our company will need to fill the empty time in as many luxury villas that we can place into our offering. To this end, we are actively searching for luxury villa inventory partners and below is one of our latest villa acquisition strategies.
Quite by chance, we recently came upon a unique benefit to the luxury villa owner who rents out their property. Back in 2006, I created a marketing company (www.commercialcostsavings.com) that specialized in the little-known but very powerful tax saving engineering process of Cost Segregation. Recently, I introduced this engineering process to the luxury vacation villa business and secured the services of one of the finest firms in the Nation, offering this service.
I wrote a recent blog on my LinkedIn profile that shares exactly how I came upon this strategy:
Below is an overview of how cost segregation studies may be used to enhance the cash flow of the owner of a rental villa, which was prepared by our provider. In addition, please find the link of the summary of results with actual figures from a cost segregation study provided on an $8mm rental villa in Colorado. (identity protected).
Since our methodology of acquiring blocks of unused time in luxury villas is to “exchange” luxury goods for the villa (www.luxuryproductplacement.com), we are considering offering to cover the cost of the cost segregation study for select villa owners in exchange for a negotiated block of unused time for us to re-market.
In this way, the villa rental owner will reap the literally hundreds of thousands of tax benefits resulting from the study….at zero cost.
I welcome the opportunity of discussing this unique strategy of monetizing your empty villa time. Please connect with me at firstname.lastname@example.org, if interested…and who wouldn’t be?!
COST SEGREGATION SIMPLIFIED
Cost Segregation is the IRS guide-lined method of re-classifying components and improvements of commercial and residential rental, real estate resulting in reduced tax liability and increased cash flow.
Applicable to both owners and lessees.
A third party, certified study identifies, values and separates 5, 7 and 15 year, depreciable life personal property from 39 or 27.5 year, depreciable life real property.The net result creates significant acceleration of available tax deductions.
IRS guidelines allow this technique to be applied to newly built and existing buildings, irrespective of age. However, the building must have been placed in service no earlier than 1987. Number of years owned by current owner, prior renovations and future renovation plans are just some of the considerations used to determine whether a cost segregation study makes economic sense.
The technique has been widely used since 1997 as a result of two landmark tax court cases in which both Walgreen’s and Hospital Corp of America prevailed against the IRS. Traditionally, Big 4 CPA firms engineering departments have used cost segregation with their large clients. Cost Segregation Initiatives now cost effectively delivers this service to the middle and smaller markets as well.
Properties may be owned in a variety of entities. Most common are LLC’s and S-Corps. If an owner of an LLC which holds the property leases it to an operating entity typically an S-Corp which they also own, losses and gains are all active, because for tax purposes these common owned entities may be grouped.
If an individual owns a single vacation villa and rents it out, typically the losses are considered passive. However, passive losses from real estate may be an offset to passive gains from other types of investments. Also if an owner is classified as a real estate professional, which is a legal definition for tax purposes, all gains and losses are considered active.
The engineering company completes a no cost estimate that usually is within 15% of the results of a certified study. The client will always be presented with a fixed, flat fee bid prior to engagement. This fee is based on size and complexity of the project. Net Present Value analysis usually shows benefits to cost ratios ranging from 10:1 to 30:1, based upon asset value and type. Half of the fee is collected upon engagement and half of the fee is paid at the time the study is delivered, usually about six weeks later.