What does the government want? More specifically, what does the government want to incentivize us to do as citizens? There’s a couple of things I wanted to talk about. One is to provide housing. Another one might be to drill for oil. Another one might be to buy equipment and plant type things for our business and to grow our business. The government is not particularly in the business of housing all of America, right? They depend on entrepreneurs to do that. So specific to housing obviously we’ll talk about investing and apartment investing here specifically but the government wants us, that is citizens, entrepreneurs to provide housing.

There’s a lot of pieces that go into that but when the government wants something done they can create something within the tax code and voila the results happen out there in the economy. A couple of things we have, one in particular is a 27 1/2 year depreciation schedule on apartment buildings. Now most commercial buildings, real estate is depreciated or a much longer schedule so why do we have it for apartments? It’s not a house where you get 27 1/2 years. Why on earth do we have a 27 1/2 year depreciation schedule for apartments?

Well, there’s really not a good reason other than the government wants to incentivize entrepreneurs to create relatively affordable housing by owning and operating these apartment complexes. So it’s one advantage that we have as entrepreneurs and investors that the government is incentivizing this with these shorter term depreciation schedules. So that’s one of the kind of hidden advantages of investing in an apartment complex is. We get a lot of depreciation up front and we can accelerate that depreciation through something called a cost segregation.

I’m not a CPA but I hire great CPAs and they execute this stuff for us. It results in big, big paper losses that we can use to offset our W-2 income. So for folks like doctors, attorneys, etc. that have high W-2 income and are getting slammed in the highest tax bracket investing in apartment complexes can be a great way to help offset some of that. So we’re essentially doing the government’s bidding. We are providing housing, many times work force housing that falls in between a subsidized Section 8 housing and a luxury housing solution.

We’re sitting kind of right in the middle providing clean, affordable, nice housing for working class folks. There’s a huge need for that because everybody’s been building luxury the last 20 years. As the cost of labor and materials skyrocket it only makes sense in many areas for developers to build these higher end products that command higher rents and justify the cost of building. So you’ve got this big gap in the marketplace in America for just regular old work force housing. So there’s an opportunity for entrepreneurs to come in and buy these ’70’s and ’80’s B and C vintage assets and go in and make some improvements, clean up operations, and continue to provide that clean, affordable housing.

We’re essentially in a partnership with the government providing this stuff. Another advantage that we get is some of these government backed loans when we look at Fannie Mae and Freddie Mac loans, these are very favorable loan terms that are essentially a nudge from the government to say, “Hey, look. We’re going to help out the entrepreneurs here because we know housing needs to be kept in some realm of affordability.” Between the depreciation that we are offered as investors and between these government backed loans that offer favorable terms those are two things the government does to basically incentivize and stimulate the entrepreneur community to go out and own and operate these apartment complexes.

So great business model. We get a helping hand from Uncle Sam on some of this stuff that a lot of other business models are not able to take advantage of. So working hand in hand to provide affordable housing and reaping some of the benefits as investors along the way is how we set it up. Thank you. Take care.