CASE STUDY
GARDEN STYLE APARTMENT COMPLEX
The subject property is an eighteen building, 144 unit, garden style apartment complex that was acquired for $6,700,000 and placed-in-service in 2018. It totals 113,000 square feet and sits on a 6.75 acre site.
As with many garden style apartment complexes, the site is improved with ample parking but simple landscaping. The entire property is fenced in with motorized gate access. Somewhat unusual to garden apartments, the property does not have a swimming pool.
The buildings are two-story, wood frame structures, with brick facades and asphalt shingle roofs. Interior finishes such as carpeting, vinyl flooring and cabinetry are of average quality as are the kitchen appliances.
EXECUTION
The Source Advisors Cost Segregation engineers were engaged to analyze the acquisition cost. They then applied a cost model to allocate the purchase price to various trades and building components. They conducted a thorough inspection of the property where estimates were performed. Key property personnel were also
interviewed. A detailed report was delivered, identifying and documenting all of the components that qualify for a shorter tax life.
RESULTS
Source Advisors reclassified 11% or $737,000 as 15-year land improvements and 29% or $1,943,000 as 5-year tangible personal property. This leans towards the high end of the expected range and was due to the number of kitchen appliances and laundry equipment acquired with the property.
% OF RECLASSIFIED PROPERTY
| BENEFITS* | |
| Increased Depreciation in 1st year | $2,600,000 |
| Increased Depreciation in years 1-5 | $2,200,000 |
| Increased Cash Flow in 1st year | $920,000 |
| Increased Cash Flow in years 1-5 | $780,000 |
| Net Present Value over 27.5 years | $470,000 |
*Assuming a 35% tax rate, 6% discount rate, and that the property will be held for 27.5 years