The Norris Group Real Estate Podcast

Maximizing Real Estate Returns Through Cost Segregation with Sean Graham | Part 1 #929

• The Norris Group, Craig Evans

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In this episode, Craig Evans sits down with Sean Graham, founder of Maven Cost Segregation, to discuss how strategic tax planning can unlock bigger returns for real estate investors—especially high-income earners. Sean shares his entrepreneurial journey, explains the vital role of cost segregation, and breaks down how quality and efficiency in these studies can significantly impact an investor’s bottom line. Whether you’re new to the concept or looking to refine your investment strategy, this episode offers practical insights you can put into action. 



Sean is an entrepreneur, investor, and registered CPA with a background in public accounting and private equity. He manages a portfolio of residential rentals and invests in self-storage developments. Sean is also the founder of Maven Cost Segregation Tax Advisors, a national leader in cost segregation services for commercial real estate. His expertise in real estate taxation helps investors accelerate depreciation and maximize after-tax returns.



In this episode:

  • Craig Evans welcomes Sean Graham, founder of Maven Cost Segregation.
  • Sean shares his entrepreneurial journey and professional background.
  • Insights on the importance of tax strategy in real estate, especially for high-income earners.
  • The role of cost segregation in maximizing real estate investment returns.
  • Emphasis on quality and efficiency in conducting cost segregation studies.
  • In-depth look at practical applications of cost segregation for investors.




The Norris Group originates and services loans in California and Florida under California DRE License 01219911, Florida Mortgage Lender License 1577, and NMLS License 1623669.  For more information on hard money lending, go www.thenorrisgroup.com and click the Hard Money tab.


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Narrator:

Welcome to The Norris Group real estate podcast, a show committed to bringing you insights from thought leaders shaping the real estate industry. In each episode, we'll dive into conversations with industry experts and local insiders, all aimed at helping you thrive in an ever-changing real estate market. continuing the legacy that Bruce Norris created, sharing valuable knowledge, and empowering you on your real estate journey. Whether you're a seasoned pro or a newcomer, this is your go-to source for insider tips, market trends and success strategies. Here's your host, Craig Evans.

Joey Romero:

Hey everyone. It's Joey Romero from the Norris group. Just wanted to tell you about our event coming up on September 12. I Survived Real Estate. It's our 18th year, and we've raised over, well over a million dollars for charities like Make-a- Wish, Coleman. St, Jude's. I want to take this opportunity to thank our Platinum sponsors. uDirect IRA Services, SDCIA, DBL Captial, DouglasBrooke Homes, MVT Pro and Realty4111. Now let's get to the show.

Craig Evans:

Hey everybody. We are so excited to be on today. We have got a great guest. Today we have Sean Graham, Founder of Maven Cost Segregation. Sean is an entrepreneur and investor who focuses on real estate opportunities. Sean manages his own portfolio of residential rental properties, while also investing in and developing self storage facilities. Sean is a registered CPA with a background in public accounting and private equity. Sean is also the founder of Maven Cost Segregation Tax Advisors, a national leader in cost segregation services for self storage facilities, multi family properties, rental centers, retail centers and other commercial real estate classes. His deep expertise in real estate taxation helps investors accelerate depreciation and maximize after tax returns. Sean man, it is great to have you on. I really appreciate your time, and I hope it's not too hot there in Detroit.

Sean Graham:

Yeah, thanks, Craig, thanks for having me on. Now, I'm super happy to be here. Thanks for giving that background and that bio on me. Yeah, it was longer than I then I realized it was like, Okay, there's, I've done a couple things here and there, huh?

Craig Evans:

You feel like...

Sean Graham:

Yeah, right. Yeah, you made, really, made me feel special. Isn't that funny? But anyways, man, I'm really glad to be here.

Craig Evans:

Well, listen, we're going to get into a subject that I think, honestly, is very underutilized by many investors in our industry, so I can't wait to dive in. But you're new to our listener, so I want to start with just a couple questions about you, if that's okay.

Sean Graham:

Absolutely great. Sounds good.

Craig Evans:

All right. So Sean, listen, you're both a CPA and an active investor. How did your journey in real estate begin? And really, what led you to launch Maven Cost Segregation?

Sean Graham:

You know, I think I always knew I wanted to go the entrepreneurial route, and I didn't know what that was, and so I went down the accounting path and went down the CPA path, you know, it allowed me get something that I'd always have. I could, I could fall back on it, or I could always go down that path. So I started off in public accounting, but I always had that itch. And when I, you know, I think, like a lot of people, right? You read Rich Dad, Poor Poor Dad, you get the bug, you get the itch. And it's like, okay, like, but the truth is, I think real estate is one of the, it's one of the, I don't know, like most open paths to entrepreneurship, right? Like, any, anybody can, not any, I mean, most people can go buy a property and rent that property out. And so it's really, to me, that was like, the gateway to entrepreneurship, and so I started building up a rental portfolio as I was still working full time in other spaces. Eventually that led me to just going into real estate, and specifically self storage. Self Storage was the niche that I chose within commercial real estate. And so I went down that route, but I realized, like, everything is one of those things, like Steve Jobs says, right? Like you can't connect the dots looking forward. You can only connect them looking back. And so when I look back, I realized that I could bridge my full background through a Cost Segregation firm, specifically, and that's what I've done, because I've been on both sides of it. I've been on the tax side and I've been on, well, I guess there's three sides. Now, I've been on the tax side as a CPA, and know what the IRS is looking for. I've been on the real estate side like I understand, like what people are looking for in terms of maximizing the depreciation loss is using it to really negate their taxes, and then I bridge that through Maven Cost Segregation. So that's the side I'm on now, which I guess would be the third side there. So that's kind of like an overview of of my journey.

Craig Evans:

Well, so All right, so if I understand correct, you've acquired right at about 14 million just in self storage facilities. How has your experience in that as an investor, influence the way you advise clients from a tax strategy.

Sean Graham:

Oh, I think it's, I think it's really big, because there's so many, you know, real estate is one of those. It's such a big asset class where there's so many different paths that you can take. And I think one of the biggest, I'd say the biggest enemy of high income earners, whether you're in real estate or you're a W-2 or, you know, you're an entrepreneur, the biggest enemy is taxes, right? And my job is to specifically, help you mitigate your taxes through real estate and by means of the, you know, depreciation. That's my goal. But when I was on when I'm just investing in self storage, it's not like, yes, the portfolio, have $14 million Portfolio, but it's not all me, right? Like, I have partners, I have investors. I've raised capital, syndicated deals, all of that, and those partners and other investors, they also want these depreciation losses to flow through, to hit their tax return, to help them mitigate their taxes. And you start to realize like, Okay, who can actually use these losses, who isn't able to take advantage of the losses? You start to understand, like, actually, what it means on being on the other side and materially participating in these properties, versus not, versus just being a passive investor. You know, offsetting passive income with passive losses. And so I understand what it feels like to be in those shoes. I'm not just sitting here saying, Well, you know, this is the way it is, without any understanding of being on other side. So I think that gives me a unique perspective.

Craig Evans:

So, you know, when I've talked to friends in the industry. You know, most people think you got CPAs and investors. They're separate roles, right? How do you think, or do you think that being both has changed your approach, not just as an investor, but how you approach actual cost segregation?

Sean Graham:

Well, I guess maybe I'll start with the investor side, because I look at numbers in terms, I'll just say numbers, right? But like, when I I'm talking like financials, pro formas, the accounting, the bookkeeping, the projections, all of that, to me, that is so important. That's the fundamentals of real estate. And it gives me a way to really, truly understand and be comfortable with underwriting properties, projecting where they're going, budgeting things out, and really planning and tracking things diligently, as opposed to just, hey, we'll kind of figure it out at the end of the year, right? I like to track everything, all my self storage facilities, you know, all the financials on a monthly basis, and track them diligently. I think that's super, super important. So I think that's, you know, that side's really important. But I also say don't when it comes to depreciation and tax like mitigation. Don't let the tail wag the dog. And I really mean that because, yeah, like, obviously we want to do all of your cost segregation studies for you. But that doesn't mean that you should just go buy a property specifically to get depreciation losses. Like, I always say, invest in the properties that either are going to, you believe they're going to cash flow for you, or you're able to draw, build equity in them, right, like they're going to appreciate, whether you're able to force the appreciation, or just naturally, the you know, over time the property is going to appreciate, or you believe in the area. It's funny, because, when I look back, I have, I've always gone the cash flow route. So I've bought, like, small, multi family properties that cash flowed very well. But from an equity standpoint, my friends who didn't get in, who just wanted to buy their condo, or whatever it is, or their house in the popular area where it was a good place to, like, go out and have fun, and, like, they saw more appreciation than I did. And it's like,' Wait, hold on, I'm the one investing for real estate, like, for, you know, to build wealth. And they're just doing it because they want a house and, you know, a cool place to live in a cool area'. And so it's funny how that works. And so that's kind of changed my mindset a little bit in terms. Of, you know, it's not all about the cash flows. A lot of is about appreciation and really believing in where you're investing. But all that to say that the Cost Segregation benefits should be ancillary to the actual real estate and what you are investing in and I mean that because the, you know, you can get the depreciation losses, but if the property is not doing anything for you, you end up selling it or something like you're just putting yourself in a bad position, right? It's not a good way to go about it. So hopefully that answers your question.

Craig Evans:

Absolutely. So Well, listen, I, you know, I, we've started talking and kicking around. I don't want to wait any longer stuff, right? I want to jump in to really, what the main course is for today, talking about cost segregation. I want us to dive into some of that. Because, you know, we've got a lot of listeners that tune in, and we got a lot of young investors that will tune in and start to learn from us, because the data and the things that we put out with The Norris Group. So, you know, I want to dive into this. And so for whether you've been investing for years or whether you're just getting into the industry, I really want our listeners to really walk away from this today and say,'man, this was a great master class', right? So, what should investors know? And really, in plain English, why don't we just start out and say, Okay, what is cost segregation?

Sean Graham:

Yeah, that's a good question. So this is how I like to frame it. When you buy real estate, as an investment property, right? We're not talking about a primary residence. That's not an investment property. The IRS doesn't really care about that. But when you buy real estate for or to rent out, right? Or if it's for your business, you have a business and you use the property there or you buy commercial real estate, residential real estate doesn't matter. The IRS requires that you depreciate that real estate. So depreciation is really a phantom expense. That's what I say it is because, and what I mean by that is, it doesn't hit your actual cash flow. It doesn't it's not like, let's just say you have a, you know, you bought a commercial, like a, you know, commercial building. It's $390,000 right? Unless exclude land value, anything like that. Because land's not, you can't depreciate land. But the IRS would say, Well, okay, you default to depreciating that over 39 years, and so you take a$10,000 loss every single year out of this, you know, $390,000 dollar billing building, building. That's great because you don't actually have $10,000 coming out of your bank account every single year, yet you're able to lower your taxable income or offset rental income by $10,000 so that's what I mean by a phantom expense. Now the thing is that not all buildings take, you know, 39 years to appreciate, or for residential 27 and a half years to depreciate, and that's where we come in with cost segregation. So our job is to do detailed engineering work on the properties and give you the reports to allow that, you know, to tell the IRS, 'hey, IRS, this doesn't take 39 years. Doesn't take 27 and a half years to depreciate this property'. In fact, a lot of it will depreciate in 15 years. Some of it seven years, some of it five years. And hey, now there's bonus depreciation. We can just accelerate big chunk of this. And depending on the year right now, in 2025 you can depreciate 100% of it in year one. And so this gives people a massive tax loss, right? It's a big, it's a, really, it's a tax deferral strategy, but it gives them a big loss to take on their tax returns and negate taxable income, which is huge. And then they, you know, whatever they don't use, they can keep rolling forward into the next years. And it comes down to a time value of money thing, right? It's a, this is a time value of money tool. So I would say, you know, like, Craig, if I gave you 20 bucks today or gave you 20 bucks in 39 years, what would you rather have you say, like, well, take it today. 20 bucks in 39 years isn't worth very much to me, right? And that's really what it is. We're just trying to front load as much of these expenses as possible so that you can take advantage of them now.

Craig Evans:

I want to ask this in a way, because I want to stress this back over to the people listening. So why should real estate investors even care about cost segregation?

Sean Graham:

Part of it comes down to your personal situation. And when you have a rental property, often, like a lot of times, if you have a good property, cash flowing property, the losses that you have just from repairs and maintenance, and the losses you have from straight line depreciation, not doing a cost segregation study, they're not enough to offset the income that you're making. And so every single year you don't do a cost saving study, you could be paying taxes because you're showing a profit on your property year in and year out, and that starts adding up a lot, right? And so if you do a costing study, right, then you have the ability to show no taxable income. So if you're at, you know, we're saying, like, Okay, you make a use, let's just say you're able to show $100,000 income, well, if you're at a 37% tax rate, right? Well, that's$37,000 in taxes, right? That we're going to help knock off, or even if you're able to show$10,000 of income, well, you're you're paying $3,700 in taxes at a 37% tax rate. So part of it comes down to your tax rate and all that, how much taxable income you're showing, but a cost segregation study is going to help you offset that, and that's just related to the real estate. All right, like we can get into plenty of ways where you can use these losses to offset other income as well, including Active income or W-2 income. There is, there are strategies in order to do that.

Craig Evans:

I know with cost segs, you've got, like, regular versions of cost segs, and then you've got, you've got an engineering based one that you guys do. So what do you see is the real big difference between the two?

Sean Graham:

Well, we only, like, we really focus on detailed engineering work. So all of our work is detailed engineering. Some of it is marketing, right? Like we do smaller properties where, let's just say, under a basis of under a million dollars, let's just say small residential properties, single family homes, duplexes, triplexes, quads. We'll do virtual site visits. And so rather than us going sending an engineer on site, going to visit the whole nine yards. We're able to do those using, hey, we're going to get on a, you know, computer, just like we are now, get on a Google Meet, a Zoom, walk through the property record a, engineer is going to be there to go through the entire thing. And that allows us to really capture everything at the property without going into the property. So that's a real value saver in terms of the cost of doing these things that we're able to pass on to the investors. The other thing is, with these condensed studies, that's what I call them, in terms of the smaller properties, less than a million dollar basis, we do, we really condense the summary report, meaning, like we're focused on the engineering report, right? A lot of times a cost of study you're going to have, it's going to be a 50 to 100 page report, and a lot of that is the narrative stuff. And with these smaller ones, we're focused on the detailed engineering. So when you, how do I say this? Like, when you get down to that small of a property size, let's just say you have $250,000 residential rental property, your options are, typically, hey, I'm going to do a modeling study, modeling, meaning it's a statistical analysis. Like, okay, we've done a lot of properties that are three bedrooms, two baths, 2000 square feet. Here are averages. We're just going to take these averages and slap them on your property. That's one way to do it. We don't do those. We don't do modeling studies. Another one is a DIY report. Like, hey, you act as the engineer, fill out this questionnaire, measure things, do everything yourself, and then submit it. And like, you know, like, hopefully you do it and do it correctly in this DIY we don't-

Craig Evans:

Hopefully.

Sean Graham:

Hopefully, yes. We don't do those either we are doing the proper, all of it is detailed engineering work, so we've just figured out more efficiencies to try to capture that market and compete where traditionally, most people aren't doing detailed engineering studies for small residential properties. But we can do them, and, yeah, we do a lot of them in an affordable way.

Craig Evans:

Yeah, it's really not cost effective at that point to try to do a detailed seg on that correct?

Sean Graham:

Well, we are. We're doing the detailed work. It's just not we're again, we're condensing the narrative report, and we're doing virtual site business instead of going on site, right? And so that saves us time, and it saves us resources and money, and we're able to pass that along. But when it comes to the actual engineering work, the detailed engineering work, it's truly is detailed engineering. We're like, we're breaking down your property to the component level. So yeah, they're the engineering part is really good. And so the way I look at it is like, you know, if you submit those, you know, what does the IRS want? Or if you're not going to, you're not going to pay $5,000 for a full, detailed engineering study, perhaps, right? But then you don't, also don't want to, they don't want you to do a DIY report or a modeling study like those aren't as you know, they're not going to be as accurate. And so you, they truly prefer detailed engineering work. And this is a way to for us to do that.

Craig Evans:

It's interesting because, you know, a lot of a lot of places are doing condensed stuff. So with how you're doing that, how do yours still hold up? You know, if the IRS comes knocking, so to speak, compared to other people that are doing really a true, condensed version of that.

Sean Graham:

I think the IRS, when it comes down to it, they want to see that, they're looking for specific things, and they want to see that the property is done correctly, and they're looking at the components. So if you look at the components and how we break them down. We're doing things correctly and we're doing them accurately, and we're doing them diligently. I stress two things in my firm all the time, and one is communication, having great communication with clients and internally with the team, making sure they know where we're at every step in the process, updating them, like just being on top of it and not leaving them hanging. And then the second part is quality. It's like doing quality engineering work, and I really emphasize that. I stress that a lot. I think there's, I think when it comes down to it, you know, you can kind of glide through these properties, right? Or you can take the time to diligently go through every single component property, and that's what we do. And so our engineering work reflects that. So if it ever came down to, you know, a situation where the IRS, like, they have questions, one the reports can have absolutely everything in there, down to the component level, and if they have questions, like, we're here for IRS audit support, like, that's included in what we do. So, yeah. We've never encountered a situation where our studies have been rejected by the IRS, which is, you know, I'm sure they'll challenge things, but we've put ourselves in a good positioning. I think the other thing is, I think, long term, I think that it's easy to sell cost seg by promising the moon and the stars and saying, 'Hey, I'm gonna write off the whole thing, 80% of your property. We're just gonna bonus, depreciate it. It's great. Come join us'. Like, that's like, that's fine until it's not fine, right? Like, you go do that, and maybe you get through it, but if you're ever audited, it's just going to be, I think it's going to be a nightmare. And for me, as a owner, I am all about quality. I want to make sure that our studies hold up for the long term. And I don't want another some IRS agent coming back and, you know, five years saying, like, oh, like, they don't do their studies correctly. Let me go try to find every single study that they've been involved with and audit every single one, and just create a nightmare, right? Like, I don't, I'm thinking long term. That's what I'm in it for.

Craig Evans:

Hey, that's gonna do it for part one with Sean Graham. Make sure and tune in next week for more on cost segregations.

Narrator:

For more information on hard money loans, trust deed investing, and upcoming events with The Norris group. Check out thenorrisgroup.com. For more information on passive investing through the DBL Capital Real Estate Investment Fund, please visit dblapital.com.

Joey Romero:

The Norris Group originates and services loans in California and Florida under California DRE license 01219911. Florida mortgage lender license 1577 and NMLS license 1623669. For more information on hard money lending go to thenorrisgroup.com and click the hard money tab.