Be-rated: The time value of money
Wondering if cost segregation study is right for you? Consider the rate of return.
For example, one client said: “I am dropping more than $750,000 on my retail space renovation. Who cares if a cost segregation study accelerates depreciation from 39 years to 15 years or 7 years? The time value of money is next to nothing.”
That’s a great observation! But then again, consider other possible measures on rates of return: a) Your savings account is less than 1%, but it’s low risk. b) A well-diversified stock portfolio averages 12% to 15% depending upon which measure you use. Still, it’s not the same level of risk as an independent business; let alone the risk of a capital investment within that business.
So the right rate of return to use to evaluate cost segregation study benefits is really a risk adjusted opportunity cost somewhere north of 18%; not the prime rate of interest!
And in this client’s case, in addition to accelerating cash availability for the business, it also accelerated deductions for partial dispositions during the renovations!