- October 25, 2023
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Getting started with a new cost segregation client is the best part. You get to have a nice conversation and get some basic information such as the property address and the scope of recent work done to the property. Then, the information gathering begins.
For many, the most challenging part of cost segregation is gathering the volumes of information needed to complete a study. This article lists all of the documents you’ll need for cost segregation studies. You can bookmark it and come back to it often as you get started with new clients (maybe you’ll even memorize it at some point).
Documents needed for all cost segregation studies (acquisitions and new builds)
To start, we’ll go over documentation that applies to both acquisitions and new construction/improvements.
You will want well-taken photos from all over your client’s property as if you were giving yourself a tour where you don’t want to forget any details. If you’re visiting the property in person, these photos will remind you of what’s there later on.
You will need to take photos from a 360-degree angle for the interior, exterior, and every side of the building. Basically, every few steps you will want to stop and take a photo to the left, right, front, and back.
For the interior, photograph the door before you go through it so you remember what room the photos were for. It makes it easier when looking back to use the doors to separate the photos between rooms. Make sure you get every room from floor to ceiling, including mechanical and electrical rooms.
Breakdown of tenants
Most properties, unless your client is running their own business out of it, will have tenants. For your cost segregation study, you’ll want a specific breakdown of every tenant they have. For apartment buildings or commercial properties, this will be a rent roll. For hotels, it will be a manifest of the hotel rooms since the tenants are short-term.
If you can get them, it will help you later on to have building plans in PDF or some other digital format you can easily refer to (digital is easier than paper).
These plans include:
- Site plans that show utilities, sidewalks, landscaping, and other site properties.
- Architectural plans.that include floors, finishes, elevations, and other details.
- Electrical plans that show power, lighting, distribution, and panel schedules.
- Mechanical plans that show equipment schedules.
- Plumbing plans that also show equipment schedules.
- Floor plans that provide measurements for each section of the property.
Documents needed for acquisitions
For acquisitions, the only separate document type you’ll need is the appraisal of the property made during the real estate transaction.
This appraisal will have a vast amount of detail that covers just about everything you need outside of thorough photographs. Ideally, you’re doing a cost segregation study recently after the purchase is made so there haven’t been major changes since the appraisal.
Documents needed for new construction and improvements
New construction and improvements will have more available documents than an acquisition property, but it is not as cut and dry. With acquisitions, the appraisal is the central document you can work from. With new construction, it’s more of a smorgasbord of different documents
Final AIA Documents
Large contracting jobs will use AIA (American Institute of Architecture) documents to log their work and receive payment. For larger builds, these documents become the gold standard for cost segregation studies. It tells you everything they’ve built or fixed and for what amount, so you easily can tally up improvements to the property.
However, you will need to make sure you have the final version of this document, as it will change often. If you have version 19 but your client has version 23, you’ll likely be missing some key information.
For a minor cost analysis, you won’t need this document as it’s more for a full cost analysis.
The contractor’s project budget summarizes all hard (direct) and soft (indirect) costs associated with the property. Some of these costs, especially the indirect costs, are not included in the AIA document, so you can use the budget document to compare against that.
This also isn’t relevant for minor cost analysis projects.
Concise cost ledger (for minor cost analysis)
When doing cost segregation for upgrades made over the years, you will need to do a minor cost analysis rather than a full cost analysis. The best document for this is a concise cost ledger for each year.
These documents should track all costs associated with low-end renovations for things like painting, landscaping, minor remodeling, new appliances, and updated lighting—these mini-breakdowns help you add up the total for qualified improvement property (QIP).
How to use these documents with SegStream Pro
If you have any or all of these documents, congratulations, you’ve done the hard part. Now that you have the information you need, SegStream Pro will guide you through a series of questions where you use that information to fill out all the information needed for your cost segregation study.
Instead of racking your brain for every detail you need, SegStream Pro takes the guesswork out of it by prompting you for the information. We’ve done thousands of these studies ourselves, which is how we designed proprietary software that makes it easier and faster for you to get through this process.
Interested in seeing how it works? Schedule a demo and we’ll be happy to show you.