The typical thought around cost segregation is that it’s complicated, expensive, and requires teaming up with qualified engineers to do. This holds many CPA firms back from taking on more cost-segregation clients, but it’s not always true.
When you use a tool like SegStream, you can replace the work these engineers previously did with an automated tool, as long as you have reasonable estimates for your client’s property measurements and materials.
Here’s why you don’t need to hire engineers for cost segregation studies, and how you complete more studies in less time without them.
The biggest misconception in cost segregation: the need to hire engineers
It’s a decades-old misconception that you need certain engineering credentials to take measurements and calculate costs for a cost segregation study. Yes, you need to know the measurements of your building and the materials for different components such as the floors, roof, doors, etc., but you don’t need to be an engineer to come up with this information. In terms of coming up with costs, automated programs like SegStream can help with that.
In the past, people were concerned that doing a study without an engineer would create quality and compliance issues. Back then, there wasn’t technology like SegStream that could help with this process, so it was helpful to get an engineer involved. It’s also true that on very large and complex buildings, it still might be helpful to use an engineer. However, for most properties, you can now get high-quality and IRS-compliant studies in much less time—without using an engineer.
The new way of completing cost segregation studies
Online tools and SegStream take care of work that engineers previously did on cost segregation studies. The new way of doing cost segregation studies comes down to these two key factors.
- Reasonable estimates for measurements and materials: While you need accurate measurements, you don’t need them down the exact inch. You can come up with reasonable estimations using tools like ReGrid, Google Earth, and LoopNet. You can also use your own photos to come up with reasonable estimations for measurements and materials.
Using both photos and online tools together will easily give you a complete enough picture to complete a cost segregation study in SegStream Pro, and you’ll get it done much faster than if you hired an engineer.
- Automated cost estimates: The other thing an engineer might do for you is help you estimate the replacement costs of your building materials. They may have used the RSMeans database to look up information for each piece of your client’s building one by one.
SegStream automates that work away. Because it’s integrated with the RSMeans database, SegStream will automatically calculate costs for each of your building’s components as you answer the questionnaire to complete your study. It will then automatically put each of these costs into different buckets for depreciation periods (5, 7,15, 27, or 39.5 years) to come up with the depreciable tax basis. This is how it allows you to complete studies in hours to days, rather than weeks to months.
Cost segregation is ripe for disruption and significantly higher ROI
According to our recent survey of CPA firms, The average firm takes on 28.5 studies at $7,000 per study and the average profit margins for small to midsize CPA firms is only 15-30%. When they switch to using SegStream, we’ve seen firms increase their profit margin to 85%.
So, even if they don’t take on more studies, the average CPA firm can increase cost segregation profits by around $125,000 just by switching to SegStream and eliminating the need for engineers.
On top of that, firms will be able to take on much more studies in less time, which will further increase profits. We’ve heard from many firms that they either turn down cost segregation work or outsource it to other firms. It can make a huge difference to profits and the ability to take on new business by automating this process with SegStream.