Are you wanting to get into the real estate game but don't know any of the lingo? Parse through this plethora of lessons where you will learn the meaning and specific application of dozens of real estate terms taught by the incredibly successful Michael Burer.
an in sunny San Diego with Michael "There-is-no-real-estate-topic-too-obscure" Burer. Talking about-- I mean this is a topic I know you're passionate about, it's one that's close to your heart. It's adjusted basis.
MICHAEL BURER: Adjusted basis.
CLAY CLARK: Now, the original cost basis of a property plus capital improvements, less total accumulated cost recovery deductions and partial sales taken during the holding period, that's what that means. I don't even know what that means. I just said those words, I don't know what that-- it was just like a weird out of body experience. Walk me through what-- give us an example, that the Thrivers can handle. What does this mean?
MICHAEL BURER: So that's a lot of words, but it's pretty simple. You buy a building for $100,000, maybe spend another $20,000 on tenant improvements, maybe $10,000, you put some new air conditioning in. Then your adjusted basis is going to be $130,000, so you add all that together.
CLAY CLARK: So it's whatever you bought it for plus all the stuff you put into it?
MICHAEL BURER: Yes, less any depreciation that you take.
CLAY CLARK: OK. Let's say I'm a Thriver, and I've decided-- I talked to one of the Thrivers the other day. And this guy's decided he's going to flip houses. So he bought a house, I don't remember the total, let's just say he bought it for $100,000.
MICHAEL BURER: Yep.
CLAY CLARK: And then he-- any of the money he puts in to fix it, and adjust it-- or fix it, and modify it, and improve it. All that together.
MICHAEL BURER: Once he adds all that up, that's his adjusted basis.
CLAY CLARK: And how often do you talk about this kind of term in real estate?
MICHAEL BURER: Well, you talk about it maybe when you're thinking about selling it. What's your profit going to be? You would use your adjusted basis, typically, to see what the net profits would be. Could also be a tax term, adjusted basis, if you're considering your depreciation. How much gain from a tax standpoint there would be.
CLAY CLARK: Michael, I appreciate you being here. And really if I could write it across the sky in calligraphy, it wouldn't adequately express how much I appreciate you being here.