Building A vs Building B — the real decision

Cumulative cash you actually pocket, $1,000,000 in each. Not the flyer math — the honest math.

Building A · newer (≤20 yr) · 5% net · expenses 20% of rent · + cost seg Building B · older · 6% net · expenses 27% of rent · no cost seg Tax bracket 37% Cost seg pulls 20% forward = $74k tax cash, year 1

Building A — 5% + cost seg

Building B — 6% on paper

Building B — 6% after honest capex reserve

Factor	Building A (newer)	Building B (older)	Edge
Headline return	5% net	6% net	B
Keeps per rent $	80¢ (20% exp)	73¢ (27% exp)	A
Hidden capex (roof/HVAC/pipe)	10–25 yrs of life left	Time bomb — NOT in the 27%	A
True return after reserves	~5% (real)	~5% or less (mirage)	A
Cost-seg payoff	Bigger — fresh basis, more short-life parts	Smaller / worn	A
Insurance & financing (FL)	Cheaper, easier	Pricier, harder	A
Year-1 cash	$124k ($50k + $74k tax)	$60k	A

Only flip: if B is a deliberate value-add — bought cheap below replacement cost to renovate and force rents, with capex already budgeted. Different game.

Verdict

Take Building A — newer, low expenses, 5% + cost seg.

On paper B's 6% ties A around year 8 (amber crosses blue). But B is old — reserve honestly for the roof/mechanical/plumbing the 27% ignores, and B's real return drops to ~5% (the dotted gray line). Then A wins by the $74k cost-seg head start — forever.

The extra 1% on B is fake yield you pay for with real risk. Cost-seg the newer building and you get the better business and the tax break.

Assumes returns are net (cap rate). If they're net, don't subtract the expense ratios again — they're baked in; the age / capex / cost-seg story alone still hands it to A. Built 2026-07-01.