Archive for Depreciation
The Führer Principle – Brandon Saylor
Posted by: | CommentsGreetings from Albuquerque, NM….
Below is an article from my friend Brandon…..again. He writes such great stuff….that….for obvious reason….I like to post it! Enjoy…until next time….rob
The Führer Principle
In grade school, I remember asking myself how could the German people elect someone as evil as Adolf Hitler. How could they allow such a monster to become supreme chancellor? Understanding how it happened is very important, mainly so it does not happened again. The significance of this newsletter will only make sense by looking through the lens of today’s events. Many of the main ingredients that led to the Nazi take over are present today. Recognizing the circumstances is the solution to history not repeating itself.
The beginning of the end for the Weimar Republic began with the Treaty of Versailles in 1919. For the German people, the treaty was humiliating. The treaty placed heavy restrictions on Germany much of which were embarrassing for the once proud nation. The German army was reduced to one hundred thousand solders and arms for citizens became non-existent. The initial German economic fatalities due to the treaty were shocking. Germany’s territories vanished overnight. Germany lost approximately 13.5% of its total land mass, 13% of its industrial productivity, and more than 10% of its population. Additionally, the loss of important mining regions such as the Saar and Upper Silesia resulted in a loss of some 74% of iron ore and approximately 25% of its coal reserves. Historians and economists have long deliberated the real effects of the treaty but one thing is for certain it lead to “deprivations that shattered their faith in the democratic process and left them cynical and alienated.” –G.A. Craig
Germany’s economic situation never improved. To keep up with the stringent demands of the treaty, the Weimar Republic faced hyperinflation never seen before in history. The German Mark ratio to the U.S. dollar was 4 to 1 near the end of the WWI. It was 8 to 1 in 1919, 250 to 1 in 1921, and 2000 to 1 in 1923. The Weimar government, at various times, faced food shortages, massive unemployment, and an unprecedented economic depression. By 1932, some 6 million Germans were unemployed. Millions of them were homeless living on the streets relying on soup kitchens and charity organizations. “Men standing hopelessly on street corners of every industrial town in Germany; houses without food or warmth; young people without the chance of a job. All these things explain the bitterness which burned in the minds of millions of ordinary Germans.”
The escalation of political violence in Weimar Germany must certainly be factored in as a contributory reason for the country’s political volatility. Beginning with the emergence of the Freikorps, which later became the brutal SS, formed units immediately after the declaration of the Republic. The tendency toward violence became entrenched in Weimar politics after the 1919 assassinations of Karl Liebknecht and Rosa Luxemburg. Large protests and riots became an all too familiar sight for the citizens of Germany.
Among the widespread disarray and frustration, the basic notion of a government was being questioned. What type of government could lead and govern the will of the people? This ongoing debate became known as the Führer Principle. The Führer Principle is established on the acknowledgment that the true will of the people cannot be revealed through plebiscites but that the will of the people in its natural and virtuous state can only be articulated through the Führer. Therefore, a difference must be drawn between the theoretical will of the people in a parliamentary democracy, which simply echoes the discord of diverse social perspectives, and the true will of the people in the Führer-state. Hitler took the Führer Principle and redefined it as himself…he was the Führer. Redefining the Führer was nothing short of audacious. It was captivating and alluring to many who were famished for change.
Many of the governing members in the Reichstag (congress) struggled to tame and communicate effectively to the youth of Germany. The Reichstag members continually doubted the youth’s ability to recognize a just government. Keep in mind most of Germany’s youth grew up in this chaotic state. Their view towards the government was distorted to say the least. The Weimar Republic only lasted 14 years but before that Germany spent the last 5 years in battle. A huge cohort of individuals only knew suffering and turmoil. Disconnect between the defenders of the former Kaiser rule and much more progressive governments were mounting daily. During the short lived Weimar Republic, Communism, Socialism, and a whirl of leaders/dictators were fighting for control.
Hitler knew very well that the youth’s mind were especially susceptible. This is exactly why he began with them. In the beginning, his messages were engineered for the youth. He knew the youth would be prone to messages of change and optimism. Joseph Goebbels (Hitler’s Minister of Propaganda) used propaganda methods to manipulate the masses. It was this desolate desire for change that gave Hitler his power.
The straw that broke the camels back for the Weimar Republic was the American Great Depression. The stock market crash of 1929 sent shock waves across Europe. The crash knocked Germany into the gallows. It was Hitler’s time to move. On September 14th, 1930, the Reichstag elections were held. The results were shocking. The Nazis had entered the register as the ninth and smallest of Germany’s political parties. The German people voted. The Nazis controlled 107 seats after that election. In November 1932, Hitler was defeated in the presidential election to WWI veteran Paul von Hindenburg. He received 42% of the votes. Hitler decided to enter a coalition government as chancellor in January 1933. Upon the death of Hindenburg in August 1934, Hitler become successor by popular vote.
Today, we are suffering the ongoing effects of the worst recession since the Great Depression. We are facing a global economic contraction. Greece is on the verge of insolvency and the US is limping along. Worldwide riots and protests have plagued the streets invoking for revolution. Frustration levels are swelling. This is the formula for calamity. However, it begins with the youth. Vladimir Lenin famously referred to youth uprisings as “useful idiots”. With the exception of the American Revolution, most revolutions in history conclude with a radical party seizing opportunity out of the political madness. People such as Hitler, Mao, and Lenin took advantage of a chaotic situation. I do not foresee a Weimar revolution of this magnitude anytime in the near future. Nevertheless, if we are not careful and mindful of the situation it becomes an unquestionable possibility. Education and knowledge of the truth is the only thing that will prevent history from repeating itself.
Have a great weekend my friends!
Brandon Saylor
-Associate
Understanding Depreciation – Does Depreciation Mean Less Income
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Depreciation? Is that good?
Greetings from the metropolis of Cedar Crest, NM.
Today’s blog talks about depreciation. Not the ugly type…i.e., “my house just depreciated by 50%.” No…this is the good type of depreciation that real estate investors love (the real estate “tax loophole”).
By the way, one of my favorite people and friend, Diane Kennedy, has a great site regarding Tax and Accounting information for the small business owner: www.TaxLoopholes.com.
Does Depreciation Mean Less Income?
Understanding depreciation is crucial to knowing the true value of your real estate. Depreciation is an accounting and business 
term that also applies to real estate. According to investorwords.com, the term depreciation refers to:
1. A reduction to an asset’s value by a non-cash expense like age, obsolescence or wear and tear. Most assets depreciate (lose value) and must be replaced upon termination of their useful lives. Depreciation, as a non-cash expense, increases a company’s cash flow while lowering its reported earnings.
2. A decline in a currency’s value when compared to other currencies.
For our purposes, we need only examine the first definition.
How Does it Really Work?
Accountants treat depreciation is treated as a line item on an income statement. Since depreciation refers to wear and tear and general age, it cannot be applied to the value of the actual land itself. Instead, equipment, buildings and other assets depreciate.
The standard IRS formulas for calculating your depreciation are as follows:
-Residential Income Property (any building with four units or less): Depreciation is applied over a 27.5 year period in equal amounts over each year of the asset’s useful life.
-Commercial Income Property (any other property): Depreciation is applied over a 39 year period in equal amounts over each 
year of the asset’s useful life.
Applying the depreciation equally over the asset’s useful life is also called straight-line depreciation.
To see how this works, let’s look at an example from invest-2win.com:
Example: You purchase a warehouse for $900,000. The land where the warehouse resides is valued at $120,000. The building is valued at $780,000. Current law allows you to depreciate commercial properties by equal amounts annually over 39 years. Your depreciation deduction for the first year is based on the mid-month convention. The day of the month that you purchase the property doesn’t matter. You can only deduct half of the first month’s depreciation. If you put the warehouse into service on June 1, you are allowed to deduct 6.5 months of depreciation for the first year.
780,000/39=$20,000 per year
6.5 X (20,000/12)=$10,833 For the first year’s depreciation
Accountants would calculate a full year of depreciation for the above warehouse (commercial properties) as: 780,000 X 2.56%=19,968 as a full year of depreciation.
A full year of depreciation for a residential income property with the same figures would be:
780,000 X 3.64=28,392.
How Can Depreciation Help Me?
As with any expense, depreciation is a deduction that allows you to write down your taxable income for the year. This means that you will have less taxable income and greater potential profit.
Real estate investors can take advantage of depreciation expenses on the buildings as well as land improvements or capital improvements. This means that certain upgrades you make to your property can help you reduce your tax liability. Land improvements include general landscaping and safety upgrades including sprinkler systems, sidewalks, or walking paths. Capital improvements include adding value to the building with items like an addition, making your office green with eco-friendly building materials or adding a roof.
Let’s look at one more example from invest-2win.com to see the depreciation on capital improvements.
Example: You have owned the above warehouse for about 7 years now and it is in need of a new roof. The cost of the new roof is $19,500. You are allowed to depreciate the cost of the roof over 39 years. If you put the new roof on in July, you are allowed to deduct 5 and 1/2 months of depreciation in the first year.
19,500/39=$500 per year
5.5 X (500/12)=$229 For the first year’s depreciation.
Accountants would calculate a full year of depreciation for the roof as:
2.56% X 19,500=$499.
Note that land improvements can be depreciated over a 15 year period using 150 declining balance.
Until next time……rob