Answer:
Yes. In the US the tax is called recapture. You get taxed at a specific tax rate for the value recaptured. The precise details can be supplied by a CPA. It is likely to be something that is in the TaxPro software though I do not use the package as I have a CPA handle my returns.

Thanks Di
http://myhomewindowblinds.com

“In both the short sale and in a restructuring the lender is being pragmatic.” Great Quote.

Cheers,

“Investing in real estate as a way to fund your retirement?”… make sure they are not too close to the coast, as the global warming effect may turn that investment into the sea in 20 years time…:-)

Hey John,

Had a question regarding REO’s…Does the lender let you know if there are other offers in besides yours, and if they are higher? As a bidder are you privy to such information?

Thanks,

Lonnie

John Corey replied:

Assuming that the bank is like any other seller. They have the property listed in most cases. They will not talk about other bids. This is not an auction. If there are other bids then expect a counter if you are low. Not guaranteed. Also expect that the bank is slow to respond. They might have a weekly meeting to discuss offers so it can be a rather slow process even when there are no other bids.

At some level just forget what the others want to pay. Pay what makes sense to you and if you get outbid then potentially that is a good thing. It will tie up the other bidder so they are not bidding on the next deal.

John Corey replied: The concept is cash will find its way to the best deal. Hence you would not pay more for one property than another if they are really the same. You also would not buy commercial property as an investment if there are other investments out there which provide the same risk/reward trade-off.

How to decide what something is worth is to compare it to the alternatives. For residential this means looking up comparable sales. 3-4 houses that are the same in almost all the major factors and which have recently sold. The market will effectively pay the same for houses that are the same.

For commercial you look at the income after expenses. You compare that income stream to other streams of income (other commercial properties, bonds, etc). You then adjust if the risks are different but otherwise one stream of income is worth the same as another.

Compare, compare, compare. Cash is King while RE is somehow less valuable.

There are two other concepts that are at work.

When doing a deal, a real deal with upside…

What is the motivation of the seller? They could have reasons for selling that is forcing their hand. Motivated sellers are the key to a good deal.

Second, is the idea of improvements or higher and best use. Many times there could be ways to force the value of a property up through changes. Improve the structure, change the cash flow by reducing the expenses and raising the income. Hence you are buying an opportunity where active management will make for a better situation. Hence the price paid does not reflect the future value. Note that you should never pay tomorrow’s price today. If the seller wants to realize the gain that would be possible from improvements let them make the improvements before they sell. Otherwise they get no more than the as-is value based on today’s situation.

John Corey replied: I would pick up a copy of Wealth Protection by William Bronchick. It is an inexpensive book that provides a great introduction to the topic. Note that it is very clearly stated that trusts do not provide liability protection. Many investors misunderstand trusts. Bronchick is a lawyer and a RE investor. The book costs less than $20 on Amazon and it is in many of the larger bookstores (the ones with a RE section).