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Dear Centa:
I was reading some articles on your website with regards to buying a rental
property and was wondering if there is a standard used or a method for
allocating the cost of a rental property between the building and the land.
I am looking at an older property valued at $100,000 but don't know how much
will be allocated to the building and to the land.
Thanks
TXXXXXXXXXXX
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david ingram replies:
It is a black art. I spent four years at UBC getting a diploma in Urban Land Economics and then finished all the CREA (Canadian Real Estate Association) course in Comparative Market analysis and I have bought and sold over 2,000 individual properties under $100,000. If anyone should be able to tell you, I should.
However, it is usually just an educated guess or we use the figures on the municipal property assessment which always separates the land and the building.
The biggest problem is that most people consider the land to always have its price. Therefore, if the bare lot is worth $90,000 and you buy it for $100,000, the building portion must be $10,000. However, if you are renting the inside of the building for $1,000 a month and the tenants do not do anything with the yard except walk down the sidewalk, it means you are getting a $1,000 a month for a $10,000 bldg which does not make sense either.
Sometimes (quite often in fact) builders will end up selling a building for less than they paid for the materials and throw in the lot as it were. A brand new building must have a value and if you pay less for the whole thing than the construction cost 120 days ago, whatever you paid must be for the building.
In practice, for tax purposes, we usually use the municipal assessment in the following manner as an example.
Let's pretend that the July 1, 2003 assessment was for $20,000 for improvements and $60,000 for land for a total of $80,000.
If you pay $96,000 for it, we would take ($20,000/$80,000) x's $96,000 and conclude that the building was worth $24,000 and the land was worth $72,000
Just the Proportion. This does not work, of course, if the building has just had $100,000 of improvements made to it since the last municipal assessment..
Confused? me too.
David Ingram's US/Canada Services
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Res (604) 980-3578 Cell (604) 657-8451
(604) 980-0321
New email to [email protected]
www.centa.com www.david-ingram.com
Disclaimer: This question has been answered without detailed information or consultation and is to be regarded only as general comment. Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader & the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent financial, or real estate planner or advisor & appropriately qualified legal practitioner, tax or immigration specialist in connection with personal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included."
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multi jurisdictional cross and trans border expatriate problems for the United States, Canada, Mexico, Great Britain, the United Kingdom, Kuwait, Dubai, Saudi Arabia, South Africa, Thailand, Indonesia, Egypt, Antarctica, Japan, China, New Zealand, France, Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia, Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran, India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba, Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK, GB, American and Canadian and Mexican and any of the 43 states with state tax returns, etc.
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another similar question will be as we lump them.
You may find more answers at www.centa.com
David Ingram of the CEN-TA REALTY Group
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
(604) 980-0321 - Fax 913-9123 [email protected]
www.centa.com www.david-ingram.com
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