See a pre-print of my Oct. 2009 Natural Gas & Electricity article on pricing schemes for gas pipelines. E-mail warner@bwmq.com to get a copy.
A family member called me recently about the tax consequences of her “short sale” real estate transaction. In a situation that is common in this economy, her family had moved due to a job transfer. The former house didn’t sell, so they tried renting. The rental situation worked for a while, then the tenants had to move back to their former house when a relative didn’t keep a commitment to a “rent to buy” transaction. The family needs to move on. They are hoping their short sale is approved by the bank. Another concern was about the potential tax consequence of forgiveness of part of the real estate debt.
In another recent experience, I became acquainted with several investors who have had problems/questions about Florida real estate purchases and with qualifying for real estate professional status. What is apparent from these and similar circumstances is that the tax law doesn’t work the same in real estate for everyone. Depending on the filing status of the taxpayer, adjusted gross income, extent of work in the real estate field and a host of other factors, tax results can be dramatically different for different investors. If you are thinking of investing in real estate now, due to the opportunity in the market, be careful, get informed, plan, but don’t be afraid. But,don’t assume that all of your losses will be immediately deductible. Like any other business, education, hard work and experience pay off.
In my consulting work in the energy sector, I have found that some operators are considerably more savy than others. Some companies understand creative financing, regulatory and investment strategies, others are less experienced. Regulatory factors are particularly important; real money must be spent to clear the necessary hurdles to navigate to the successful conclusion of projects and to profitable operations. But, if all this is done an energy franchise can be extremely valuable over time.
Early in my career a gas pipeline holding company I worked for was acquired by another big outfit that was seeking to diversify its portfolio. They wanted to find a good “cash cow” to invest in to get out of the ups and downs of their cyclical business. portfolio They did find that, but the analysis that was done by Wallstreet bankers at the time was poor. I have seen the analysis. The bankers didn’t understand the business, and didn’t spot the hidden assets that made the project ultimately a success. If the business had been what they thought, the transaction would have failed miserably. Hence, the need for careful due diligence and the involvement of people who really understand. Another factor in the success of the project was the value of the utility franchises that were owned by the acquiree. An analysis that looks primarily at existing assets can’t adequately capture the potential for growth project of such a franchise. Smart energy operators must understand the difference between regulated and unregulated profits, and how to generate high earnings.