Why Real Estate Investment Is Key In 2008

Real estate investment in 2008 in the USA seems bleak at first look. However the scenario will not play out as long as players in the market stick to their core business. It is imperative that real estate and property investors begin to become cognizant of the fact that land and building investments are not for the short term. These are long term investments for much more reasons than one.

Primarily it seems that there might be an increase in capital gains taxes; this could surely prevent the quick sale of property and hence force investors to hold on to real estate for longer than one year. As the demand for property remains at a virtual standstill, the supply continues to increase as investors scramble to sell properties before they incur losses. This coupled with record setting foreclosures in most states in the USA leads to a major downturn in prices.

A bump up in capital gains taxes would alleviate this ongoing pressure on supply. That being said many real estate agents still see this as a buyers market. Though many investors get caught up in the jargon of when the market will bottom out, there is a clear difference between capital gains and cost to replace. If you can find the cost to replace a property, then you have an idea of what is its bottom price. Capital gain really is just your profit, which is the difference between what you sold the property for and what you paid for it.

A simple explain is your profit and or loss in the transaction. Once you can ascertain the replacement cost and match that to the sale price then you can actually find what the bottom price is. This means if you find a property that the sale price is below the replacement value then it’s a sure buy and hold.

California real estate had recently faced a major problem as it pertained to actual replacement values and sale prices. As real estate prices in California plummeted it seemed that there would be no end in sight as foreclosed property prices fell below replacement value.

Yet it seemed strange that no buyers were snapping up the market. The problem of draw downs had reared its ugly head. The draw down in real estate is really how low the investor can go. Lets take for example a property is purchased for USD$250,000 and within 6 months the property falls to USD$175,000 due to the sup prime mortgage crisis. The investor might be inclined to sell and cut his/her losses. However if the investor holds the draw down of USD$75,000 remains and when the price begins to go up then they continue to hold recover the losses and wait until they begin to see a substantial profit.

Hence real estate in the USA is now a buyers market – the key equation is sale price = < replacement value.