Purchase Establishes Basis - Sale Determines Gain Or Loss
If there is one lesson to be learned from all of this calamity in the real estate market, it is that your gains or your losses are similiar to those in the stock market - they are tied to the point in time at which you acquire or sell an asset.
The goal, naturally, is to ‘buy low and sell high’.
Many people who bought real estate during the peak of the market feel that they have lost money. But have they lost money? Only if they sell.
Take someone who had bought a $200K home two years ago that might be worth $180K right now. Have they lost $20K? Only if they sell the property. Until they actually sell the home, the loss is only on paper. That same home could be worth more than $250K in five years - but if sold today, the loss will be finalized.
Some homeowners believed that they had actually made money when their home values went up - and then used second mortgages or equity credit lines to convert equity to cash. The reality is that they were simply borrowing more money.
The smart money - in both the stock and real estate markets - is chasing distressed assets. Why do you think world-class investor Warren Buffett just invested $5 billion in Goldman Sachs and $3 billion in General Electric?
Depressed markets provide the best buying opportunities, and the current market is no exception. If you are forced to sell in this market, you will be transferring your profit potential to the next owner - just like the big banks are doing right now.
In times like these - it’s good to be a buyer.
As always, if you have any questions regarding real estate in the greater Atlanta area, feel free to contact me here.