Are you looking for a great place to invest your money or buy a vacation home? Consider Sarasota, Florida has a great place to plunk down some money. Home prices have been slashed in half in many areas of Sarasota. Interest rates are near all time lows, property taxes are down, there are plenty of great properties to buy and prices have dropped dramatically.

Sarasota FL real estate prices have dropped so much that it is now possible to buy a property and achieve a break even or positive cash flows. Sarasota has not seen that in many years. In some sections of town prices are back to 2000 levels. It won’t stay like that forever.

Many real estate investors use cash flows as a way to value property. Commercial real estate is often valued using the capitalization rate or cap rate. For example, a warehouse might produce a net income of $100,000 a year and you can buy it for $1,200,000. That is a cap rate of 8.3%. Investors use this formula to determine the quality of the investment. There are other factors such as location, condition, stability of cash flows etc.

If you were to use this method to analyze Sarasota FL real estate over the years you would notice an improvement in the cap rates. Take a home that was worth $200,000 in 2005 that produces a net income of $10,000 a year. That is a cap rate of 5%. That same house may now only be worth about $80,000 and still produce similar cash flows. If you estimate a $9,000 net profit then the cap rate is now 11.25%.

Where else can you invest money and earn 6.6%? You won’t find it in a government bond or a bank certificate of deposit. This increased rate of return has attracted many real estate investors. As prices drop the rate of return continues to increase. Many Sarasota homes are selling under $100,000 that will generate $7,000 - $10,000 a year in cash flows. That provides an attractive rate of return.

Some real estate experts figure that the floor in real estate prices is found when an investor can receive a better rate of return in real estate than other investments or where someone can buy a house with debt and produce a break even cash flow. If prices continue to fall the rate of return on real estate will increase and thus attract more investors. In theory, this should ultimately eat up excess inventory, produce a more balanced market and eventually kick start higher demand and thus higher real estate prices.

Will you accurately predict the bottom of the Sarasota Florida real estate market?

Most likely not. Some will buy before the bottom, at the bottom and after it. If you make a purchase within 5% of the bottom then you should consider that a good purchase price. Your time frame for owning should be several years.

The real estate boom spoiled many people. They were making lots of paper money on their property every month. Home buyers came to expect these huge returns. This greed created the real estate bubble. Before, the boom years when real estate wasn’t so hip investors bought a property expecting to buy and hold. Real estate was a buy and hold investment. That changed during the boom years when people wanted to buy for a few months to only a couple of years. We are back to old real estate where it has become a long term investment again. Good things take time.

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