The underlying problem of the current credit crisis around the world is US
housing prices.   Despite radical steps taken by the FED and the Treasury
it seems hard to believe the problems will go away until the fundamental problem
is resolved.

What’s the fundamental problem? one might ask.

Housing prices.  If housing prices don’t bottom then nothing else can.  Since so
much of the economic growth of the last 6 years has been housing driven (and
based upon growth of credit/debt) nothing can truly settle down until housing
prices stabilize.   Who knows when that might happen.   It seems to me, people
are just catching on to the problem and that despite the ranting and raving of those
on wall street, there’s been no wide spread panic among consumers.

Without deep panic or “contrition” of the market, it’s hard to believe we’re anywhere
near a bottom in housing prices (despite what your realtor might be telling you).
Naturally, some markets are further along in the correction cycle than others, but
it still seems to me that the bottom is not quite visible on the 6-12 month horizon.

Despite this fact, there are real opportunities in the market right now.   Some sellers
are really hurting and willing to sell for far less than what they once thought the home
was worth (good news for real estate investors).   In addition there are big opportunities
in foreclosures as banks need desperately to improve their balance sheets are are willing
to let the homes go at a substantial loss.

So as always, do your homework on each property you look, but it seems clear it’s going
to be a buyers market throughout 2008!

It’s not advisable to invest your own money in a real estate as for a few very important reasons. First, you you tend to give most of your profits away by not leveraging your investment. Second, real estate is a very risky business – you don’t want to jeopardize everything you have.

This is not to say that real estate investment is all about losses. On the contrary. if you know how to make money work for you, you may actually garner a great deal of money in return for your investment.

Here’s how:

If, for example, you purchase a $100,000 property that increases an average of 7 percent per year (in reality that number could be higher or lower), you would see a net profit from renting your property resulting in an approximately 15 percent return.

If you’re content with little return of investment, you might settle with your 15 percent return. But if you really want to earn on your investment, consider the possibility of what leveraging can do for you. At present, a typical real estate investor can find financing as high as 95 to 97 percent of the purchase price. There even some instances where you may be able to get a 100 percent financing but we won’t use this for our example as it’s an inadequate comparison.

So, if you’re are an investor who is already content with a smallreturn of investment then 15 percent sounds like a lot. But for those who really want to make it big in the real estate, 15 percent is far from being considered a noteworthy return.

How does leveraging work?

Let’s assume that the rental income will cover all your expenses, including the mortgage payments. Taking the same example, a 7 percent appreciation of your property results in a $7,000 profit per year. With a 95% financing in place, you’ll be able to get a $7,000 return on $5,000 (your 5 percent down payment on a $100,000 real estate property). This will provide you with a 140 percent return on your investment. Not only that, with the same $100,000 you can go out and purchase 20 investment properties, finance 95% percent of them, and make an amazing $140,000 profit a year. This totally beats the $15,000 profit with an all-cash transaction.

In terms of the additional 20 properties, expect to have a hard time getting financing for them since usually only five or six new rental property mortgages are the maximum that lenders presently allow. Which is why you need to have an above-average negotiation skills.

By Stu Pearson

There are several sellers you can turn to for a foreclosure:

1) The government. When a home owner defaults on a home loan insured by the government, the government pays the lender for the money lost through the loan. In exchange, the lender hands the home over to the government agency and the government then sells the property in order to make up the money that has to be paid to the lender. From the government, you can buy an HUD foreclosure, a VA foreclosure, and a Fannie Mae foreclosure.

2) Banks and other lenders. When a home loan is not insured by the government, the lender has all the responsibility of a bad loan. This means that when the owner defaults, the lender repossesses the property and tries to sell it themselves or through a third party.

3) The owner. When an owner knows that foreclosure is imminent, they still have the option of selling the property as a pre foreclosure and paying off the lender. This saves their credit and may give them some cash.

Buying a pre foreclosure can be risky but can also give an investor some great deals in real estate. However you buy a foreclosure, you can expect certain benefits. Most of the time, a foreclosure is sold under it’s market value, which means that you can buy this sort of property very inexpensively. Since a foreclosure may have been neglected for a while and since the seller wants to get rid of it fast, you can expect savings of 5% to 50% and more when you buy a foreclosure. This means that you enjoy instant equity you can use right away. The low price also means that you can offer great deals on the property to your own buyers and renters. Plus, the low price and equity you get on a foreclosure can mean very affordable financing, so that you save money all around, which an boost your bottom line. With these benefits, you may want to buy a foreclosure of your own. Don’t look in your local real estate section, though - most foreclosure properties are unadvertised. The best way to find a foreclosure is to subscribe to quality foreclosure listings.

Good foreclosure listings offer frequently updated lists of foreclosures that are available for you right now. Online foreclosure listings such FreeForeclosureDatabase.com make finding a foreclosure a snap, no matter where you live. Plus, you can browse FreeForeclosureDatabase.com for free. No registration is required, so there is no need for you to pay big bucks to make money with foreclosure properties. If you are ready to for the next level of real estate investing, look for foreclosure opportunities with FreeForeclosureDatabase.com to make your investing money stretch much further.