The news media is all doom and gloom about the current real estate market, and the economy in general. But let me tell you. You can still make money with foreclosed property, especially in today’s economic climate. I’ve had great success with this, and it can work for you too.

But it’s crucial to separate the facts from fiction and ignore the hype.

Almost everyone approaches real estate investing with the same point of view. They try to convince themselves that they’ll make a ton of money quickly, without any risk whatsoever. You’ve seen many of those people profiled on evening news shows or in newspaper articles. They’re the ones who were caught short when the real estate bubble burst.

The get-rich-quick impresarios almost never reveal the full extent of the downside risk of the strategies they’re promoting. And the downside risk is a big deal for me.

Take, for instance, the "buy, fix, and flip" strategy. The days when you could make money doing this are over for the short term (the next three to five years). Why? Because buyers are scarce.

Despite all this, opportunities for making huge profits with foreclosed and bank-owned properties can’t be ignored … even by entrepreneurs who are coming into the market for the first time. This is especially true if you are able to acquire foreclosed or bank-owned properties at deep discounts.

But before you jump on the "foreclosed train," here’s something to keep in mind …

Just because a property is foreclosed or a bank owns it, does NOT make it a good deal. As with any business or investment opportunity, due diligence is necessary. Whatever your experience level, the best foreclosure deals can be identified through patient research.

The Perfect Insider Strategy

The current trend in real estate emphasizes rental revenue (versus appreciation). That’s why foreclosed and bank-owned property is worth a look.

If people can’t afford their homes or condos, where will they live? Smaller, more modest homes and/or rentals. So there are still buyers and renters out there, but they are looking at smaller, cheaper properties. That’s where the opportunity lies for you.

One way to capitalize on this current market demand is to acquire foreclosed homes or bank-owned properties – at deep discounts − and rent them out. When I tell you to purchase at deep discounts, I’m talking about buying from desperate sellers – sellers who must sell, no matter what.

Billionaire real estate developer Sam Zell is known as the "Grave Dancer" because he gets interested in a property when it’s almost dead and gone … and no one wants it. You should take a similar approach if you want to make money with foreclosed and bank-owned property.

One of the largest banks in the world is Bank of America. They have a new website featuring hundreds of bank-owned properties for sale. You’ll be amazed at some of the deals. But don’t go hog wild. Be patient and develop a clear strategy for your business.

Before You Get in, Know the Downside

Buying foreclosed property can be a lot of fun and it can be very profitable. But it’s important to avoid the typical foreclosed property "spin."

If a renter’s bull market develops, you’ll want to be sure you’re not left holding the bag. So always consider the worst-case scenario. There’s always a possibility that something will go wrong – especially when it comes to real estate.

Consider the fact that millions of so-called investors who were planning on making big bucks with their "buy, fix, and flip" strategy are now holding properties that are worth less than what is owed. Most of the homes the flippers are trying to unload are too nice (or pricey) to offer as rentals. But what if hundreds of those fixer-uppers hit your market at the same time?

In larger cities, renters have been easy to come by. But what happens if the rental market softens or collapses? Can you afford that foreclosed or bank-owned property you have your eye on if the rental income goes down? This is a calculation you must make before buying.

Let’s say you’re looking at a foreclosed property within two miles of a Super Wal-Mart for $50,000. (A potentially excellent investment.) Let’s say the mortgage payment is $415 a month ($50,000 at 5.75 percent for 15 years).

Your objective would be to recoup the cost of your mortgage payment, simple maintenance, insurance, property management, taxes, and background checks on prospective tenants. And let’s say those expenditures add up to $650 month. So, in this case, you’d need to rent the house for $650 to cover expenses.

In most areas of the United States and Canada, this property would be fairly easy to rent. Of course, if hundreds of inexpensive rental properties suddenly hit your market, renters would have a smorgasbord of options. Bad for you. However, few of the "buy, fix, and flip" real estate investors and developers are likely to be in this particular market. The kind of properties they’re sitting on would have to rent for far more than $650 a month.

Sam Zell is confident the trend toward rental revenue (versus appreciation) has already begun. This doesn’t mean a foreclosed or bank-owned property will not appreciate. But don’t count on it. Instead, focus on patiently acquiring deep-discounted properties that will provide you with rental revenue. In 10 years, when it’s time to get back into "buy, fix and flip" real estate, you can sell all your rental properties for cash, or just sit on them with mortgages paid in full.

What happens if other landlords sweeten their deals to renters by including heat, electric, and water? This may happen in apartment buildings, but I don’t see it happening in single-family home rentals. You’ll have to adjust your strategy accordingly if this occurs. But I think you’re safe.

As with any business, you should expect the best but prepare for the worst.

The Big Upside

Despite the risks, there’s a big upside to buying foreclosures. Because foreclosed property can often be purchased for less than market value.

Contact the top 20 mortgage lenders in your state. Ask for the Real Estate Owned (REO) department. They’ll send you a list of REO properties that are currently available. Banks typically sell foreclosed properties "as is," and buying them is like buying anything else "as is": There are no warranties or guarantees. However, you can review the property (and its assessed value).

The next step is to submit an offer to the bank (with proper due diligence, of course). The bank will often return with a counter offer that is higher than you expected. If you feel the property still has tremendous potential, you should counter their offer with a new offer.

Granted, locating and purchasing a property before it reverts to the mortgage company is always the best way to go. But REO properties give you a way to get started quickly. The main objective is to find smaller homes at deep discounts and rent them out to qualified tenants.

If you purchase two deep-discounted properties this year and two each year thereafter for the next 10 years, you’ll have 20 rental properties. The debt service on those properties should be very manageable.

Let’s say you rent each of your 20 homes for $1,250 per month. If the debt service, taxes, insurance, and maintenance on these homes is $12,000 (about $600 per property), you could conceivably net $13,000 per month.

I hate generic illustrations. But if you work the numbers, you’ll find that acquiring deep-discounted bank-owned properties with a view toward renting them makes sense.

Hundreds of bank-owned property websites are popping up every month. Why? Because banks are not in the real estate business; they are in the money business. And so they are eager to get these properties off their books.

Getting Started

Okay. So how do you get your hands on deep-discounted foreclosed and bank-owned properties?

There are many sites on the Internet that list foreclosed homes for sale. And, of course, real estate agents always try to get in on the action. Though they seldom tell you about properties that are not listed by their agencies, it is possible to find agents who are unbiased and knowledgeable.

Here are some sites to help you locate deep-discounted foreclosed and bank-owned properties:

• HUDWorks.com
• RealtyTRAC.com
• iForeclosures.com
• Foreclosure.com
• FannieMae.com
• BidSelect.com
• ForeclosureNet.net
• Countrywide.com
• BealBank.com
• DowneySavings.com

Don’t be scared away by all the negative press the housing market is getting. It IS possible to make a great living and build substantial wealth by purchasing foreclosed and bank-owned properties.

[Ed. Note: You don't have to limit yourself to traditional ideas when you're thinking of ways to make money. Plenty of profitable opportunities exist just out of sight. Marc Charles - the "King of Business Opportunities" - can show you just where to look for unique and sometimes unusual possibilities.]

Tens of thousands of amateur investors bought into the "spec-home" hysteria during the heyday of the real estate boom and built huge luxury homes. Building a house "on spec" ("spec" is short for "speculation") means that you purchase a piece of property and build a house on it that you believe will sell quickly… at a huge profit.

A friend of mine built such a house (and acted as the general contractor) on an oceanfront lot not far from where I live. He worked on the house for about a year and a half. One problem he encountered was finding reliable, quality-conscious workers. He hired as many freelance carpenters as he could get his hands on. His house was finally finished… but it’s been on the market for almost two years!

Though there may be some exceptions (in Vienna, VA, Orlando, FL, or Las Vegas, for example), building spec homes is a fool’s game in today’s market. You could easily be left holding the bag.

There’s an old adage in the financial markets: "The trend is your friend." Well, the same holds true with real estate.

One recent trend is toward smaller homes and apartments in the "new exurbs" – and that’s where your real estate money should be invested.

What the Heck Are the New Exurbs?

* The new exurbs are typically three to four hours (or more) from major metro areas. They have access to clean water and dependable utilities. The new exurbs are typically not an easy commute to a big city. The new exurbs are not the suburbs!

• The new exurbs have an educated population that is generally tech-literate. There is typically a concentration of ex-corporate professionals and entrepreneurs.
• The new exurbs tend to have quality restaurants, small museums, and entertainment (but obviously on a smaller scale than in the big cities). And in the best-case scenario, there will be a private or municipal airport nearby.
• The new exurbs are almost always clean, quiet, and scenic, and often border national or state parks.

Some examples of the new exurbs in the U.S. :

• Telluride, CO
• Laconia, NH
• Coeur d’Alene, ID
• Sedona, AZ
• Hilton Head Island
• Jackson Hole, WY
• Marshalltown, IA

In Canada :

• Mission, British Columbia
• King City, Ontario
• Airdrie, Alberta
• Carleton Place, Ontario
• Leduc, Alberta
• Vancouver Island

I’m not talking, here, about developing spec homes in those places. As I said, that’s a fool’s game. I’m talking about buying existing properties in the new exurbs that you sell or rent to the people who are flocking there.

The idea is to find small (two- or three-bedroom) homes, apartment buildings, or lots that are not overvalued.

If you can find properties below market value that can be easily updated – that’s even better.

Another strategy would be to buy modular homes or apartment buildings that could be used as long- or short-term vacation rentals.

Where Do You Find These Gems?

The trend toward investing in real estate in the new exurbs is still young. But it will pick up steam as people continue to exit the large metro areas and suburbs.

Properties that can be bought below market value will usually be bank-owned or have highly motivated private sellers. They won’t be easy to find. But, generally speaking, you’ll have the most success if you look within a few miles of the center of town.

Start by investigating the new exurb areas that are most appealing to you. A great "instant properties check" tool is Intelius.com (a fee-based service). Trulia.com is another hot tool.

Once you’ve targeted a few neighborhoods, set your New Exurb Real Estate Strategy – and go! The new exurbs will prove to be the next big thing in real estate.

[Ed. Note: Marc Charles, "The King of Business Opportunities," has launched more than 40 profitable businesses in the last 25 years. If you're looking for more ways to earn extra income, Marc's weekly Profit Center Dispatch service reveals some of the hottest business opportunities around and how you can get started. Marc also includes insider tips to accelerate your success.

To learn more about wealth-building strategies - including investing advice, entrepreneurship opportunities, and real estate investing techniques - check out ETR's "Profits in Paradise" Wealth Building Summit this April. For more information, click here.]

Many real estate developers and investors use a simple formula to calculate net income when evaluating the viability of an investment property. And there’s nothing wrong with that formula.

Example: Let’s say you are going to purchase a single-family home for $250,000 with the intention of making it a rental property. The monthly costs to maintain the property are $800 (principal, interest, taxes, insurance, and maintenance). The property rents for $1,500. This leaves you with a net income of $700 ($1,500 – $800).

But my friend and mentor PS taught me another way to analyze a real estate investment. The best part of his formula is that it can open up your eyes to possibilities you never even considered.

PS made two fortunes in real estate. He made his first fortune the way many others did – by acquiring homes, medical office buildings, strip malls, and apartment buildings at deep discounts and then selling them for a profit. He made his second fortune in a more unusual real estate market: self-storage.

Now many investors discount offbeat real estate investments like self-storage. But when you apply PS’s formula, you can see how much money you can stand to make from them.

His formula figures out the actual revenue per square foot of an investment property. It doesn’t sound particularly special. But when he showed me how to apply it to a variety of real estate investments, I was shocked when I saw the numbers.

The Actual-Revenue-Per-Square-Foot Formula is calculated as follows:

(A) The total revenue of a real estate investment divided by (B) the total square footage of the investment equals (C) the actual revenue per square foot that is generated.

For example, a typical 1,500-square-foot single-family home in Chicago, IL generates $2,000 per month in rental revenue.

Doesn’t sound too shabby. But once you apply PS’s formula, you find that you’re making only $1.33 per square foot. ($2,000 divided by 1,500 square feet).

A typical 10-unit medical/professional office building in Cambridge, MA rents for $1,200 per unit (725 square feet each). Ten office units x $1,200 per unit equals $12,000 per month in rental revenue. $12,000 divided by 7,250 square feet (10 units x 725 sq ft) = $1.65 actual revenue per square foot.

Of course, this example assumes 100 percent occupancy, which is rarely the case. Lower occupancy would reduce the actual revenue per square foot. Still, you get the idea.

Let’s do some more calculations using the Actual-Revenue-Per-Square-Foot Formula:

Strip Mall (10 units)

$15,000 in total rental revenues per month. $15,000 divided by 12,500 total square feet = $1.20 actual revenue per square foot.

Apartment Building (8 units)

$7,800 in total rental revenues per month. $7,800 divided by 6,600 total square feet = $1.18 actual revenue per square foot.

Duplex (2 rental units)

$2,500 in total rental revenues per month. $2,500 divided by 1,900 total square feet = $1.31 actual revenue per square foot.

Marina (35 boat slips)

$22,750 in total boat slip rental revenues per month. $22,750 divided by 19,000 total square feet (the entire property) = $1.20 actual revenue per square foot.

Vacation Home

$2,500 in total rental revenues per month. $2,500 per month divided by 2,100 total square feet = $1.19 actual revenue per square foot.

Multi-Use Building (4 residential apartments/ 3 retail spaces)

$9,500 in total rental revenues per month. $9,500 per month divided by 6,500 total square feet = $1.46 actual revenue per square foot.

Mobile Home Park (45 spaces)

$32,625 in total space rental revenues per month. $32,625 divided by 87,120 total square feet (the entire property) = $.38 actual revenue per square foot.

As you can see, the Actual-Revenue-Per-Square-Foot Formula paints an interesting picture for just about any real estate investment.

Depending on the property, there could be variables that will affect the formula – like occupancy rates and revenues in addition to rentals that the property might bring in. For example, in my Marina and Mobile Home Park examples, there could be additional revenues from selling supplies, gas, and so on.

But, generally speaking, the Actual-Revenue-Per-Square-Foot Formula will tell you how much money you are receiving per square foot. And that will help you maximize the money-making potential of any real estate investment.

As I said earlier, this formula can also help you take a fresh look at some types of real estate that you might not have considered before. For instance, let’s look at private mailbox rental services. Pak Mail and The UPS Store are two of the most popular names here.

A typical Pak Mail location has about 650 total square feet of space and about 175 private mailbox units measuring 6" wide by 12" deep (about half a square foot). The average monthly rental fee for one of those mailboxes is about $25. Here’s the calculation:

$4,375 in total mailbox rental revenues per month (175 units x $25 each) divided by 650 square feet = $6.73 actual revenue per square foot! Far more profitable than any of my other examples. And this doesn’t even include revenue from packing supplies and other products that these stores sell.

Of course, you have to consider more than just actual revenue per square foot. On a financial spreadsheet, you would want to figure in not only additional revenues that a property might bring in, but also such things as operating expenses, property taxes, maintenance, and payroll (including employee benefits). And in the case of mailbox rental services, you have to consider the fact that these places are franchise operations. Maybe not the kind of investment you want to be involved in.

An unconventional real estate investment that I like better than mailbox rental services is self-storage. Not only are operating costs practically nil, but you don’t have to deal with tenants or customers. Plus, the typical 225-unit self-storage operation comes out ahead of many conventional real estate investments in terms of revenue per square foot. Here’s the math:

$33,750 in total rental revenues per month (225 units x an average of $150 per unit). $33,750 divided by 23,500 total square feet = $1.44 actual revenue per square foot.

Test the Average-Cost-Per-Square-Foot Formula on any real estate investment you’re considering – especially if you’re trying to decide between two likely opportunities. It will help you decide which one is the better candidate.

It can also help you make sense out of possibilities for increasing the actual revenue per square foot of properties you already own or are thinking of buying. For example – if zoning ordinances allow it – you might be able to add self-storage units to an office building, multi-use building, or strip mall.

[Ed. Note: Marc Charles, "The King of Business Opportunities," has launched more than 40 profitable businesses in the last 25 years. To learn more about how Marc is tapping into the multibillion-dollar self-storage industry, click here.

For more wealth-building strategies - including investing advice, entrepreneurship opportunities, and real estate investing techniques - check out ETR's "Profits in Paradise " Wealth Building Summit this April. For more information, click here.]