I grew up in a small farming town in Alberta, Canada. For 17 years, I was surrounded by farmers – and I never met a single one who’d even consider eating his seeds instead of planting them. They just wouldn’t do it. Neither would they harvest a crop early.

Yet that’s what many real estate investors do when they spend every penny their rental properties make, or when they sell as soon as a property has appreciated to just a fraction of its potential.

Sure, they’re better off than if they had never invested in those properties to begin with. But they’ll never get rich that way.

Instead of spending every penny a property makes for you, save it. Instead of selling as soon as a property has some equity in it, use that equity – and the money it made for you – to buy another property. That’s how you maximize your profits. If it’s making you money, let it keep making you money.

In his bestselling book Automatic Wealth, Michael Masterson says: “Here’s a promise: If you haven’t ever invested in real estate but you start this year, you’ll be glad you did. If you keep investing – buying at least one new property a year (which will be easy once you get going) – you will be a real estate multimillionaire when you retire.” Of course, Michael cautions that you don’t want to buy just any real estate. You have to do your homework and “buy right.”

Invest in real estate the way a farmer invests in his land. Plant your seeds. Let them grow. Keep an eye on them, giving them a bit of water and fertilizer here and there and doing some pest control. Then – when the “season” is ending in that market area or you’ve got a dozen houses that are making you rich – reap your rewards.

[Ed. Note: For more insider strategies for getting started as a real estate investor, sign up for real estate expert Julie Broad's free monthly newsletter. Get your free report for making money with real estate here.

For a unique, nearly automatic way to make money in real estate during the ongoing foreclosure boom, check out the Bandwagon Raiding Machine.]

When negotiating to buy a property, I increase my chances of getting the exact deal I want by giving the seller options.

One way I do it is by negotiating the financing terms I want at the same time as I negotiate price.

Let’s say I wanted to buy a certain property for $200,000. If I can convince the seller to provide financing at a reasonable rate, I’d probably be willing to pay 5 percent more just to avoid the hassles and fees involved in finding and securing a lender. To avoid having the seller say “no” to my offer, I would say something like this:

“The best I can do is $200,000 if I have to go to a bank for financing. They’re going to require me to prove the rental income, pay for an appraisal, and do a ton of paperwork to qualify for that loan. So if you’ll accept my $200,000 offer, I will close on the date you want.

“But if you are willing to provide at least 70 percent of the financing, I can offer you $210,000. And I would still be willing to close on the date you want.”

By giving my seller these two options, I make him feel like he is in control of the outcome of our negotiation… even though either one would be a great deal for me.

[Ed. Note: For more insider strategies for getting started as a real estate investor, sign up for real estate expert Julie Broad's free monthly newsletter. Get your free report for making money with real estate here.

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My brother is a talented carpenter. Before becoming a carpenter, he was an amazing chef. He is also extremely good at repairing and rebuilding cars. In fact, he’s good at anything that requires patience and attention to detail. Except, that is, when it comes to his finances.

He just turned 32, and says he is happy to keep working for the next 30 years or more. But as his sister, I worry because he’s saved only a few hundred dollars for his retirement. So I decided to help him.

Here’s the plan I came up with – and it’s one you might be able to use too.

By taking on some odd jobs on weekends (people are always asking him to build fences or help with kitchen renovations), I think he will be able to save enough money to get into real estate within the year. All he needs is 10 percent to put down on a beat-up house that he can buy for, say, $200,000.

For a couple of years, he can live in that house while fixing it up and continuing to save money. After turning the house into a property he can rent out for about $1,400 a month, he can then buy another beat-up house that he can fix up and live in permanently.

Assuming he adds about $25,000 in value to his investment property and it appreciates by 4 percent each year, in 25 years he will own a place worth $576,743. And his tenants will have paid off the mortgage for him! It’s almost like having someone else put $1,900 a month into his retirement savings account! ($576,000 divided by 25 years divided by 12 months = $1,920)

Even if the property doesn’t appreciate by 4 percent every year (which has historically been the average), his tenants still will have paid off his mortgage in 25 years. Plus, he will be enjoying the rental income he gets each month – and that rental income will keep increasing.

Of course, he also will have paid off his own home by then… giving him more than $1 million worth of property that he can cash in for his retirement.

My brother has already sold one of his cars, pocketing a few thousand dollars from the proceeds, and has begun to save about $500 a month just by having one less vehicle to insure and maintain. He’s also done a few weekend jobs that have added up to about $1,500. At this rate, he will be ready to buy his first property in less than 12 months and start his retirement plan in earnest.

[Ed. Note: For more insider strategies for getting started as a real estate investor, sign up for real estate expert Julie Broad's free monthly newsletter. Get your free report for making money with real estate here.

For a unique way to make money in real estate –-taking advantage of the foreclosure boom - check out the Bandwagon Raiding Machine here.]

Years ago, I spent several months backpacking around Guatemala. As my Spanish improved, I enjoyed going to markets to bargain for Mayan souvenirs or fresh fruit. My goal was to pay the same price as a local.

I was having fun playing this little game until my new Australian friend witnessed me in action, bargaining for a beautiful hammock. As I was walking away because the vendor wouldn’t lower her price a little more, my friend said, “You realize that you are getting all worked up over what is about 10 cents. At home, you would pay 50 times that much for a hammock like that, so this is a great deal.”

I suddenly felt a bit silly. But it helped me learn an important lesson that I try to remember when doing real estate deals.

As soon as your negotiation becomes about winning, it becomes emotional… and good judgment goes out the window. If you’re not rational, you are much more likely to enter a bad deal for the wrong reasons. And you’re quite likely to miss out on a good one.

I was trying to win by “buying at the same price as a local,” just like many people negotiating real estate deals try to win by selling at the absolute highest price or buying at the absolute lowest price.

Instead, figure out what would be a good deal for you before you enter the negotiation. If, for example, a house is listed for $325,000, anything under $300,000 might work for you. So if you can negotiate the price of that house down to, say, $295,000, consider it done. Don’t feel that you have to try to force the seller to take just a little bit less. Leave the emotion, specifically the desire to be a “big winner” in every deal, out of it.

[Ed. Note: For more insider strategies for getting started as a real estate investor, sign up for real estate expert Julie Broad's free monthly newsletter. Get your free report for making money with real estate here.]

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Have you ever been walking down the street – focused on getting somewhere in record time – only to stop dead in your tracks when you spot a penny and are tempted to stoop down to pick it up?

That’s not the only way we allow low-value objects, goals, or priorities to distract us from more important things. We interrupt conversations with family members to comment on silly commercials on television. We check our Blackberry in the middle of a workout. And we allow e-mail to interrupt higher priority activities on the job.

I call it shiny penny syndrome.

Early in our real estate investing days, shiny penny syndrome nearly cost me and my husband our investments. We’d been working on buying good quality cash flowing properties in good neighborhoods and were doing just fine, but we suddenly stopped and started moving toward different options. We saw all those shiny pennies and thought we could turn them to gold nuggets.

In “The Problem With Fire,” I described how we started chasing no-money-down deals, flips, and property assignments. It turned out badly. Meanwhile, we lost our focus on what had been working for us.

It’s a good thing to consider your options, but don’t let them distract you from what’s been working for you and helping you achieve your goals.

If you have an investing strategy that is working for you – stick to it. Master it.

Though there are plenty of ways to make money in real estate, the optimal route is to find a strategy you like and get really good at it. Stay focused and become a specialist in your investing niche and you, too, will find your wealth grow very quickly.

[Ed. Note: For more insider strategies for getting started as a real estate investor, sign up for real estate expert Julie Broad's free monthly newsletter. Get your free report for making money with real estate here.

Losing focus in your personal, social, or business goals? Achieve all you want in life with ETR's Total Success Achievement program. Learn more here.]

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By Julie Broad

When you think about real estate investing, my guess is that you don’t immediately think “direct marketing” as well. But direct-marketing skills are essential to almost every aspect of real estate investing… from finding motivated sellers… to buying a property… to finding your ideal buyer… and more. In fact, mastering direct marketing can help make practically every step of the real estate investing process more profitable and a lot less risky.

I discovered this on the plane back from a recent trip to Austin, Texas, while reading Dan Kennedy’s The Ultimate Marketing Plan. I was flipping through it looking for the useful big idea of the book. I’d expected to find an idea I could apply to my Internet business, but instead found applications to my real estate investing endeavors.

When my husband and I were new to real estate investing, we had loosely defined goals. (I wrote about that in my article “The Problem with Fire.”) Our lack of clarity led us to buy properties because they generated a lot of positive cash flow or (more…)

Many people are trying to call this the bottom of the housing market. While the loudest voices may be those with self-serving interests (namely, realtor groups), there is some real optimism creeping in.

The most recent Housing Opportunity Index – released by the National Association of Homebuilders and Wells Fargo Bank – shows that almost 73 percent of homes sold in the first quarter of this year were “affordable.” In order to qualify as “affordable,” the total costs of a home (mortgage, taxes, etc.) must not exceed 28 percent of the median family income (currently $64,000).

A few factors contributed to this jump in affordability, and it is a bit of a good news/bad news situation.

Plummeting home prices are a major factor in affordability. Unfortunately, the recent drop in prices is primarily due to foreclosures, which means that someone had to lose their home for it to become affordable for someone else. And until foreclosures slow down, prices won’t stabilize.

Another factor is record low interest rates, which hovered near 5 percent for a 30-year fixed loan at the end of the first quarter. This is good for individuals who qualify for those loans, but many who need a lower rate to be able to stay in their homes don’t qualify.

I think the housing market will find its true bottom by the end of the year, when the Obama administration does something to tackle the last roadblock: the vast number of homeowners who are currently underwater.

While there are still obstacles in the housing market, it seems like now is a great time to buy. Sure, prices may come down a little more, but the drastic drops appear to be behind us (and trying to time any market perfectly never works). If you find a home you like, at a price you like, don’t second-guess yourself. Interest rates won’t stay this low forever, and neither will prices.

And if you are looking for the country’s most affordable large city, check out Indianapolis. It has topped the list for the last 15 quarters.

[Ed. Note: Detroit native Christian Hill is an active follower of the real estate markets, the auto industry, and practically every other investment vehicle under the sun. You can catch his insightful commentary and advice for free in Investor's Daily Edge. Click here to find out more.]

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I almost missed out on making $100,000! My husband took me to see a rental property he wanted to buy – and though we could buy it without spending a penny of our own money, I didn’t really want it.

It looked more like a tool shed than a house. I had visions of constant repairs and never-ending tenant troubles. But my husband told me to do a reality check – because there were a lot of reasons to like the deal.

Four years later, that property – a large chunk of land in an emerging area – has more than doubled in value, and the rent has covered all the costs. We’ve yet to put a single dime into it.

It’s easy to get thrown off by the appearance of a property, your emotions, or what the media is saying. Here are four ways to avoid making that mistake:

Reality Check One: Who is Your Target Market?

I couldn’t imagine myself living in that little shack – but I was not the target market for that rental. The tenant who lives there loves the large yard. He doesn’t mind the exterior appearance because it’s cozy inside and the rent is cheap for the privacy and space he enjoys.

If the property is a good fit for your target market, it doesn’t matter if you wouldn’t live there.

Reality Check Two: Are You Emotionally Involved?

Emotions weren’t involved in this particular purchase, but it’s something to be wary of. If, at any point in the negotiations, you feel that you can’t walk away from the deal, you need to take a step back and review everything! When your emotions are involved, you can’t make rational decisions.

Reality Check Three: Are the Numbers Really What They Say They Are?

In this deal, the numbers sold me. The rent covered all the expenses and left a small cushion for surprises. But make sure the numbers are what the sellers say they are. Get copies of the leases to verify rents. Check market rental rates for the area to make sure the current tenants aren’t overpaying. And make sure you obtain copies of the bills you’ll be responsible for (taxes, utilities, insurance, etc.).

Reality Check Four: Are You Judging the Book by Its Cover?

Many opportunities are missed because a property makes a negative first impression. The best deals are often those that look rough but can be easily rehabbed. Granted, our little shack needs to be completely rebuilt to maximize its potential – but had my husband allowed me to judge it strictly on its looks, I would have missed a deal that has (so far) grown our net worth by $100,000.

[Ed. Note: Real estate expert Julie Broad can show you how to create your own million-dollar real estate portfolio with her new program. Find out how to get hands-on coaching and step-by-step instruction right here.

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My husband and I recently turned down a tenant’s request for blinds in the living room of one unit of a triplex. (They were unhappy with the “dirty curtains” on the window.) At the same time, we agreed to put a new toilet in another unit.

Our tenants can easily figure out that we’re bringing in nearly $4,000 in rent per month ($1,000 positive cash flow for us) from this property, so they may think we’re being stingy when we refuse their requests for improvements. It’s a business though, so we grant tenant requests only if spending the money will generate more revenue or reduce our costs.

We consider a few things:

• What are the costs of not doing the renovation or upgrade? (Is the tenant likely to leave – and what will that cost us if they do?)

• Is there another way to address the problem?

• Can the expenditure be delayed?

If the expenditure seems to make sense, we do a final calculation:

Total Cost of the Upgrade or Renovation / New Money Earned (or Money Saved) each Month = Number of Months It Will Take to Recover Our Costs

As a general rule of thumb, if you can recover the cost of items under $1,000 in 12 to 18 months, the money will be well spent.

In the case of the blinds, the tenant wouldn’t pay more rent to help cover the cost. And since only custom blinds would fit the large windows in that unit, it would take years and years to repay the expense… even if they did pay us more rent. Instead, we agreed to pay for dry cleaning the curtains, which cost less than $100. We’ll get no direct return on this investment – but since the tenants wanted the “dirty curtains” replaced, this will keep them happy.

In the case of the toilet, we decided that getting rid of the grungy old one would not get us higher rent but it would make it easier to attract and keep good tenants in that unit. And by replacing it for the current tenant (instead of waiting until they moved out), the tenant’s father (an experienced plumber) would install it for free. Plus, we’d be replacing a water guzzler with a low flush model that would qualify for a $75 water conservation rebate from the City of Toronto. The formula of benefits looked like this:

$250 minus $75 rebate = $175 Cost of the Toilet

$175 / $10/Month in Water Savings = 17 Months to Pay It Off (not including the $80 saved on installation)

This made replacing the toilet a very appealing use of our cash.

Just remember – real estate investing is a business, and you need to get a return on any money you spend… even if that return is simply in cost savings.

[Ed. Note: Real estate expert Julie Broad can show you how to create your own million-dollar real estate portfolio with her new program. Get all the details here.]

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Real estate investing has given my husband and me a great deal of freedom to do what we want with our lives. Whether we decide to putter around the yard, go mountain biking, or focus on our Internet business, we are making money from our properties. Many would say we’re earning passive income, but we no longer do.

The problem with pursuing “passive income” is that you’re telling yourself you don’t have to do any work to make that money. Keith Cunningham, author of Keys to the Vault says, “The label becomes the experience. Using the word passive for anything means that you are going to do the least to get the most.” Trying to build wealth through passive income is like trying to get six-pack abs without working out. It isn’t going to happen.

When you buy a property, hire a property manager, and then do nothing more than deposit the rent money into your bank account, you’re setting yourself up for trouble. We know! As I mentioned in my articles “The Problem with Fire“ and “An Easy to Prevent Scam, “we had a property manager steal rent money from us, we were featured in the newspaper as owners of “local crackhouse,” and we were fined in court for fire code violations. All of these things happened to us early in our real estate investing career because we had been in pursuit of passive income. We worked hard to find the properties, bought them, and then passively let things fall apart!

Now, my husband Dave reviews all the bills and talks to our property managers on a regular basis, and we both carefully track and monitor the money that gets spent on each building.

Listen, I’m not saying you have to treat real estate investing as a full-time job. It really doesn’t require a lot of time and attention. It takes us less than five hours a month to actively measure, monitor, and adjust to maximize our profits and minimize our struggles. And since we stopped considering real estate to be a passive income stream, we’ve been sleeping better… and making more money!

[Ed. Note: Real estate expert Julie Broad can show you how to create your own million-dollar real estate portfolio with her new program. Get all the details here.]

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When you start looking for a rental property to buy, you might find yourself overwhelmed by all of the places that are on the market. Your realtor may be sending you a bunch of listings, and you may have a list of properties you’ve found on websites like Realtor.com. How do you know which ones are worth looking at further?

I use a simple calculation to make a quick decision, and it saves me a huge amount of time. When my husband and I look at a spreadsheet of potential properties to buy (that is how we compare opportunities), I will tell him which three or four we should look at closely in less than five minutes. He will spend hours going over the details and analyzing the numbers only to come to the same conclusion as I did.

So, what’s my trick?

All you need are two numbers: the price of the property and the rental income you will get from it each month. If the monthly income is at least 1 percent of the purchase price, it’s worth investigating further. If, for example, you have a property that costs $300,000 and it gets $3,000 per month in rent, it’s highly likely you will get positive cash flow from it. And that is a key ingredient to successful real estate investing.

You can even drop the 1 percent to 0.8 percent, and you may still have a positive cash flow property. One percent is just a rule of thumb. You can decide on the exact number you’re looking for based on your objectives, the strength of the area where you’re buying, the size of the down payment, and the cost of financing.

Once you’ve found a property with cash flow potential, you still have a lot of work to do to make sure it is a good one to buy. But by using this trick, you won’t waste time running the numbers on properties that don’t have much potential to be a good deal.

[Ed. Note: This is the PERFECT time to scoop up real estate at bargain prices and set yourself up for massive wealth creation when the market recovers. In the meantime, you could be putting money in your pocket every month! Real estate expert Julie Broad can show you just how to do it. Get hands-on coaching and step-by-step instruction to create your own million-dollar real estate portfolio with her new program. Get all the details here.] ]

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Real estate can be an instant wealth creator… as long as you learn a critical lesson about deal making.

When my husband and I purchased a duplex, we instantly added $20,000 to our net worth and $500/month positive cash flow to our pockets. And we did it simply by getting to the heart of the seller’s problem and offering a perfect solution. 

The foreclosed-upon duplex was owned by a bank. With some digging, we found the outstanding balance on the mortgage. We also researched the area thoroughly and learned that the place was worth about $20,000 more than the outstanding balance.

The bank had two problems. They needed to sell the duplex quickly to get rid of the debt, and they had to sell it at a price that would allow them to recover the outstanding mortgage amount. Focusing only on price, other bidders went in with low-ball offers and lost out on this high-quality income-generating property. But my husband and I took a different tack. We offered a quick close and a price equal to the amount of the outstanding mortgage… and we had the winning bid.

When you are looking at buying a property, instead of focusing on getting it for a low price, turn your attention to finding the seller’s biggest problem and figuring out how you can solve it in a way that will be profitable for both sides. When you take a problem-solving approach to deal making, you are more likely to create an even better deal for yourself than if you had focused on price alone.

[Ed. Note: This is the PERFECT time to scoop up real estate at bargain prices and set yourself up for massive wealth creation when the market recovers. In the meantime, you could be putting money in your pocket every month! Real estate expert Julie Broad can show you just how to do it. Get hands-on coaching and step-by-step instruction to create your own million-dollar real estate portfolio with her new program. Get all the details here ]

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Thanks to low interest rates and increasing rental rates, my husband and I are enjoying more cash flow from our rental properties than ever before. Sure, our properties aren’t worth quite as much as they were last year. But they are still making us money. And because we purchased in desirable areas, we know they will increase in value over time.

And we aren’t the only ones making money with real estate today. Jeff Adams works full-time as a firefighter… but his part-time job as a real-estate investor has made him the nation’s leading expert in finding motivated sellers, hungry buyers, and private lenders. He’s made over 350 deals since 1995, just working part-time!
Marko Rubel left his corporate career a few years ago, and today, after several hundred successful transactions, his real estate holdings are estimated to be in excess of $4 to $5 million. And Dave Lindahl – who started out as a dead-broke landscaper with no real estate experience – now owns 5,136 units.

Despite massive profit opportunities in the real estate market, people are more afraid of buying property today than they were two years ago. Most think the best strategy is to wait. I regularly receive reader e-mails saying they want to overcome their fear of buying property right now – but they likely won’t. And until I read Influence: The Psychology of Persuasion
by Dr. Robert B. Cialdini, I didn’t really understand why.

Cialdini spends an entire chapter on Social Proof. He explains it as something that happens when we use the actions of others to decide what is right for us in a given situation. The more we see other people doing something, the more correct we feel that action to be – especially when we view those people as similar to ourselves. You might have heard this called “herd mentality” or “group think.”

If you are interested in buying real estate, it’s absolutely vital to understand this concept. Social proof is most powerful when we are uncertain – and right now, nobody is certain. With the media constantly talking about foreclosures, job losses, price drops, and company bankruptcies, uncertainty will continue to grow.

There aren’t many people telling positive real estate stories these days, so there isn’t much social proof to encourage anyone to buy. But as powerful as social proof may be, the truth is that often the majority is not right. And because the “herd” is currently steering clear of real estate, that means there are tremendous opportunities for people who are investing.

Isn’t it always better to be shopping for something when nobody else wants it? You get better prices, better selection, more control. All these benefits apply to the real estate market right now.

So, how do you overcome the power of social proof and the psychological pressure to do as everyone else is doing? How do you go against the crowd and find those opportunities others can’t see?

It’s simple. You follow a proven, repeatable process – and you use the same process every time you look for and buy a property.

When we were just starting out in real estate, my husband and I wasted time (and money) chasing the hottest strategy of the moment, from foreclosures to flips to no-money-down deals. But we’ve settled on a simple, easy-to-replicate, five-step method of finding and buying properties that takes emotion out of the equation.

Step 1. Set Your Goals

Where are you today as a real estate investor? Where do you want to be long-term? As I said in “The Problem With Fire,” you have to consider the time, money, and skills you have to invest in the outcome you want. Then you determine where the gaps are, and fill in.

No background in real estate? Head to the library to read up on real estate terms and trends. Looking for help with the marketing side of your business? Pick up a home-study program. No time to deal with tenants? Look into a management firm.

Once you know what you need and how to get it, you can make a plan to move from today to tomorrow.

Step 2. Research the Markets

Look for places where you can find properties that meet your investment goals. I like Justin Ford’s suggestion to look for markets that have potential for value and for growth.

This step takes some work, and this is where people often start chasing hot tips and hot markets. That’s a mistake. Do your own research. The clarity that comes with becoming knowledgeable about an area will give you the power and confidence you will need to move forward.

Step 3. Find a Property

The trick to finding a property is to let people in your “finder” network (realtors, brokers, etc.) know exactly what you are looking for. If all you say to them is “I want to buy a property,” they will either send you everything or they will send you nothing. Be specific. For example, “I am looking for a duplex or a triplex in the Pinewood neighborhood that has a motivated seller.”

Meanwhile, you need to know what other duplexes and triplexes are selling for in that area and why. If you can’t figure out WHY a property is selling for an under-market price, you likely haven’t found a good deal.

Step 4. Buy the Property

Once you hit this point, you should be in problem-solving mode. You are creating the deal here – and the best deals are negotiated when you solve a problem for the seller.

Let’s say you find a great property and the seller has already moved out or can’t afford necessary repairs. Try offering a much-lower-than-market price for a fast close. If the seller will not reduce the price, try for vendor financing with favorable terms or try to negotiate furnishings, sporting equipment, or even vehicles into the deal.

Or let’s say you find a multi-unit property that the owner is selling because he’s feeling burnt-out as a landlord. Offer to become partners with him – with you taking over managing the property in exchange for 50 percent ownership.

Once you’ve negotiated a great deal, you secure your financing, get an inspection, hire a lawyer, and complete some final due diligence to ensure that property really does meet your objectives.

Step 5. Make Money

At this stage, it’s all about maximizing your revenue. Spend a bit of time finding and placing good tenants (or hiring a quality property manager), and then monitor the bookkeeping records regularly. It only takes a few hours a month – and while you’re doing it, you will spot ways to minimize expenses and make more money as you get ready to buy your next property.

Following this simple five-step process takes the fear out of making a real estate investment. And it ensures that you’re buying property that meets your long-term goals. When you do that, there’s no reason to worry about what the media is saying or what the herd is doing.

As Michael Masterson said in his book Automatic Wealth “Here’s a promise: If you haven’t ever invested in real estate but you start this year, you’ll be glad you did. If you keep investing – buying at least one new property a year (which will be easy once you get going) – you will be a real estate multimillionaire when you retire.”

[Ed. Note: The media doom and gloom suggests that now is not a good time to get into real estate. Don't be fooled! It's the PERFECT time to scoop up real estate at bargain prices and set yourself up for massive wealth creation when the market recovers. And while you wait for the recovery, you could be putting money in your pocket every month! Real estate expert Julie Broad can show you just how to do it. Get hands-on coaching and step-by-step instruction to create your own million-dollar real estate portfolio with her new program. Get all the details here. ]

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“We can’t afford to live in the States anymore.”

We’d just finished dinner with a couple who’ve decided to buy a house in Merida, where my wife Suzan and I live, and move here permanently.

“Healthcare and insurance costs alone are killing us. Add property tax, and it’s too much… especially when you consider that the value of our house in the States is falling fast.”

Suzan and I have been hearing this a lot from Americans wondering where they can go to retire in style.

Real estate prices in the U.S. are becoming more attractive thanks to the huge dose of reality injected into the market by the mortgage bubble burst. But people still keep shopping in Mexico, Ecuador, Uruguay, Brazil… throughout Latin America. Throughout the world.

“It doesn’t make any difference that you can now get a great deal on a place in the States,” a friend recently said. “You still can’t afford to live in it. And you sure won’t make any money on it in the near future if you try to sell it.” Not a great option for a retiree on a fixed income.

Outside the States, we’ve seen real estate prices in almost every market appreciating 10, 20, 30, even 50 percent a year for the past decade. I expect that to stop. After all, crashing markets, rising unemployment, inflation… these things won’t be limited to the U.S.

It’s a big world, and most things in it are relative. Even if the global cost of living rises 50 percent in the next few years, there will still be places on the globe where the cost of living is 50 percent less than in the States.

And with no real help in sight for rising taxes and healthcare and insurance costs in the U.S. (does anyone really believe the insurance and medical lobbies will allow universal healthcare?), smart folks will think about where to retire, do the math, and move to where the money they’ve managed to keep for themselves will go the furthest.

And that, I believe, will help support property prices in the places they want to escape to… places like Mexico, Ecuador, Uruguay, and Brazil.

Not that Suzan and I plan to flip our place in Merida any time soon. We’re having way too much fun here… not the least of which is having dinner with new friends. But I don’t see the value of our property slipping 30 percent in a year, which is what we’ve seen in markets like Florida and California lately.

I expect the value of our properties abroad to stay steady, especially as the global economy gets worse. We live and have invested in places that make sense from a cost of living, climate, and convenience point of view. And as more and more people realize that they have options for where to retire (other than just sitting where they are and watching their money drain away), I expect we’ll have many more dinners with new friends shopping for a better life in Merida and other prime locations around the world.

[Ed. Note: Dan Prescher is the publisher of International Living. Discover how you can live better for less... travel farther and have more fun... and maybe make a lot of money when you expand your world beyond U.S. shores. Get free tips by subscribing to International Living's daily e-letter right here. ]

For more off-the-radar and off-Wall-Street ideas for where to stow your money, become a member of ETR’s Liberty Street League. Get the details here ]

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The main reason my husband and I were able to build a multimillion-dollar real estate portfolio in less than eight years is because we found a few trustworthy partners.

After we made two purchases, one of our partners became preoccupied with a rapidly growing business he had recently started. It got to the point where it would take weeks to get in contact with him. After a few years of struggling to make the partnership work, we agreed to split up. We figured it would be an easy split. We owned two rental units, so we each could take one. Except we both wanted to own the same unit, and we couldn’t agree on how much more that unit was worth!

So we decided to use what is known as the “I Cut, You Choose” method. In other words, to break up the partnership as though it were a chocolate bar. One partner would cut the “chocolate bar” in half, and the other partner would get to choose which half they wanted.

This is a simple yet fair way to divide up just about anything. If you’re the one doing the cutting (in this case, figuring out how much it would be worth to get – or not get – the more desirable unit), you want to come up with two options that are as even as possible… because you get the one the other party doesn’t choose.

We let our partner establish the terms of the deal. Meanwhile, we set a range for what we would be willing to pay to get the more desirable unit. When his number came in higher, we selected the option of selling him the unit for that price.

We didn’t get the unit we wanted, but we did sell it to our partner for more than we had been willing to pay for it. Our partner bought the property he wanted for the price he’d determined to be fair. We were all happy.

Our other partnerships are strong, and we don’t expect to have to split up any properties in the near term. But if we do, we have a good system to use.

[Ed. Note: For more insider strategies for getting started as a real estate investor, sign up for real estate expert Julie Broad's free monthly newsletter. Get your free report for making money with real estate here.

Real estate is a great way to make money - even in this economy. But it's just one of many strategies you can use to reel in big profits. Learn how to get your hands on over $17.3 million in money-making ideas right here.]

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As a real estate investor, you can stand to make serious amounts of money. But these days, with 5.4 million Americans behind on their mortgage payments and pending home sales dropping, you might think real estate is a bad bet.

Not true.

I’ve made over 350 real estate deals in the past 14 years – many of them in this terrible market. And in my experience, one of the best ways to cash in on real estate is by wholesaling foreclosures.

I remember one house that had a value of $1.9 million but had been standing vacant for four years. I ended up buying it for $1.2 million and wholesaling it for $1.5 million. In just a few days, the seller was relieved of a crushing financial burden, the buyer was patting himself on the back for getting a great bargain, and I was on my way to the bank with a check for $219,797.58.

In real estate, wholesaling means entering into a contractual agreement with another party for the purpose of purchasing a property, and then assigning your interest in that contract to another investor in exchange for compensation.

The business of wholesaling is not just a trend in the real estate market. It is progressively gaining momentum and popularity with both new and experienced investors. No license is needed, so just about anyone can do it. Plus, turnaround time is quick. The basic idea is to get in, get out, and get paid.

Foreclosed property is especially attractive to wholesalers because it’s owned by a bank, not an individual. The bank wants to get rid of it as soon as possible – and that gives the investor an advantage.

The foreclosure process varies depending on whether the state is judicial or non-judicial. In judicial states, foreclosure requires legal action; non-judicial states do not deem it necessary.

In non-judicial states, the borrower can grant the power of sale directly to the lender. After the borrower fails to make several payments on his loan, the lender files a Notice of Default (NOD) and the foreclosure process is put into effect. After about three months, the lender files a Notice of Sale (NOS). The property is now in control of the bank – listed on its books as Real Estate Owned (REO) – for 21 days until the actual foreclosure sale.

Depending on where the property is in the foreclosure process, you can buy it by approaching the homeowner directly, purchasing it at a public auction, or buying it from the bank.

Approaching the homeowner directly gives you the ability to negotiate terms and offers the potential for huge profit margins. But you have to deal with title, liability, and legal issues.

Public auctions, too, give you the potential for huge profit margins. But, again, there are some significant negatives. For one thing, you have to make the purchase with cash (unless you are purchasing from a real estate disposition company, such as the auctions you see put on by USHomeAuction.com and HudsonandMarshall.com). For another, the property is sold “as is.” If you want to have it inspected by a professional, you have to incur that expense before you even bid on it.

The profit margin can be substantially higher when you buy from a bank. You can (usually) get the property inspected after you’ve made the deal and void the contract if the inspection uncovers anything seriously wrong. Plus, there is no need to worry about title assignment or other legal issues.

When you are making an offer on a bank-owned property, you can write up the offer in the name of a land trust, and then simply assign your beneficial interests in that trust to your wholesale buyer. Or you can write the offer in your own name and, at the bottom of the contract, include this clause:

“Vesting to be determined at close of escrow.”

This allows you to take title in any entity, including your wholesale buyer’s name. The reason you want to do that is because banks will not let you assign your contract to a specific person. If you put “and/or assigns” on your contract, your offer will not be accepted.

The deal is now complete, and you can go on to the next one that is just waiting to be found.

[Ed Note: Jeff Adams is a self-made multi-millionaire who has bought and sold more than 350 properties in the last 14 years. Over the last 10 years, he's found and sold his deals using the Internet. You can get more of his advice and his free course for a limited time by visiting www.ForeclosureProfitSystem.com.

If you can't (or don't want to) take on real estate investing full-time, Jeff's system of attracting buyers, sellers, and investors with automated websites can still help you make big profits by leveraging the power of the Internet. Get all the details at ETR's upcoming Profits in Paradise wealth-building summit. But hurry! Our Early Bird Discount ends today at 5:00 p.m. Eastern.]

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We felt swindled. We’d spent nearly $20,000 on several instructional programs, on a mentor for our real estate investments, and to incorporate. Despite all of that, my husband and I found ourselves in court trying to defend fire code violation charges for a six-unit property we’d purchased.

We blamed the property manager who had turned our property into a drug distribution center. And we absolutely blamed the Canadian postal system for not delivering the first violation notice. Mostly, we were angry with the people behind the programs we’d put time and money into.

Eventually, we came to accept the ugly truth. The mistake that was nearly fatal to our finances and our real estate investing business had been 100 percent preventable… and it was nobody’s fault but our own.

If you’re getting started as a real estate investor… or if you’re beginning virtually ANY new venture… pay careful attention to what we did wrong and how you can prevent it from happening to you.

It all boils down to Michael Masterson’s “Ready, Fire, Aim” philosophy – one that my husband and I subscribe to wholeheartedly. We firmly believe that you need to get going on your dreams. Without taking action, there’s no chance that they will come true.

But we were so anxious to “Fire” – to get going on the moneymaking venture we were so excited about – that we forgot about a critical part of the process…

Now let me assure you, the programs we’d invested in delivered on their promises. They gave us the tools and techniques we needed to take action. With what we learned from them – and our mentor – we flipped a house and purchased three others for a total of 12 units in only a few months. And we did it with very little money down.

Educating ourselves was smart.

So where did we go wrong?

Looking back, we realize that although there was nothing wrong with the programs we took, we had not determined WHY we wanted to take them, WHAT we wanted to learn, and HOW we would apply what we learned. Essentially, we had completely skipped the “Ready” step! And taking action without getting ready doesn’t work.

To learn from our mistake, consider the following before you sign up for any program:

1. What are your goals?

I follow the template Michael Masterson laid out in his book Automatic Wealth. Set your lifetime goals, your medium-term (5- to 10-year) goals, and then plan the next year.

When my husband and I signed up for our first real estate investing program, we’d already successfully purchased two rental properties. We had decided that we wanted to get rich as quickly as possible, and real estate seemed like the best way to do that without much effort. We’d even set a “goal” of earning $2,000 per month in positive cash flow from real estate within a year.

However, just because you have a measurable outcome and a deadline for achieving it doesn’t mean your goal is feasible. As Michael said in his article “Are You Goal Setting… or Still Dreaming?“ any goal you set MUST be realistic.

You have to consider the time, money, and skills you have to invest in that outcome, and determine where the gaps are. Then, you fill those gaps. That is a critical step in getting Ready.

Had we done that, we would have set a different short-term goal for ourselves. Plus, we would have been clear and specific on what we needed to get out of that first program.

What we really needed to learn was how to buy properties that require minimal time and effort to manage. Instead, we chased our loosely defined goal of $2,000 per month of positive cash flow. And we started buying any property we could without regard for whether it was going to take us closer to or further away from our long-term goal to become real estate millionaires.

2. Who is teaching what you need to learn?

Find a program or a mentor that can help you achieve your goal for the next year. If you’ve identified a skills gap that needs filling, find a program that can fill it. If you aren’t sure the program will deliver on your objectives, write the program coordinators and ask. If you don’t like the response you get (or get no response at all!), don’t sign up.

3. What are your specific goals for that program?

This is slightly different than your goal for the year. The right program will move you closer to your goal for the year, but you should also have a specific goal for the program.

For example, I recently went to a one-day real estate investing seminar in Vancouver. Before I went, I wrote down two goals that I would focus on that day. The first goal was to gather information that would help us develop our own real estate investing program. The second goal was to come up with three blog posts or topics for articles I could write based on discussions at the seminar.

I got more out of that day because I was focused on specific goals that would take me closer to the main goal I am working on for the year.

4. What actions should you take?

A good program will get you excited to get started. All you will be thinking about is “Firing”! Taking action is critical to your success, but first take the time to make a plan.

This is the second half of getting ready. You have to know WHAT you want to achieve, but you also need to figure out HOW you will use what you’ve learned to achieve it. Then, take action!

When we took our first real estate investing program years ago, we skipped right through to taking action. We didn’t carefully consider our long-range objectives. So we didn’t have any real idea of what we should be getting out of the program. We just knew that we wanted to be rich real estate investors. The sooner the better!

Had we taken a few hours to set realistic, specific goals for ourselves, we could have saved tens of thousands of dollars on repairs and fines for the kind of buildings we shouldn’t have bought, and three years of headaches with terrible tenants. And we could have achieved our goal of becoming millionaire real estate investors that much faster.

Taking good programs and learning from mentors is an excellent way to acquire the tools you need to take action and realize your dreams. But save yourself money and pain by getting “Ready” before you “Fire.” Then – later – the “Aiming” part comes really easy.

[Ed. Note: Times may be tough, but real estate investing is still a great way to bring in extra income. For expert advice on making money as a real estate investor, sign up for Internet Money Club member Julie Broad's free monthly newsletter. Get your free report for making money with real estate here

Planning, as Julie points out, is a critical part of achieving your dreams. If you're not good at planning, or don't know where to start, you need ETR's Internet Money Club Independent Learner Edition. We'll give you a 10-pound "playbook" to Internet success that includes everything you need to go from idea to fully-functioning Internet business. No need to worry about "firing" too quickly - the Independent Learner Edition will guide you every step of the way. Learn more right now. ]

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Thanks to real estate investing, I no longer have to work full-time. If I want to go hiking in the mountains with my dog in the middle of the day, I can. If my husband and I want to pop up to Whistler to ski, we do it mid-week to avoid the crowds.

That’s now. But when we were just starting out as real estate investors, we had some serious missteps. We were fined in court for fire code violations, a property manager stole rent money, we got unwanted publicity in a newspaper as “absentee owners of local crackhouse,” and we lost money on a property in one of the hottest housing markets in history.

We made some horrible mistakes – but 90 percent of them were completely preventable had we followed the advice I’m going to give you today: Know where you want to go before you start.

Ask yourself:

• Is it more important to you to find a property that doesn’t cost you money or one that doesn’t cost you time?

• Do you want to make repairs?

• Are you interested in investing for the long term or the short term?

• What is your risk tolerance? 

• Do you want real estate to be your primary source of income?

• How much money can you (do you want to) dedicate to real estate versus other investments? 

• What’s your current credit score?

• What’s your current financial situation?

Being clear on what you want to put in and what you expect to get out of your investments is the first step. It gives you clarity on your next steps. It also helps you avoid the reckless mistakes we made. Had we set realistic goals and taken steps toward those goals, we never would have purchased the properties that led to all the drama we experienced as newbie investors.

[Ed. Note: For more insider strategies for getting started as a real estate investor, sign up for real estate expert Julie Broad's free monthly newsletter. Get your free report for making money with real estate here.

Real estate is a great way to make money - even in this economy. But it's just one of many strategies you can use to reel in big profits. Learn how to get your hands on over $17.3 million in moneymaking ideas right here.]

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Owning and managing rental properties can be very profitable. (From just two rental properties, my husband and I make $1,200/month in positive cash flow.) As a rental property owner, you may find yourself dealing one-on-one with tenants. Make sure you handle these encounters as business transactions, and don’t let your emotions – or your desire to fill a unit – prevent you from making sound business choices.

A few years ago, a prospective tenant explained her bad credit by telling us that she didn’t pay rent at her last apartment because of a rat infestation. We believed her story. We were short on cash and time, so we just took her money and let her move in with a roommate.

It wasn’t long before there was trouble. Around 2:00 a.m., the tenant threatened her roommate with a knife and he called the police. While the cops had her in holding, he moved out.

We were stuck with an unstable tenant with bad credit who decided she shouldn’t have to pay all of the rent because her roommate had left her in the lurch. It took us almost three months and nearly $5,000 in fees and lost rent to legally remove her from the premises. The most painful part was that the situation was totally preventable.

Now, we follow a strict process for finding and screening tenants:

1. Show the property in good condition. If it doesn’t show well with the existing tenants living in it, wait until they move out. Good tenants have choices, and if the property doesn’t look attractive, why would they want to rent it?

2. Price the unit slightly below the market rate. $20 per month below competing units will attract more applications.

3. Run each applicant’s credit report and call their previous landlord – the landlord before their current one. If they have caused problems, their current landlord could be anxious to get rid of them and may not be truthful.

4. Verify the applicant’s employment. We usually ask for a recent pay stub and call the company to verify that they hold the position they claim.

Taking these steps is common sense. But when you are a beginner and you don’t have much money (or you’re spending most of your money on renovations, like we were), dealing with a vacant unit and the prospect of missed rental income is terrifying. You may find yourself justifying bad decisions that you otherwise would never allow yourself to make.

[Ed. Note: Renting properties is a great way to make extra cash in any market. For more expert advice on making money with rental property, sign up for Julie Broad's free monthly newsletter. Get your free report for making money with real estate here.

Real estate is just one of many strategies you can use to reel in big profits - even in this economy. Learn how to get your hands on over $17.3 million in moneymaking ideas right here.]

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Think now isn’t a good time to get into the real estate game? Think again. We’re seeing a fusion of factors that are creating once-in-a-lifetime opportunities for potential investors.

1. The “irrational” markets are over.

The wild appreciation in real estate values over the 10-year period that peaked in 2006 is history. There’s no argument from anyone on that point. Combine that with the failure of huge banks and home lenders, and you have a very tight money market restricting any short-term price growth.

2. Prices are flat or down just about everywhere.

This may sound ominous, but it’s far from negative. Never before have homes in great neighborhoods been available at such depressed prices. There are foreclosure bargains in every price range. And suggested government programs may subsidize the liquidation of these foreclosure properties at even lower prices. It’s a true buyer’s market.

3. Those who lost their homes must rent.

Rental demand is increasing, and should do so for years. Those who lost their homes to foreclosure must rebuild their credit. And before they’ll be able to purchase again, lenders will require them to make larger down payments and meet stricter requirements. So they’ll be renting for a long time to come.

Remember, a large percentage of those foreclosures happened because people made poor choices when they got their mortgages – not because of financial misfortune. Many foreclosure victims are still employed and can pay market rental rates, and they are likely going to rent something similar to their previous home.

4. Government initiatives are depressing interest rates and stimulating home sales.

Though requirements have tightened, those with good credit and a down payment can get mortgage rates lower than at any time in the last 20 years. And since the government has a strong stake in reviving the housing market, more help is on the way.

Even if you live and invest in an area where prices have merely stalled or grown by a tiny margin, the opportunity is the same. When the hardest-hit areas (the Southeast, the West Coast, and the Southwest) are just turning around, these less volatile areas will already be showing price appreciation.

From a purely economic supply/demand viewpoint, this is an amazing window in time for real estate investors. We have more demand for rentals, lower prices to purchase properties, lower rates to finance our purchases, and a government that’s using every avenue it can to stimulate the housing industry.

To take advantage of this unprecedented opportunity, you need to be poised to jump as soon as a good investment arises.

Investing in real estate, whether you’re new to the business or an old pro, doesn’t require a whole lot of skills. But it does require knowledge. The more knowledge you have, the better able you’ll be to spot the best deals.

One of the sayings I live by is “Knowledge plus action equals results.” To be a successful real estate investor, you need to be constantly adding to your knowledge base – especially when it comes to:

• Current national real estate sales and price trends
• Local trends that influence where people want to live
• Local employment, industrial, and job creation activities
• Neighborhood dynamics (whether the population is growing or declining)
• Resources for everything from loans to renovation

Knowledge comes from many sources and directions. Make sure you get your information from someone who is active in the current market – not someone stuck in the pre-bubble days.

Of course, as Robert Ringer and Michael Masterson have said many times, knowledge doesn’t do you a lick of good unless you get off your butt and do something with it. This means taking action – turning over every rock, investigating every real estate investment that sounds good, and moving on the best ones.

[Ed. Note: Dean Graziosi is a full-time investor who began his investing career over 20 years ago - during the last major recession! He's made millions of dollars with his real estate investments, and currently has more than 30 deals in the works. Discover his bestselling blueprint for making $10,000 in 30 days right here.

For more cutting-edge advice on how you can make money in real estate, check out ETR's upcoming Wealth Building Summit. Get all the details now.]

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You might think that the best way to sell your house in a slumping market is to price it low and then just get it listed on every website you can. But you may find, like many of my neighbors have, that is not enough.

I live in a nice complex of 38 townhouses. Currently, 4 units are listed for sale. Each one is priced lower than the one before it, but none have sold.

Reading a recent Early to Rise article by Clayton Makepeace, it occurred to me that my neighbors’ realtors have all made the same mistake when it comes to creating the listings for these homes. Here’s the listing for one of them:

“Small complex located in the heart of Burnaby Heights. Rarely available beautiful corner unit at very desirable Red Brick Heights. Only two years old, this gorgeous three bedroom, 2 bathroom unit is 1375 square feet, also has a loft on the third floor. Oversized panoramic rooftop balcony with a beautiful view of the North Shore Mountains. Open plan with gourmet kitchen with real wood cabinets, stainless steel appliances with granite countertop and hardwood on the main floor. These high quality units do not last so be quick before it is gone. Low strata fee and well managed.”

As Clayton points out in his article, the best copywriters start their copy knowing what their prospect already feels about the product – in this case, the product is the house. And right now, the real estate market is scary. So it’s likely that many prospective purchasers’ desire for a home is being met with an even greater fear of what might happen to their investment if they buy one.

If you have to sell your house, you need to acknowledge that fear – not, as was done in the above example, try to create a fake sense of urgency. And you need to appeal to the positive emotions that might make someone want to buy a house even in troubled times.

Beginning with the features of the house and trusting the prospect to respond positively to the fact that it’s only two years old, with a panoramic rooftop view and a gourmet kitchen, is what the competition is selling. Instead, think about the prospect and how he might feel about those features (how it feels to cook for your family in a great kitchen… and open the door to see the mountains in the morning… and know your money is safely invested in this high-quality/well-located home). Then carefully craft each part of your listing to support those emotions and benefits – with pictures, maps, and words, all directed to get those emotions working toward the sale of the home.

I think that is exactly what an expert copywriter like Clayton Makepeace would do. And I bet that, in combination with the right price, would sell my neighbors’ houses.

[Ed. Note: In eight years, Internet Money Club member and real estate investor Julie Broad and her husband have built a multimillion-dollar real estate portfolio in their spare time with minimal cash resources. They publish a free monthly newsletter to help other rookie real estate investors achieve their investment goals. Get your free report for making money with real estate here.]

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The housing market is mired in a slump that shows no signs of letting up. Home values continue their slide. Foreclosures are at a record-setting pace. So why am I bullish on homebuilders?

Survivability, for one thing. Those that have lasted have shown that they can make it through the worst housing market in decades. Sure, their balance sheets are a mess and they may still have some unsold inventory – but, for the most part, they have likely weathered the worst of the storm.

When the market started to turn in late 2005/early 2006, builders were left with unfinished developments and an extreme oversupply of land and homes. Most of the homes that were under construction at the time were completed and sold, sometimes at a loss. The land that had been bought at the top of the market was sold, and huge losses were written off. But all that is pretty much over.

The remaining carnage is primarily in the condo market, since most of those condos are in high-rise towers that took longer to build and are just now being completed and sold.

The major builders, those with regional and/or national exposure that have survived, should be a relatively safe bet now. They have been battered long enough, and no real surprises remain in terms of massive write-offs and losses. Their stocks are near historical lows, and little downside is left. I like the Homebuilders ETF (the XHB) for these reasons, and perhaps as a contrarian play as well. In terms of individual builders, Toll Brothers (TOL) and Pulte Homes (PHM) are my favorites.

[Ed. Note: Going against the market with contrarian investments isn't the only way to prosper in the next few years. Learn how to recognize "red flag alerts" and you could put yourself in the pathway of a raging tidal wave of cash. Learn how to prepare yourself for what could be the investment opportunity of your life.]

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In Stephen Covey’s best-selling book The 7 Habits of Highly Effective People, he recommends that you “begin with the end in mind.” And the same goes for real estate investments. It doesn’t matter if you plan to live in the property, rent it out, or renovate and flip it… before you buy, envision yourself selling it.

Brainstorm all the potential concerns your future buyer could have – starting with anything that made you question your own decision to buy. Is the property on a noisy street? Does the basement flood once in a while? What condition is the roof in? Is the layout of the house good for the average family? Is it in an up-and-coming neighborhood? Are other properties in the area comparable in value?

If there is anything about the place that makes you hesitate – anything that can’t be fixed easily and cost effectively – you can be sure your future buyers will have the same problems with it. So forget it and move on to the next deal.

I lost money in a hot market on a condo purchase in Toronto because I didn’t follow that rule. The unit I bought was on the second floor – and because it was right above the entrance, it was the only one in the building that did not have a deck. Identical units on higher floors were going for the same price. But I used my unit’s “faults” to negotiate a better purchase price, so I thought I had gotten a good deal. Five years later, when I went to cash out, units exactly like mine but with small decks on higher floors were selling for over $20,000 more than I got for mine.

You are making an investment only if there is a reasonable probability that you will be able to make money when you sell. Buy every property with that in mind.

[Ed. Note: Buy with the end in mind - and you'll make the best possible real estate deals. Get more profit-producing real estate secrets from some of the world's leading specialists right here.

And be sure to check out the website of Internet Money Club member and real estate investor Julie Broad. In eight years, Julie and her husband have built a multimillion-dollar real estate portfolio in their spare time with minimal cash resources. They publish a free monthly newsletter to help other rookie real estate investors achieve their investment goals. Check it out here.]

“Something is worth precisely what someone else is willing to pay for it.” So said a stock-market analyst to me one fine bull-market day many moons ago.

A statement like that can seem profound, but it’s useless. Yet it is the mantra of many investors in all fields. In bull markets, the sellers say it. In bear markets, the buyers say it. But it is about as helpful as saying, “Wherever the sun shines, there it is daytime.” So what?

It tells you nothing about why the sun is shining or, more important, when the sun may stop shining… and how long it will likely be before it shines again.

Intelligent investing is all about the why and how. It takes some thinking… not cheap aphorisms.

And so we turn our thinking to real estate investing and we ask the questions everyone has been asking…

“How low can the real estate market go? When will it bottom?”
 

Here’s the short answer: I don’t know. Here’s the longer answer: I don’t know but…

I’m still finding some excellent opportunities. And, regardless of where the market heads the next few years, I can buy at prices today that assure me of respectable returns over the long run… and could well provide exceptional returns in the near to medium term.

It all boils down to understanding what is art and what is science in your investing… and paying due respect to each.

The Art of Judgment: How Not-So-Dumb Luck Can Help You Succeed in Real Estate

I’ve made the bulk of my real estate profits because of a force I cannot control: market appreciation. You buy under market in the sweet spot of the appreciation curve and – thanks to leverage – you can grow your investment five or 10 times or more in the space of a few years.

I have six key criteria for identifying good value and growth markets. I’ve written about them in ETR several times. Using those criteria, I’ve chosen markets I thought were undervalued and that were experiencing growing demand.

It turns out I was right. So I enjoyed much more than the standard 3 percent to 4 percent appreciation a year on my properties. I bought where the markets ended up appreciating 10 percent to 15 percent a year. And, because of leverage, I made many times that. And I even did this while some markets were imploding!

Understand that not all value and growth markets that you identify and buy into are going to go straight up. They can stay flat or fall for quite a while before they recover. And yet, even when that happened, I was able to make a decent return on my investment

That’s because choosing a market or a neighborhood to invest in is an art. You base your buying decisions on your best reading of the facts. But, ultimately, it’s a judgment call. You can get very good at it, but you can’t force it. Your reasoning may be perfect, but the market could suddenly refuse to accommodate you.

That’s why you have to pay even greater attention to the science of real estate investing.

The Science: Crunching the Numbers and Doing Rigorous Due Diligence

By “the science of real estate investing,” I mean all the measurable numbers and criteria that can help assure your success. In other words, before you buy an investment property, you have to know the answers to all of the following questions…

* How strong is the rental market? Okay, you just saw a couple of two-bedroom apartments in the area rent for $750. But you’re looking to buy a 20-unit building with all two-bedroom apartments. Is there enough demand? Can you rent them all out at $750?

* Will the property cash flow at market rent? Will it cash flow at a 15 percent to 20 percent discount to market rent (in case the market softens or you have to lower your rents to remain competitive)?

* Are you fixing your interest rates? By doing so, you don’t become hostage to another economic factor over which you have no control.

* Are you buying at a discount to the average $/square foot for that type of property in that area? When you buy at a discount to start, you have that much greater a margin of safety going forward.

* Have you thoroughly investigated what your operating costs will be? Don’t take the seller’s numbers at face value. They often understate costs – especially real estate taxes. (Your taxes may rise significantly if you’re paying a lot more than what he paid years ago.) The key point is: You must know your costs well in order to have a reliable idea of what your net operating income and cash flow will be.

* Have you considered deferred maintenance and any major expenditures that will be yours in the next few years? From a new roof to repaving a parking lot, significant expenditures of this sort can eat up cash flow and even cause a property that is not sufficiently capitalized to go into the red.

* Do you have honest and competent management set up for the property? Properties that look good on paper can quickly turn bad when you have poor management.

* Are you buying near or below replacement cost? This is especially important in a bear market.

These are all factors over which you have significant control. And when you get good at doing this kind of due diligence, you can scoop up bargains in a bear market – without caring that you may not be buying at the absolute bottom.

How to Make Money Even When You Make a Mistake

After all, if you have a fixed-rate amortizing loan on a cash-flow property, you’ll eventually own the property free and clear, regardless of price fluctuations in between. Buy a $1 million property with $200,000 down and you’ll eventually pick up $800,000 just from using the rents to pay off the debt.

In the meantime, you’ll also pocket net rents (the money left over after paying operating costs, the mortgage, and leaving a little something for reserves). So in a very bad case scenario – where the market goes nowhere for the next 20 years – you could end up making over a million dollars from a $200,000 investment. And, of course, if the market soon bottoms and improves, you could end up making a million or even millions much sooner.

So in a bear market, focus on buying cash-flow properties at below market value in areas that you believe are promising and where you are confident you can put in good management. At the same time, for added bear market protection, buy near or below replacement cost whenever possible. Here’s what that means…

Replacement Cost: A Great Reality Check for Real Estate

Let’s say that 20-unit building is 15,000 square feet, and to build that structure brand-new would cost $100/square foot – or $1.5 million. But, of course, the building isn’t new. If you were to bring it up to the standards of new construction (for its class), let’s say it would cost you $500,000. So that means, to stay below replacement cost, you’d want to buy it for less than $1 million.

In other words, if you spent $1 million on the property and $500,000 to upgrade it to brand-new status, you’d be spending no more than anyone else who was willing to construct a brand-new competitive building in the area. In fact, your cost would still be under theirs, as you would have gotten the land along with your purchase of the building.

Staying near or below replacement cost isn’t always possible – especially in increasingly popular, higher-end neighborhoods. But in today’s bear market, it is becoming easier in every kind of neighborhood.

And buying below replacement cost is not a guarantee of success. After all, if you buy into a neighborhood that’s in serious decline, you may find no one willing to build there in future years at almost any cost. However, that is an extreme case. And you’d certainly be worse off if the neighborhood went into serious decline after you had paid far more than replacement cost.

So at the very least, buying near or below replacement cost will greatly reduce your risk on every type of real estate purchase. That – and your insistence on buying at prices that cash flow with a good yield – will help you be a shrewd buyer in a bear market.

Your success will not hinge on your ability to guess the bottom. Go ahead and make that judgment call along with others – including the best markets and neighborhoods to invest in. But get the numbers right first and buy cash flow, undervalued on a $/square foot basis and on a replacement cost basis, and your rare mistakes can still make you money in the long run… while your more frequent successes can make you (and your investors) a fortune much more quickly.

[Ed. Note: Despite the gloom and doom surrounding the current real estate market, you can make money as a real estate investor. Apply Justin's 6 criteria for buying right, and you'll be on your way to earning extra income. For more strategies on growing your wealth, check out the DVD library from ETR's Profits in Paradise conference. You'll get some of the biggest wealth-building secrets from 14 experts in making money. Learn more here.

Once you discover how to find the best real estate deals in the best markets, you can make an absolute fortune - for yourself and your investors. Real estate expert Justin Ford can show you exactly how to do that, no matter what condition your local market is in.]