In recent years real estate investors could console them selves in the rather high rate of appreciation or inflation as a hedge against high prices paid for properties, but we all knew deep down that it could not last.  Many had the foresight to get out and others, reasonably thought, that we'd see a correction which would be slight or a simple leveling of prices but nothing like this huge pricing correction we are seeing and in many parts of the Phoenix valley, an over correction.

Had an investor purchased a property with prudence then the drop in price really would have no affect on him/her in the short run because either the purchase was at a break even or had cash flow.  Had it even been purchased at break even a couple of years would be enough to see a cash flow and if the purchase was a good one then each year the cash flow would increase especially in a market with so many inflationary pressures. 

What we have really entered is the cash flow economy at least for real estate investors.  In an investment purchase there are several ways to make money on a property: speculation, cash-flow, redevelopment and so on: but, for now the speculative age is over.  Since we are unlikely to see appreciation in the coming years cash flow will have to make up the major part of the investment return.

In fact most of the successful real estate investors, at least those who are successful according to the following measure - the main component of which is freedom and choice- have done so with cash flow.  It's the regular money that trickles in a bit at a time, month after month, growing at or above the inflation rate and allowing you to - in many cases - have the choice to work, reinvest, pay-down the loan or take free time and so on. 

It's income which is there whether you work or not: it's passive income not tied to your direct employment: and it's wonderful thing.

I remember reading a real estate investment book from the Rich Dad, Poor Dad series: at one point Robert mentioned that he wanted to buy a Porsche sports car, but instead of putting the money directly into a car - a depreciating asset - he used the money to buy a property and used the income, the cash flow from that property to pay for the loan he got on the car.  What a great way for a non-depreciation asset to pay for a depreciating asset and you get multiple benefits of doing this.  Well, for a long time this was not possible, but it is now possible to do just that.

In this part of the real estate cycle there is an abundance of single family homes, small and medium sized multifamily properties that provide an investor with cash flow from the time of purchase or shortly after the purchase, this is even more achievable with the current historically low interest rate financing.

We are a ways from the up cycle in real estate and the current economy will not help: this is going to be a long bottom but it does not mean that you should not invest - quite the opposite - it is when everyone else is scared that you should be buying because you're buying for a discount.  Investors need to change the way of thinking and making decisions and not be afraid to go it alone, against the crowd into the cash flow economy.