In studying all the other market corrections and human psychology we see a clear pattern, a pattern which is quite predicable and can be used to an advantage by those who are conscious and in a position to do so.

Prices are ridiculously low and they will probably be a bit lower before moving up but in some places they are in over correction which means that when finally the masses get over the fear they will realize how cheap everything really is and jump on it.  It's important to understand that prices in some areas are below replacement cost. 

That means that you simply could not build that property for what you can buy it.  With the increasing prices of building materials that puts the owner in a stronger position.  Once the inventory has been reduced and new stock is needed as it will be because of the growing population that owner will stand to gain.

Interest rates are also ridiculously low - in the historic context - low enough to allow buyers an affordable payment and investors positive leverage.

The important points to remember are:

• Select a property carefully so it's well positioned.

• Don't count on appreciation above inflation - even though you'll probably get it.

• Obtain long term solid financing.

• Don't over leverage.

• Buy carefully: take your time.  There are always good deals out there not matter the market, but this cycle just presents more opportunities.

Below are some reasons to buy real estate.

 1. Buy as an owner occupant. 

There are lots of homes now even under $100,000 that are like new.  Move-up homes and even luxury homes are often very in expensive.  Even if you need to sell it may be worth selling and buying a bigger home if that is what you need. You sell for less but you buy for less as well and when the cycle turns it's usually the higher priced homes that appreciates more.  Check out the long term appreciation chart by Phoenix valley city and you'll see what I mean.

 2. Buy as first time home buyer. 

While the rates have inched up a bit lately prices are so low that for some it makes sense to buy instead of renting.  That's partially why the vacancy rates have increased.  Of course you get other benefits of owning besides being an owner.  There is now a very large supply of homes in Greater Phoenix under $100,000 and many are like new.  

 3. Buy for retirement.

Many of the investment instruments have been beat up lately but real estate is one asset that when purchased right, that means with cash flow in mind then it's unlikely that you'll see much risk in the long term.  Imagine a free and clear appreciating asset paying you on a monthly basis and that monthly payment just increases year by year at or above the inflation rate.

 4. Buy for college savings.

Just a investing can be good way to leverage your money for retirement it can be a good way to save for college.  It's truly possible to buy a property now with a 15 year loan and break even or have positive cash flow.  If you buy when your child or grand child is young then the property can be free and clear just in time for the university years and then it can keep on giving.

 5. Buy for building financial freedom.

The same strategy as in no. 3 and in no. 4 can be utilized to build financial freedom, but if you take additional initiative with your properties you can force appreciation, redevelop or manage better then you can accelerate the return.  It's not that difficult to do.

6. Buy To Diversify a Portfolio

You may have some other investments and they have been on a rocky ride as well.  Some investments can simply disappear.  A homes is unlikely to disappear so there is much less risk involved with real estate, especially if you don't over leverage.  Plus, you can invest in real estate using your self directed IRA.

I'm not saying buy any real estate out there: I'm saying buy carefully where there are and will be strong pressures for price increases and strong demand or where there is some additional value.  It's also prudent to consider buying for the long term and for cash flow.

If you buy for cash flow with a decent return then any appreciation you get will be a bonus and many times a big bonus.  The key is solid financing and the good old way of buying real estate with the expectation of cash flow and dept pay down.  There are ways to invest in real estate that make sense with a high negative cash flow but we'll leave that for another time.

In future articles we'll expand on how investments in real estate can be used and of course about buying to live in a home.