The three long term strategies are:

1) Step Into the Path of Sprawl – Major cities which are relatively lose together are going to start merging, and the land between them is going to be very valuable. This is a good place to do raw land investment.

2) Park Money in Parking Lots – Many American cities have more parking lots then they need, and as land in urban areas becomes more valuable, opportunities to build vertically will exist. Parking lots allow this kind of expansion called infill.

3) Give Them What They Quieren – The Latino population in America is booming; 33 million more are expected in this county by 2030. These 33 million people will need housing and places to shop. Catering towards Latinos will make a lot of sense.

Foreclosures can present excellent opportunities for real estate investors who know how to take advantage of them.

Interest rates on 30-year fixed-rate loans have begun to rise, and they could reach 7% or more by the end of 2006 — a level at which most economists agree that buyers could begin to put the brakes on home purchases. Zandi says lenders are beginning to self-regulate and to become less aggressive in courting buyers, and they may find it difficult to come up with the next new thing. And he thinks investors in many “juiced-up” markets sense that the markets are topping out, especially when it comes to high-end condos.

It will be interesting to see if investors actually stop investing in real estate, or if they just switch to other markets.

The article concludes that REITs are part of a good long term strategy

So if you’re looking for someone to sound the alarm on fleeing REIT funds, you’ve come to the wrong person. For me, the rationale for having some real estate funds in your portfolio isn’t because they may turn out to be the hot sector for yet another year.

This could further soften the real estate market. As homeowners face bigger bills, they may not be able to afford their houses anymore, leading to more houses on the market, and dropping prices. I would expect to see the number of foreclosures go up in the next few years as well.

This however, can be a golden opportunity to smart real estate investors who are able to take advantage of this situation.

Some of the juicier quotes from the article:

It’s safe to say that people’s expectations are out of whack and that real estate investments won’t increase at the same rate they have in the past five years. As a matter of fact, in some markets, I don’t think it’s out of the question for some properties to lose 20% to 30% of their value in a given year or to see no increases for a decade or more.

I think there could be some truth to this. My last post talked about the Increasing Risk of Price Drops in the housing market. My advice to avoid this is to invest in areas that aren’t so hot at the moment. See my previous post about the Evaluation of Home Prices in Various Markets to get some ideas of good markets.

If a home is selling for 150 times the monthly rent (or less), it’s generally a good deal. If it’s selling for more than 200 times the monthly rent of a comparable property, you’re better off renting.

This might be a good figure if you are looking into buying or renting for yourself, but it is too high if you are looking for an investment property. I personally look for something closer to the price being 100 times the monthly rent.

If you’re not a real estate expert, now is not the time to start speculating.

I 100% agree with this. I don’t think speculating at any time is a good idea. Stick with investing instead of speculating.

* Reducing from $1 million the size of a mortgage on which interest may be deducted. If such a proposal were made, it’s possible that the mortgage size would vary by region depending on local home prices.

* Replacing the mortgage-interest deduction with a tax credit, allowing all homeowners with a mortgage to get a tax break — not just those who itemize.

* Reducing the tax rate at which mortgage interest may be deducted. Likely a proposed rate would be a middle-income tax rate, such as 15 percent or 25 percent. That would preserve the benefits of homeownership for middle-income taxpayers, Poterba said.

* Reducing the total capital gains exempted from tax.

* Combining two of these elements — say, reducing capital-gains exemption threshold and lowering the deduction rate on mortgage interest.

Its not quite time to panic yet. These are just proposals, and even if they are introduced, they may be grandfathered in or phased in over time.

When listening to real estate investment guru’s, one can get the impression that it is impossible to lose money in real estate. But here are some examples:

• Los Angeles house prices fell from $222,200 in 1990 to $176,300 in 1996
• Austin hose prices fell from $109,000 in 1986 to $81,200 in 1990

Real estate may be less volatile and risky than other investments, but it is not fool proof. This is just a reminder to be careful when investing in real estate. As the article says:

Before they purchase a home, buyers better figure on scenario of many years of little or slow home-price appreciation. Counting on home price increases could be a big mistake.

Real estate investing does have many tax benefits, but many of these benefits are lost when a house is sold shortly after it was bought.