We've seen 5 consecutive months of increasing home sales and we are approaching the point where the year over year decline has been the smallest in three years. Many other indicators suggest that the economy is finally emerging from one of the deepest recessions in decades. So what does that mean for the real estate market?

Well, it depends on where you are located. If you live in certain areas that have been hit the hardest, you still have to deal with excess inventory and foreclosures that seem never ending. This will keep the supply of homes on the market high which will continue to challenge the prices. However, if you can find property that provides good cash flow and you have a longer time horizon, you will be able to capitalize on many of these opportunites.

I have a friend who just purchases two single family homes in Florida for $55,000. These properties sold for nearly $200,000 in 2005! They are only a few years old and he rents them both for $850 per month. If he put down 20% on both ($11,000 each), his mortgage would be around $400 per month including taxes and insurance. That means he is making around $400 per month on each property (give or take depending on expenses). That is around $4800 per year, and $9600 total per year from both properties from a $22,000 investment. This represents a $43% cash on cash return (the return on his initial $22,000 investment). By the way, this is just the cash on cash return he receives. His properties could stay valued at $55,000 and he still receives that huge cash return every year!

Now, his properties will likely appreciate modestly over time. So let's say that the market will average a modest 3% return (pretty safe bet considering inflation and the fact that his area has gone down dramatically in the last two years). Adding the leverage he gets from using the banks money for 80% of the purchase, the 3% apprecation of the property means that his 20% investment appreciates by 15%. Add that to the 43% and you get a return of 58%! Incredible returns from a modest pair of single family homes. This does not include the tax benefits my friend will receive. (And they are quite large because he has a very high income from being a Realtor). I will go into those benefits on a different post.

Suffice it to say, even in the worst areas, it looks like it is shaping up to be an outstanding time to invest in real estate. Where I live in North Carolina, it looks like a great time as well because here the market fundamentals are even stronger and while the prices may not look as cheap compared to other locations, the economy and the job growth is very strong and growing, which provides for a great opportunity to invest in real estate.

So go out there and start making some money!