Finding the Investment Bargains in the Real Estate Market Mess

The real estate market is in a state of decline. Commercial real estate prices, as well as residential real estate prices, are coming down in many markets across the country. For some people, of course, this has been a devastating period of time. Homes are in foreclosure, and in some of the more overheated markets, homes suddenly aren't worth what people paid for them. It's been rough for stockholders as well. Investors who have put their money in real estate sector companies and in Real Estate Investment Trusts (REITs) are finding that these holdings are losing value as well.

But, with every cloud there is a silver lining. If you choose carefully, now may be a good time for you to profit from the real estate market mess. You just have to know how.

Second home investment

With real estate prices falling across the country, now may be a good time for second home investment. In some markets, you will likely be able to get a good deal. Denver and Indianapolis are good examples of markets where foreclosures are flooding the real estate market with cheap homes. And you can use that second home as investment property, renting it out (probably to people who have lost homes in foreclosures).

Stock investment in the real estate sector

The old investing adage is true: "buy low, sell high." This advice works well in the current climate. It's a buy low kind of time. But you have to be careful. Here is what the Wall Street Journal has to say about the current real estate sector:

"Generally, investors should be cautious about the real-estate sectors because they could have further to fall. But discerning and patient investors might be able to find some gems amid the wreckage."

If you go looking for companies that have a good cash flow, and are fairly low in debt, chances are that you will be able to find some good deals. But you have to be careful. While some of the more solid companies will bounce back from this, others will just fold. That means that you have to consider your choices in order to avoid making a poor investment decision.

Real Estate Investment Trusts (REITs) are another possibility. These can be traded like stocks, but they consist of the investments made by one company or another. One such company is Simon Property Group. This REIT offers solid investments and the possibility of pulling out. Plus, it's fairly inexpensive right now (which means it's under $100 per share). It's falling, but it is one of the few real estate sector investments that could make a turnaround on the way to recovery.

Caveats to this type of investing

It is important to realize that this a long term investing strategy. You have to have the risk tolerance -- and the stomach -- to deal with the declines that are inevitable in the near-term. You need to be willing to buy what you can of the stock, deal with some initial losses, and be able to keep it for the long haul. This is why choosing something solid is so important. You have to choose something with staying power that is just going through a bit of a rough patch.

Disclaimer: I am not an investment professional. Before investing, you should do your own research and/or consult a professional. There is always the risk of loss in any investment.