If you have been reading the financial headlines, you could reasonably think that nearly all lenders are going broke, nearly all mortgages are in default, and that no homebuyer or real estate investor stands a chance of getting a new loan or refinancing an existing mortgage. 

If you buy into an organized co-op, condo, townhouse or subdivision development, a homeowners' association (HOA) will require you to live under its regulations and rules.

• A pet deemed by the board to be noisy or uncontrollable must be disposed of within three days' notice.
• Any owner who wants to offer his or her unit for rent must first obtain the approval of the board. All tenants also must be approved by the board. And no leases of less than one year are permitted.
• Bicycles may not be left on patios or balconies.
• No automobile mechanical work whatsoever will be permitted on the premises. (If you get a flat tire or need to have a battery replaced, will you have to have your car towed off the property first?)
• No driveway basketball hoops and playing areas are permitted. (There goes your kid's future in the NBA.)
• No entertaining of more than 10 people within a given unit shall be permitted.
• No more than one pet is allowed per unit. Maximum weight of a pet shall not exceed 15 pounds. (Apparently pets that get fat are evicted.)
• No owner/occupant shall install drapes or curtains within any unit unless such drapes have a white liner visible from outside the unit.
• No signs ("for sale" or "for rent") shall be displayed in any manner whatsoever.
• No treehouses or chain-link fences are allowed.
• Personal conduct and attire in the common areas are subject to approval of the board.
• The board retains the right to reject a new purchaser in the development for any lawful (non-discriminatory) reason it deems appropriate.

When pricing properties, sellers, sales agents, and appraisers frequently use price per square foot comparisons. For example, a 1,500-square-foot property listed at $350,000 would figure out at $233 per square foot.

The agent or seller then might toss in a statement like, "We got this house bargain priced at less than $235 a square foot. Nothing else in this neighborhood has sold for anything under $275 per square foot." 

"Erase bad credit," the credit repair ads say. The Federal Trade Commission (FTC) says something quite different . . .

"Don't be misled by credit repair ads ... Promises to repair or clean up a bad credit file can almost never be kept."

How do these firms get away with making false promises? They just operate until the government shuts them down; then they open shop again under a new name.

In fact, many of the tactics used by these firms can land their victims in jail. For example, one trick they pull is to get you a new credit file under a different (false) Social Security number or business tax number. If you get caught (and you will likely get caught in our ever-more-automated, no-privacy world), the Feds can prosecute you for identity fraud or obtaining credit through fraudulent representations. Anytime you fib, deceive, mislead, omit, overstate, or understate to obtain credit from a federal-  or state-regulated financial institution, you commit criminal fraud.

Is there such a thing as legitimate credit repair? Yes, but it takes time and financial discipline. It means repairing your credit report: correcting wrongful entries, adding legitimate entries, and careful credit management that complies with the law.

The recent foreclosure crisis has caused some experts to say that this is a very bad time to invest in residential properties. The market is flat, they say, and sure to remain so for the foreseeable future.

Don't listen to them. Since World War II, home prices have frequently jumped by 10 or 20 percent a year. It is true that on occasion, prices have held steady for as long as three to five years. There have also been times when certain cities have experienced severe downturns in their local economies, causing prices to fall temporarily. During the early 1970s, for example, large layoffs at Boeing drove Seattle home prices down by 20 to 30 percent. Yet Seattle recovered and home prices there are eight times higher than they were in 1971.

So before you put faith in so-called experts, take a quick trip through their faulty predictions from years gone by:

• "The prices of houses seem to have reached a plateau, and there is reasonable expectancy that prices will decline." (Time, December 1, 1947)

• "The days when you couldn't lose on a house purchase are no longer with us." (House Beautiful, November 1948)

• "The goal of owning a home seems to be getting beyond the reach of more and more Americans. The typical new house today costs about $28,000." (Business Week, September 4, 1969)

• "The median price of a home today is approaching $50,000 . . . Housing experts predict that in the future price rises won't be that great." (Nations Business, June 1977)

• "The era of easy profits in real estate may be drawing to a close." (Money, January 1981)

• "In California . . . for example, it is not unusual to find families of average means buying $100,000 houses . . . I'm confident prices have passed their peak." (John Wesley English and Gray Emerson Cardiff, The Coming Real Estate Crash, 1980)

• "If you're looking to buy, be careful. Rising home values are not a sure thing anymore." (Miami Herald, October 25, 1985)

• "Most economists agree . . . [a home] will become little more than a roof and a tax deduction, certainly not the lucrative investment it was through much of the 1980s." (Money, April 1986)

• "The baby boomers are all housed now. They are being followed by the baby bust. By 2005,real housing prices will sit 40 percent below where they are today." (Harvard Economist, Gregory Mankiw, "The Baby Boom, the Baby Bust, and the Coming Collapse of Housing Prices," Journal of Regional Economics, Fall, 1989)

•  "Financial planners agree that houses will continue to be a poor in­vestment." (Kiplinger's Personal Financial Magazine, November 1993)

• "A home is where the bad investment is." (San Francisco Exam­ iner, November 17, 1996)

• "Your house is a roof over your head. It is not an investment." Ev­erything You Know About Money Is Wrong, 2000)

• "But the real question is, how will [housing prices] look longer term? As I've said in the past, I do not think that housing values will be higher five to ten years from now." (Yale Economist Rob­ ert Shiller, quoted in Newsweek, January 27, 2005)

Fortunately, the actual history of home prices and real estate invest­ment returns has differed greatly from those recurring claims of "the end of real estate" as an investment. During the past 60 years, average home prices have multiplied 5, 10, and, in some areas, 20 times or more.

As our new century continues to unfold, we will undoubtedly look back to today's "high" home prices in cities such as Miami, San Diego, Boston, and New York. We'll say, "Boy, those were the days. Can you be­lieve I could have picked up a three-bedroom, two-bath home in Clairemont for just $400,000?"

As always, today's a great time to invest in real estate - if you develop the right strategy. Foreclosures, REOs, distressed sellers, and of course, creating value remains a time-tested technique in down cycles. Just as promising, seek out those areas of the country (or the
 world) that are steering clear of the overbuilding (and over-lending) that has temporarily dampened some widely-publicized markets. How can you capitalize on these emerging opportunities? Education and market knowledge.

Certainly, prudence pays off. Whereas, fear of action never places you on the path to wealth.

“When I started out, I spent a lot of time researching very detail pertinent to the deal. I still do the same today.”  - Gary W. Eldred, PhD

 Savvy entrepreneurs search beyond conventional wisdom, “facts,” opinions and fanciful dodges or assertions. They know that quality facts provide the ingredients for quality decisions. As you move forward in real estate (and life), use multiple data points and sources of information. Interpret, think, analyze, and verify. Avoid a rush to judgment. The world overflows with GIGO (garbage in, garbage out) decision making. But with verified facts on your side, you can outperform the crowd.

Say that someone tells you, “Vacancy rates in this area have jumped up to 9 percent. This isn't a good time to invest in rental properties.”

 How should you interpret this information?

You have to distinguish fact from opinion. Opinions often masquerade as truth. Realize the difference. Even if the 9 percent vacancy figure is in some sense correct, the advice that follows - to avoid investing - may or may not hold merit. So beware! Much of the information you hear is really part fact, part opinion. Clearly distinguish between the two.

Nine Percent Vacancy: Fact or Fancy?

I call a fact a data point that you can reasonably incorporate into your analysis and decisions. For example, you can generally obtain facts about interest rates, apartment rent levels, real estate listings, property sales prices, time on market, population growth and the number of properties up for sale (unsold inventories) in any area.

Before you rely on any number, wisely ask questions such as the following:

• Where are vacancy rates headed? Snapshots of the current situation rarely provide a full, dynamic view. You need trend lines and reasoned forecasts that look to the future.

•  What geographic boundaries specifically delineate the area studied?

•  How did the researchers gather their data? What sampling errors could distort it?

• How does this 9 percent market vacancy rate differ among properties according to building size, unit mix, price ranges, amenities, features, condition, location, and so on? Maybe one large 400-unit property accounts for 40 percent of the vacancies in the area under study. Maybe studio apartments enjoy waiting lists. When you speak of vacancy rates, market segments and niches matter.

Sometimes "facts" are better characterized as fancy. For any number of reasons, the people you talk with (or read) may not know what they are talking about. Obviously, we all inadvertently make mistakes. On other occasions, sales agents (as do lawyers) give answers without facts so as not to appear ignorant. In some instances, people purposely mislead. Does that apartment manager really want to truthfully disclose to you that her building's rent roll turns over twice a year and that vacancies have climbed above 25 percent? I don't think so.

Remember that every market and every property display unique features and conditions. Before you apply any facts or rules of thumb to a property you are considering, be sure to verify their relevance to the property you are considering.

When I first began buying rental houses and apartment buildings, I could easily find properties that offered net unleveraged rental yields* of 10 to 16 percent. In some areas of the country, such as the Midwest, you can still achieve such favorable results. More typically, today’s rental properties yield four to eight percent.

You might tell me that four to eight percent doesn’t seem like a great rate of return. But relative to stocks and bonds, properties win hands down. Let me explain why.

Why Rental Properties Outperform Stocks

At present, the annual dividend (income) yield on the S&P 500 stock index barely reaches 1.8 percent, and just .45 percent on NASDAQ stocks. The Dow-Jones (DJIA) is somewhat higher, at around 2.25 percent. If you follow the advice that says you must diversify across a broad variety of stocks, you might achieve a yearly income of $15,000 to $20,000 (1.5 to 2 percent average yield) from a stock portfolio valued at $1 million. In contrast, a million in property value would return a rental income (net of expenses) of $40,000 to $80,000 a year.

So the message is clear. If you accumulate a million dollars in stocks and are determined to survive above the poverty level in the future, you’ll need to eat your nest egg. But accumulate a million dollars in property and, to live an average-to-above-average lifestyle, you’ll never need to eat your nest egg. And your net worth doesn’t diminish.

Why Rental Properties Outperform Bonds

Currently, long-term investment grade bonds yield about 4.5 to 6.0 percent. Without taking on much default risk, that means you could count on receiving $50,000 to $60,000 a year from bonds for each $1 million you invest. Bonds deliver income returns that approach the level of income offered by high-quality rental properties. Also, compared with a fully diversified portfolio of stocks, bonds clearly rank superior, but here’s the rub:

Your bond income will not increase as the result of inflation or economic growth and, as consumer prices go up, the buying power of your bond income will continuously erode. In terms of purchasing power, $60,000 of income today will equal $40,000 after just 10 years. In contrast, over time, both stock dividends and property rents tend to climb each year to higher levels.

So what’s the verdict? Stock income increases over time, but the puny yield produces too little income. Bonds return a better yield than stocks, but fail to offer the possibility of growth. Worse, in an inflationary economy, the real value of bond income declines.

So if history is any indicator, it is clear that you will achieve an extremely competitive yield, growth, and protection against inflation with rental property.

 * Rent collections, less all cash expenses and mortgage financing. You calculate this figure by dividing the price of the property into its net income; e.g., $10,000/$100,000 = 10 percent yield.

For more ways to leverage more income from your money, be sure to read the new book Trump University Wealth Building 101: Your First 90 Days on the Path to Prosperity.  Available soon from Trump University and all major booksellers.