By Les Christie, CNNMOney staff writer

NEW YORK (CNNMoney.com) — Bipolar is what comes to mind when diagnosing the post – home buyer tax credit market. There are two separate forces pulling it in opposite directions, and experts aren’t yet sure which path the market will take.

On one hand, sales and prices are rising, indicating recovery. On the other hand, so are interest rates and repossessions, which most certainly do not. And then there are the millions of foreclosures that need to be sold but haven’t yet been listed — so-called shadow inventory — that could derail a real recovery if they hit the market in floods.

The prognosis? Negative short term but turning positive by the end of 2010.

“In the short run, I see a mini-collapse,” said Richard DeKaser, an independent housing market analyst and founder of Woodley Park Research who correctly predicted a downturn back in 2005 when he was chief economist for National City Corp.
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One of market’s biggest hurdles is getting beyond the lapse of the $8,000 homebuyer tax credit. Thanks to the incentive, buyers scrambled to beat the April 30 deadline, pushing new home sales up nearly 30% in March.

But that just borrowed buyers from later months. And now we face the hangover effect.

“In the months immediately following the expiration of the tax credit, we expect measurably lower sales,” said Lawrence Yun, chief economist for the National Association of Realtors (NAR).

Industry insiders believe the hangover is worthwhile, however, because the credit helped stabilize housing when it most needed help. Home prices have been steadier in recent months, recently experiencing their first year-over-year rise in more than three years.

Still, there are some strong negatives dragging on the market.

1. Interest rates have been intermittently creeping up. Although nobody expects 6% until at least 2011, the days of 4.5% mortgages are behind us.

2. Bank repossessions are on track to surpass a million homes in 2010. But at least foreclosure filings fell in April, the first time since RealtyTrac began reporting.

3. More than a quarter of borrowers are “underwater,” meaning they owe more than their homes are worth.

4. “Strategic defaults” — where underwater homeowners walkway even when they can still afford to pay — accounted for 31% of all foreclosures in March, according to a recent study.
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But there is one factor that has experts really scared: homes that are ready to be sold but haven’t been put on the market. Right now, there could be more than 4.5 million homes in “shadow inventory,” according to a recent report by Barclays Capital.

This so-called shadow inventory is a recent phenomenon. In the past, inventory was either tight or it wasn’t. But now, with home prices so low and so many foreclosures on the market, both homeowners and banks have been waiting to put properties on the market.

“These sidelined sellers closely watch the market for signs of a possible turnaround and rush in if there’s a hint of good news,” said Leslie Appleton-Young, chief economist for the California Association of Realtors.

But as more sellers put their homes up for sale, supplies increase, which will depress prices again. Rinse and repeat ad infinitum.

That vicious cycle could cause prices to bounce up and down for years. “I see a saw tooth bottom,” Humphries said. “Prices go up; inventory rises, which sends prices down again. That plays out for three to five years of no appreciation. … Without price appreciation, it leaves more homeowners in negative equity. That’s toxic. Any setback, like a job loss, they go into foreclosure.” To top of page

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Today’s investment markets offer investors a wide variety of options. One of the most rewarding opportunities is real estate investing, which can produce a very good income stream. If you choose to become a real estate investor, you will enjoy several benefits not associated with other types of investment.

First of all, investing in real estate has the enormous benefit of financial leverage. Even if you borrow the money for your real estate investing from a bank you can often get into a deal with a 10% to 20% down payment which means your returns are instantly magnified due to the fact that you are earning on the bank’s 80% – 90% contribution as well.

As an example, let’s assume you have $10,000 to invest and you get 10% return on your investment regardless of the vehicle. If you put it into the stock market you will buy $10,000 worth of shares and after 12 months your investment is worth $11,000. If you put that same money into real estate with a 90% loan you earn 10% on the full $100,000 investment and finish with $110,000.

So your $10,000 has been doubled in the real estate investment above whereas it only produced an extra $1,000 in the stock market. Why? Because your lender’s money has been working for you too. This is the power of leverage and is one of the biggest advantages of real estate investing. And yet there are even more reasons to become a real estate investor as you will see.

Another incredible reason to begin investing in real estate is the tax benefits. One of the best tax breaks of real estate investing is the REQUIRED depreciation by the IRS on the property. This represents a “paper loss” when in most cases the property (including the land) is actually appreciating. So in essence you pay taxes on a reported profit figure that is significantly lower than your actual earnings – very nice.

Perhaps an even better tax benefit is the 1031 exchange as defined by section 1031 of the Internal Revenue Code. Essentially this allows investors to delay paying any capital gains taxes when a property is sold as long as the proceeds are reinvested in an appropriate property. The government is basically encouraging investors to stay in the market with this fantastic incentive.

One final benefit of investing in real estate worth mentioning here is the flexibility of sale contracts. Unlike the stock market you can get very creative with your offers. You can exchange virtually anything for a property instead of cash which can mean greater returns and some spectacular win-win arrangements.

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Two Types of Lists

Let’s talk about the list. The list is important. We’ve talked about two kinds of lists. One would be a group of houses in a particular area that you would designate. Two would be a demographic – what type of person – meaning people where the tax bill goes to a different address than the home address.

Those are two types of lists that you can acquire. They’re certainly not the limit. There are dozens of other ways you can slice and dice this. You could get homes worth a million dollars or more. You could get homes worth $100,000 or less. You could get multi-family properties. You could say, “All I want is multi-family properties.” You can get businesses if you want. Invest in shops and retail things of that nature. However you want to do it, whatever list you want.

Ways to Find Lists

What I would suggest is there are a couple of different ways you can get lists. You can go out to a list broker. There are two that I recommend. First is Info-USA and the second is Melissa-Data. Both are national list brokers.

I suspect that if you went to both of them and asked for the identical list you’d find that they’d be relatively close in cost. I don’t know that for certain, but they compete head-to-head all the time so I’d gather that their prices are fairly close.

I would suggest you pick one of these, pick which one you like best, and go with it. It’s always best once you’ve identified one of them that you get used to their website. Spend some time and get used to things.

You can call them on the phone or do it over the web. Tell them what you’re looking for. They will call you or give you an estimate of how many people would be on the list.

That amount may be too many and you may need to use a smaller space or a smaller area. That’s up to you guys. If you’re looking for a list of 1,000 people and the first criteria you give them comes back with 5,000, then you may have to shrink down your criteria. You can play with that.

You can also go out to Google and search “list brokers.” I’m sure there are dozens of others that would show up.

I invite you to learn more about Real Estate Investing and become a member of our FREE weekly tele-seminar class where we teach tips and strategy on how to grow your real estate investing business and how to raise Private Money by going to http://www.realestatewealthtoday.com/TuesdayTipsSignUp.html.

Mike Lautensack is a full-time real estate entrepreneur, coach and mentor in Philadelphia, PA and creator of the Private Lending Presentation Kit. This powerful done-for-you kit is loaded with tools and techniques to attract and develop a consistent stream of private investors into your real estate business. To learn more about this kit and receive your FREE eBook go to Real Estate Investing.

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