These days, most of the financial news we hear seems to be bad news. The markets are down and most investments are not giving decent returns.

Talk of double or triple recessions is more common than Kim Kardashian’s per view appearances in Las Vegas.

The cause of our double-dip recession situation, as most know, was greed. The greedy high street was tricked into taking loans that the greedy mortgage brokers knew they couldn’t pay. This debt was then sold like a dilapidated used car for a huge profit. In the end, the little one is the one who lost the most.

However, among the pessimism there is a hidden gold mine. A unique set of circumstances makes real estate an attractive option for any investor looking for a fixed, secure, and sustainable return. Those circumstances are: low interest rates, a price vacuum, record foreclosure inventory, and high demand for affordable housing.

Briefly, we’ll discuss each element and why it adds to the attraction of real estate as an investment.

low rates:
With the pressure on the Federal Reserve to help keep inflation in check, Bernake and company have declared their intention to keep rates as low as possible. As of today, it’s not hard to have a rate of 4.5% (if you have a FICO score of 620 or higher).

Foreclosure Registry:
Due to the massive bursting of the bubble, banks are foreclosing on toxic loans at an aggressive rate. As inventory builds up, prices fall. Falling prices help perpetuate the price vacuum.

empty prices:
Historically, fall and winter see a slowdown in the housing market. With fewer buyers, the ability to have highly favorable terms helps keep acquisition costs down. Banks and private sellers pay closing costs on behalf of buyers. However, not all offers will have all buyers costs paid with a little diligence; You can find sellers who will pay up to 4% of buyers’ closing costs. For the right property, this means that the buyer will not have to pay any money out of pocket for their own costs.

High return on investment:
You can buy a property for a large fraction (in some cases 50%) of what it was a few years ago. If you search hard enough, right now, you can buy a property with little to no down payment and make a decent profit.

Demand for affordable housing:
For every home that is foreclosed on, there is a need to find replacement housing. Because you can’t get a new loan for 2-3 years with a foreclosure on your credit report, the replacement home must be a rental. Buying a property with a tenant is already always the best. Occupied properties will have data that you can use to determine what your ROI will be. Plus, with an occupied property, you don’t need to worry about vacancy issues.

For example:
Currently, in San Diego, you can buy a 1-bedroom condo with a total payment of $615.71 per month that rents for $850.00 per month. This is buying the condo using a conventional 30-year fixed contract with a 20% down payment at a rate of 4.5% (today’s prime price is lower). This produces a profit of $234.29 per month or an ROI of 17.1% on an investment that is less than a used Scion or Mercedes. This is not a bad return by anyone’s metric.

Conversely, if you are an active duty military stationed in San Diego, you can purchase the same 1-bedroom condo for a total payment of $698.81 per month. Eventually, you will leave the service, need a bigger house, etc. When you move out of this house, you can lease that condo for the current market rent of $850.00 per month. For this example, we will assume that your rent will not increase in the next 3 years and that you move within that time period. Purchasing this condo with a 30-year fixed VA loan with no down payment at a rate of 4.5% (today’s prime price is lower), yields a profit of $151.19 per month or an ROI of 275% on an investment of $450 (the cost of a VA appraisal). A 275% return is something you will never be offered in most legitimate investment accounts.
Over a long enough timeline, real estate has historically appreciated. Once the real estate markets rise again, another level of gain comes from the ability to sell the property and; defer taxes on gains through a 1031 exchange, tap into or occupy property, and use the $250,000/$500,000 capital gains exclusion.

Due to the returns on offer, the recent bubble has created great investment opportunities for anyone looking for an alternative to volatile and undervalued stocks.