FrontDoor's Home Finance and Home Value Guide

Similarly, the current real estate crisis (to some)/bonanza (to others) may play out in any of several alternate endings. The pundits, experts and interested observers have been working overtime trying to predict what will happen in 2009. Experts have been examining historical trends, checking the vital signs of various market measures, noting the way the governmental solutions have evolved and their trajectory and factoring in the pledges and promises that have been made by key parties. Cumulatively, these things paint a decent picture of how 2009 might unfold.

However, now more than ever before in economic history, there are a number of important factors that create major caveats to the predictions. Every smart investor should keep an eye on this short list of items, as they hold the power to change the story from the predicted outcome to one of the alternate endings.

Here are the investors who stand to profit the most from contrarian investing in real estate in 2009:

• Those with the mental fortitude to buy when everyone else is selling (and saying that buying is nuts)
• Those who recognize that opportunity exists no matter what happens with the market
• Those with the mental flexibility to find the profitable strategies and change course, if necessary, as events unfold

The reality is that no one ever knows 100 percent what's coming down the pike, market-wise. The real difference between now and a "normal" market is the degree to which we can predict what will come next.

While it's easy to burrow into your comfort zone, the opposite is necessary. In order to be a smart investor and profit from this market, you must stay aware but not be daunted by the news. Be ready to course correct at a moment's notice.

REAL ESTATE MARKET MYTHS

Before we drill down into our market post-mortem to uncover a playbook for smart foreclosure investors, let's first correct four key misconceptions about the real estate market:

• There is no such thing as a single, national real estate market. Market conditions and trends are very local. Some markets have already hit bottom and are rapidly absorbing excess inventory, while others may not hit bottom until mid-2009. Make your decisions based on data about your local market, which can even vary by zip code and neighborhood.

• The real estate market is never "bad" for all consumers. When you hear the sky is falling, in real estate that normally means the market is unfavorable to sellers. The flip side, though, is that at those times, the market is favorable to buyers.

• The real estate market is not a monolithic entity or force, but rather the sum of a number of factors and forces. To be strategic, you must understand at least a handful of these factors, rather than just the direction of home values.

• The No. 1 goal of a foreclosure buyer or investor is not necessarily to wait for the bottom. I know would-be buyers who have been waiting for the bottom since the early 1990s, who now feel they have finally found it but, as a result, are looking to pay double or triple the amount for properties than they would have had they simply bought in the 1990s, when it first made sense for their lives. Very few of us can time the bottom precisely. Smart foreclosure buyers enact a strategy that makes sense even if the property's value decreases in the immediate future, by buying below fair market value, holding the property for a longer term or strategizing to sell above fair market value.

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