by Bri Kennedy

Created on: February 12, 2007   Last Updated: April 18, 2007

When the bubble "pops" is when most people begin to understand a real estate bubble. Don't let this happen to you. The best time to educate yourself about real esate and finance is right now.

NO BUBBLE IS FOREVER

Remember what the real estate market was like two years ago? Sellers unloading their homes for 200-300% or more than what they paid. The days of multiple bids and auction-style home selling came to an abrupt and painful halt for a lot of Americans. Many of my colleagues unfortunately succumbed to the mistaken belief that the real estate bubble would continue indefinitely. When you take a closer look at the financial situation of the middle class, you will realize that this cannot be. For example, in my hometown of Flagstaff, AZ the median home price skyrocketed to well over $300,000, well above the national average. Given that the median household income in Flagstaff is below the national average, it doesn't take a degree in finance to tell me that not many people who live and work here can afford to purchase a home at that price or even half that. Unfortunately, many of my colleagues mortgaged their souls to buy "investment" properties when prices surged only to find that six months later they were unable to recoup their costs and were forced to unload their "investments" at a fraction of their cost. Instead of adding up to profit, their bungled investments led to huge losses.

BUY LOW, SELL HIGH

When home prices jump 20, 30, 40% in a month, it is easy to imagine that the bubble will never burst. Many would be investors are lulled by the promise of sizeable profits. While it is true that real estate can be a promising investment venue, overextending yourself to obtain a position in an already hyperinflated market is never the right option. Remember, the most basic rule of investment is to buy low and sell high. When the price of real estate is already high, that is when smart investors are already selling and taking their profits. And they will sell and take their profits FROM YOU if you are lulled into the false belief that you can make a profit by buying a home at an already inflated price. Remember, if you can't afford a $300, 400, or $500,000 home, neither can anyone else. Expecting home prices to go even higher and stay there is wishful thinking. The investors that made money off of the last housing bubble already owned their properties and were thinking about selling right around the time most people get around to thinking about buying. That's how

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