It’s that time of year again, time to wrap of the current year and look forward to the next.

As 2006 comes to a close I am amazed at how quickly it passed. It seems like I turned around twice since I was sitting down to plan for 2006.

2006 will be remembered as the year the media figured out the market was correcting. Well, they sort of figured it out. Mostly, they talked about severe short term corrections that were almost over when they talked about it at all. The National Association of Realtors was worse. They put their public relations machine into full gear to try to spin the correction in what they saw as a positive direction. I can’t fault them for that, they have an industry to protect that is mostly built on anecdotal results and good will.

The correction is here but it is nowhere near the end. In many areas it is just getting started. Prices are going to continue to slide in many areas and will remain flat at best for the next few years. The market will continue to correct until the historical averages are met. All of the indications are that it will do that not with the bottom dropping out of the market but with corrections of up to 30% in some areas and then flat for several years.

The other side of the coin is the increase in foreclosures. This is a problem of the lenders own making this time. The lenders were desperate to keep the churn of refinance going so they reintroduced a number of very creative loan products. But they didn’t make the same mistakes they made in the early to mid 1980’s. Consequently, they have made the looming problem much worse. You can read more about the coming lending fiasco here.

So, what is in store for real estate investors in 2007? In late 2005, I predicted that 2006 would begin to present some unique opportunities for any investor who was properly positioned. For those who took that advice and maneuvered their position to have access to ready cash, 2006 has been a good year for them to buy opportunistically. The coming year, 2007, will present more of the same but the intensity will increase.

There is a major difference now though. Because of the lending practices of recent years, the most profitable opportunities will be shut-off from those without cash reserves or ready lending sources. Why? Because, the loans and borrowers that are going to have the most trouble meeting their obligations are the ones with the less than desirable current financing. That means even though they will gladly hand you their deed for you to take the property subject to their existing financing just to get away from the payments, no investor in their right mind will take them up on their offer. So, 2007 and 2008 will be the years of the short-sale.

By mid 2007, some lenders will be very agreeable to reasonable short-sale offers. They aren’t going to advertise their willingness to deal, but deal they will. They won’t have a choice. There are a few things that will drive them to this. One is the reserve requirements imposed by the Federal Reserve. Another is the over-night rate they will be forced to pay if the quality of their mortgage portfolio begins to fall. And a third is the premium they will get or discounts they give for mortgages they sell to investing pools and especially insurance funds.

Insurance funds have very specific requirements on the quality of the investments they hold. When the quality of those holdings drops they are required to take action. That means selling them, that of course pushes the value down further and puts even more pressure on the lender servicing the loans to make them perform or liquate them. That means the lenders will have to foreclose and sell the property or… accept a short-sale and cut their losses.

Yes, 2007 is going to be a very good year for the opportunistic investor. The patterns are setting up for 2008 to be even better.

While that alone is very good news for the savvy investor, the outlook gets much better.

Rents are on the rise and vacancies are on the decline. Yes, if you are a landlord you may have had a few challenging years. The quality of tenant applicants was probably dropping. There was a lot of downward pressure on rents and you probably allowed things to slide that you knew you shouldn’t to keep from suffering a vacancy. Now, you could use the techniques in my The Psychology of the Deal eBook but the market pressures were no doubt intense. Things are about to get much better for the landlords.

It is getting harder to get affordable financing. Buyers of 2005 and earlier are renters in 2007. The competition for affordable, decent rental housing is heating up and you will see the quality of the applicants getting much better, if you are willing to over look some deficiencies in their credit, like a foreclosure or short-sale and write-off. It is likely that these will be good tenants for many years to come because they were burned in their last buying experience. Many of them will never again buy a property to live in. They will want to keep the perceived freedom of being able to walk away without having to worry about a mortgage and selling their current home.

As we approach 2007 the landlords and those who sell using owner-financing need to be aware of some changes coming on January first. If you have been pulling credit reports the requirements on you are about to increase significantly. I’m not going to detail them here but I am going to say that you will either meet them or you won’t get access to credit reports, period, no discussion and no appeal.

So, what is a small to medium landlord to do? Check with your local investment club because many of them have partnered with screening services that will side-step this problem for you. Alternatively, you could contract with a screening service directly but you will get a better deal through a group. Finally, you could have the tenant or buyer pull their credit report and show it to you. You can keep a copy if they give you permission because the report is the property of the consumer and therefore they can share it with anyone they choose. Is it optimal? No, well, maybe. Is there a possibility they will alter it? Maybe, unless they pull it in your presence. But, if you are intent on seeing their report and not using a screening service to evaluate their credit using your criteria then it might be an option.

Finally, as you prepare for 2007, there are a couple of planning aids you need. The first is the 2007 Goal Setting and Planning Workbook, the other is 2007 Financial Goals Worksheet on the same page.