I believe we've seen the bust side of the boom market and are emerging into a different housing market that is on a (slow) road to recovery. Even if you don't agree with me, one thing I'm sure we can all agree on is that the market isn't going to operate the way it did at the height of the boom cycle.

There are distressed properties all over the market (and will be for sometime). Conventional loans and underwriting rules are much tighter (as they should be). Cash is King, quick appreciation isn't guaranteed, financial literacy is a must, regulations are stronger and insider information doesn't exist in the same way it did.

So how do we need to adjust our thinking and actions?

Distressed Properties: With so much media attention on all the "foreclosures," the public feels that it's a buyer's market. Well, in some sectors it is, however, in the sectors most investors are dealing with, it isn't. So investors need to switch their thinking from "there are deals everywhere" to "where do I really find the good deals."

Underwriting Rules: Credit is tight; 5 years ago if you had a pulse and a decent credit score, you were able to get a loan very easily.
There is a slang term NINJA – No Income, No Job, No Approval. Now you need to be prepared and position yourself correctly. You must have an A Rating (a credit score of 751 or higher) and have all your documentation in order. One of the easiest ways to do this is by creating a "Statement of Financial Position." This is a living document that can help you keep track of your net worth. We provide you with a template in our Professional Real Estate Investor Class for this document. You also need to do a budget so you know what you can afford and prove your employment or income.

Cash is King: Everyone was doing zero percent down loans 5 years ago; well today, down payments are important. Warren Buffett's edict of "having skin in the game" is a mantra used by all lenders today. Most lenders don't want to see less than 10% (unless VA) and, if you're an investor, they're looking for 25% down. But if you are worried about the 25% down, remember that's just for conventional financing. If borrowing from private money or a SDRA (Self Directed Retirement Account), you'll have more flexibility.

Quick appreciation isn't guaranteed: In the boom market, real estate investors could factor in appreciation into the evaluation of a deal; not today. In this market, we need to be even more careful and buy right with immediate equity. We still look for markets were we can find anticipation of good appreciation, however, we no longer (and never should have) depend on it.

Financial Literacy and Stronger Regulations: In this country, we tend to play the blame game. It was the mortgage broker's fault, it's the hedge funds fault, it's the government's fault. We are all adults; take responsibility. It's important to have professionals as part of your team, but no one is going to care as much about your money and your well-being as you. So understand the contracts and loan documents you sign. For example, since January 1, 2010, home loan originators must provide borrowers with a mandated Good Faith Estimate (GFE) within three days of accepting your application. Along with the GFE, you'll also receive the new "Shopping for Your Home Loan: HUD Settlement Cost Booklet." Use the tools and, as one of my favorite presidents, Ronald Reagan, said, "Trust but verify."

Insider Information: The Internet has created a portal from which we can get a lot of information that wasn't accessible to the lay person in the midst of the boom cycle. Did you know that you can get access to the MLS? There's insider information for you. But remember that it's not just access to the information, it's also knowing how to analyze and use that information in a timely fashion that really makes the difference.

The term Paradigm Shift was first coined by Thomas Kuhn, Ph.D. in his influential book The Structure of Scientific Revolutions. A Paradigm Shift has been defined as a change in a fundamental model of events or replacing the former way of thinking or organizing with a radically different way of thinking or organizing. Dr. Kuhn may not approve of my use of his term with real estate investing, but there is no doubt a fundamental change and a need to change our thinking.