This featured blog is by RealtyJoin member Jeff Adams

We are all aware that the economy has taken a nosedive over the past couple of years. Businesses are closing their doors, employees are being downsized, and the current market value of houses has been consistently dropping. Although, the recession is damaging the current market, it does offer a plus side to the real estate investor.

Buying real estate during a recession allows buyers to thrive during a recession. They have the opportunity to make substantial financial growth. Falling prices and less activity in the current market can benefit the buyer in many ways. A recession typically lasts for about two years so investors should think about not just how low the prices will go, but also how much they can invest until it is over.

Upon deciding to invest, you should consider a variety of factors.

Realize if each house in question is functional to your particular needs. Buying because you fear the recession will end is not wise. The current market should not sway your judgment in this way. But since prices are typically down by three to five percent, buying does offer many advantages. Buyers stand to pay less for homes, usually five percent of more, during time of distress. In addition, sellers are often more anxious and motivated to sell just for the shear fact that they do not want their houses on the market for too long.

Before investing in a down market, it is critical that you research the comparable housing prices in the area, remodeling records for the home, and any financial situations attached to the home. Websites such as zillow.com or trulia.com are excellent resources for gather such information. The general location and overall condition of the house should also be taken into account.

Timing is everything if you plan to capitalize on the falling prices of houses and property. If you are a seller and you wish to move to a more expensive home, now is the time to buy. The longer you wait, the lower the value of your currently owned home will go. Savings to you on a new house are also available as it is being sold for less. Interest rates are also much lower and are gradually increasing, which is another reason to buy now.

Borrowing cheap is another benefit. Interest rates are very low, and even though banks may not be lending to risky buyers, investors with good credit are welcomed. Foreclosures, Short Sales, and Real Estate Owned (REOs) properties are an excellent way to potentially profit from an investment during a distressed economy. When a notice of default has been filed in public records because the owner has stopped making payments on the mortgage, and a lender has given notice that the house will be sold at public auction if the payments are not made current, the house becomes foreclosed upon. If payments are not made and the house goes to public auction, a buyer can usually purchase the house for the amount of money remaining on the loan. There is substantial profit to be made by only paying the amount owed on the mortgage and the owner’s equity can be picked up for free.

One thing to consider though, when going the foreclosure route, is that a house being sold at auction is not just a steal. Due diligence and thorough inspection of the house should be done prior to any bidding on any home.

Short Sales or Pre-foreclosures are also an option. These are homes that are in foreclosure but before the property goes to public auction. The lender must agree to accept an offer less than the amount owed on the property. Since the lender agrees to take less money in order to avoid foreclosure, the transaction is better for the investor. REOs are similar to Short Sales, but the lender already owns the house due to foreclosure proceedings. The house has been auctioned publically and did not receive a bid. This offers a benefit to the investor because the lender will usually sell for less than what is owed on the mortgage.

This is the best way to buy because the seller is no longer involved in the transaction. The deal is made between the lender, the seller, and the agents that represent them. At times the agents are not even necessary.

Overpriced homes are another investment opportunity to consider. An inflated price is the number one reason a house does not sell. A home that has been previously overlooked because is has been overpriced, has been on the market for a long period of time, and has not sold because of its price, should be revisited. A motivated seller could lower the price in a hot seller’s market where there are many buyers and less inventory. Offering the seller a sizable earnest money deposit or “Good Faith Deposit,” which is a portion of the down payment attached to the purchase agreement, and a list of prices for other homes is the area could also encourage a price reduction. Offering a “Good Faith Deposit” can also offer less risk to the seller because most contain provisions that give this initial deposit to the seller if the buyer backs out of the deal without cause. The money is usually held in a trust until of the necessary negotiations have been made and contracts have been signed.

Finding real estate to invest in can be easier said than done. Don’t wait for these homes to show up in traditional real estate listing services. Look for information on bank websites and county loan offices that know of foreclosures. You can also ask local real estate agents that are familiar with the area. Realtors can also offer insight on overpriced homes.

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What do you do if you have the money to pay your mortgage, but your property is so severely underwater that you don’t believe it will get right side up for 20 years or more?

Strategic default is one of those topics that always seems to raise hackles in real estate conversation.

While strategic defaults are perfectly legal and a recognized business strategy, they provoke great consternation among homeowners and real estate professionals who believe that those borrowers who opt for a strategic default are somehow morally bankrupt, or don’t care about the real estate valuation problems they’re exacerbating for others in the neighborhood.

Whether or not you are a fan of strategic default, the numbers of folks walking away from severely underwater homes appears to be growing, especially in markets where the number of foreclosures is increasing and home prices are dropping rapidly.

According to a new survey by FICO, 46 percent of risk professionals surveyed expect the number of borrowers choosing strategic default to increase in 2012 over 2011.

And almost half of all homeowners with a mortgage say they would walk away from their home if home values continue to fall, according to an online poll from Housing Predictor.

The risk with a strategic default is that the lender would chase you to pay off the deficiency. And, you’ll have a significant hit on your credit. But if this is the right choice for you, then make it – with your eyes wide open. And in some states, the lender’s only recourse against you is to sell the home and use the proceeds to satisfy the amount owed, but the lender can’t go after you for the deficiency.

What are your thoughts on a strategic default strategy? Do you ever advise it?

Homeowners who owe more than their home is worth may be receiving some help from the Federal Housing Finance Agency (FHFA).

A recent speech by Edward DeMarco, acting director of the FHFA, alluded to the possibility of implementing write-downs for underwater homeowners.

The idea stems from the findings of an FHFA study which showed that Fannie Mae and Freddie Mac could save up to $1.7 billion if principal deductions were used. Since 2008, FHFA has been the conservator of Fannie Mae and Freddie Mac.

DeMarco has long been opposed to write-downs and he and the FHFA want to make it clear that this is not about attempting to bail out the housing market.

“The anticipated benefit of principal forgiveness is that, by reducing foreclosures relative to other modification types, [Fannie and Freddie's] losses would be lowered and house prices would stabilize faster, thereby producing broader benefits to all market participants,” DeMarco said in his speech Tuesday.

Currently, there are about 11 million underwater homeowners and if this initiative were implemented, less than one million households will benefit. Thus, while it may provide relief for homeowners who are eligible for principal reductions, it will not affect the vast majority of underwater homeowners.

For more details on these write-downs read my full article on CBSNews.com.

Do you think that this initiative will significantly help the economy as whole?

If you own a home, you might want to start thinking about the IRS. According to Julian Block, author of “The Home Sellers’ Guide to Tax Savings” (PassKey Publications, $19.95), there are ways to lighten your tax load whether you’re living in your home or selling it.

Here are some top home seller tax tips:

1. Marriage penalty? Not when you’re selling a home.

Getting married? Are you a newlywed? The IRS bestows a gift on newlyweds who each own homes that they sell before or after their trip down the aisle. On their joint return, each spouse can exclude as much as $250,000 of gain, provided each spouse could exclude up to $250,000 if he or she filed separately. Unfortunately, one spouse can’t use any part of the others unused exclusion, so as to exclude gain of more than $250,000 per person. (Individuals may exclude up to $250,000 in gain on their home sale and married couples may exclude up to $500,000 when they file jointly.)

2. Bundle ordinary repairs into a bigger job.

If you’re debating whether to save up for a major renovation but still have a few repairs around the house that need attention, think about bundling them together (if your repairs can wait). Block says your home’s adjusted basis (which consists of the property’s purchase price plus the cost of purchase, sale, structural improvements, legal fees paid to defend or to perfect title, zoning costs, and the cost of selling the property) includes only the cost of permanent improvements (including replacing a roof or building an addition) so it might pay to postpone repair projects until they can be done in connection with an extensive remodeling or restoration project. Adding the smaller jobs into the bigger job may allow you to include some items that would otherwise be considered repairs, such as the cost of painting rooms.

3. Don’t forget to deduct points paid when you financed or refinanced your mortgage.

When refinancing an existing mortgage, or if you pay off the loan early, take a deduction in the payoff year for all remaining points you were charged when you obtained the loan. For example, if you refinanced your mortgage and paid points in the amount of $2,000 and have deducted $400 over the years, you can deduct the balance of $1,600 in the tax return for the year in which you refinance the property. If you refinance, check on whether you need to increase or decrease the amount taken out for federal income taxes from your paychecks or to increase estimated payments. If you will need to pay more to the IRS, you should increase your withholding or quarterly estimated payments. And, if you will owe the IRS less, you can decrease those payments to the IRS. To revise your withholding, file a new Form W-4 with your employer.

4. It may make more sense to prepay your credit card debt – not your mortgage.

If you find you’ve got a little extra cash on hand at the end of the month, you might be thinking about throwing a few dollars toward paying off your mortgage. And why not? It would be great to own your home debt-free. But if you also have credit card debt, you should instead take those bucks and pay down your highest interest rate debt. For someone in the 30 percent tax bracket (federal and state), an investment would have to yield a whopping 26 percent before taxes to match the benefit available from just paying off a credit card costing 18 percent. And with mortgage interest rates near historic lows (this week, a 30-year fixed rate mortgage can be had for about 4.5 percent), paying off a credit card makes much better financial sense. And the tax tip: Mortgage and home equity interest is tax-deductible if you itemize on your federal income tax return.

There are other tax deductions and perks available for homeowners. In his book, which is available at Amazon, Block takes homeowners through foreclosure and short sale tax issues. And for more personalized information, consult with your tax preparer, accountant or enrolled agent.

I learned two interesting things this past weekend.

The first is that lightning can strike at any time and it can hit close to home. The second that you need to make sure your insurance policies are up to date and that you have the right insurance carrier to help you out.

Do you have insurance for Lightning Strikes? Would you be prepared if you had a total loss?

Early Saturday morning, we were awakened by a loud storm passing by. The lightning was fierce. At about 1:30 one strike felt like it hit near our home. I got out of bed and wandered around the home and looked out the windows to see if our home or any neighboring trees or properties had been hit. Lightning had not struck our immediate vicinity but had hit the house of a friend a couple of blocks away. The lightning missed the tall trees surrounding the home and hit the roof instead.

Luckily they were not home, but the lightning ignited the roof of the home and quickly spread throughout the home. By the time the fire department arrived at the home, the home was fully engulfed in flames. Not much was left of the home. The picture above is the actual picture of what’s left of the home.

In talking to my father, he recalled how all homes where he grew up had lighting rods. In our area, there is no requirement for lightning rods to be installed in old or new homes. Well, our friends found out the hard way what happens when lightning strikes a home.

While in hindsight, the following items might have helped minimize the loss, including a home sprinkler system, a monitored fire alarm system and, perhaps, a lightning rod, there are a couple of things a homeowner can do to help prepare for a possible disaster and assist in the recovery.

The first thing that you should have available at all times is a copy of your insurance policies. If you have had your insurance policy for some time, make sure that your homeowner’s insurance policy contains the declaration page along with the policy and all endorsements. You might like to know that insurance carriers frequently update and change their insurance policies and will add endorsements to your policy. However, these endorsements may come to you after you have received the policy and it will be up to you to have the policy and all endorsements stored in one place.

Many insurance carriers will give you online access to your policy and forms, but if your policy is several years old, you may have to request that the insurance carrier mail or email to you the current version of your insurance policy along with its endorsements.

A helpful list would be for you to have an inventory of everything you own. You can create a list of all of your worldly possessions and make sure you have it in a safe place. But, you can also to around your home taking pictures of everything you own.

If you decide to use a camera, don’t forget to open up cabinets, closets, storage bins and boxes to take pictures of those items as well. At least if you’ve taken pictures of everything, you will have an easier time remembering all of the things you owned and can prove that you had four sets of china along with a one hundred pairs of shoes or a jean collection.

If you’ve taken those pictures or have an inventory, make sure that the information is kept in a safe place you can retrieve if there is a disaster. It won’t do you too much good to put that back up disk or drive in your basement if you end up with a flood there. You may wish to keep multiple copies of your files in different locations that you may be able to access readily in the future.

If you have this information, you can at least talk to your insurance adjuster about all of items you lost in your home and can show evidence that you had those items there.

When you deal with insurance companies, make sure you’re working with a reputable insurance carrier with a good reputation in dealing with their customers after a disaster. If you pick the cheapest carrier, you may pay less in premiums but your first disaster may be compounded by a second when they fight you for what you might be entitled.

Once you choose an insurance carrier, make sure you have adequate coverage for your home and possessions. If you think it would cost you $300,000 to rebuild your home from scratch, don’t buy $250,000 in coverage to save some money. Frequently, homeowner’s underestimate the amount it will cost to rebuild a home and if it costs more than the amount you have covered under your policy you may be out of luck.

Some insurance agents will try to convince their customers that the insurance company’s policy will cover them for up to 125% of the policy amount. However, if you suffer a total loss, you may need that 25% additional coverage for other unexpected costs. And, if you are a collector of special items, make sure your insurance carrier knows that you collect antiques or other items that may have a high value and may not be covered under some policies.

If you have covered your home for the amount that it would take to rebuild it, make sure you keep up that amount from time to time, if the amount has not gone up in years, you may want to reevaluate whether you should increase the amount of coverage for your home.

Once you have covered the home, make sure the things you own inside of it are covered as well. If you have a total loss, do you have enough coverage under the policy to cover you for the televisions, games, jewelry, clothing, bedding, furniture and other items that you own? Make sure you have enough of this kind of coverage and that your policy will cover your expenses while you have to live somewhere else for up to two years.

These steps won’t eliminate the tears shed from the loss, but may minimize some of the hard work that you will have to go through trying to reconstruct your life after a big loss.

Do you have a story about an insurance loss you’ve had and the problems you went through with your insurance carrier? If you did, please leave a comment about what you went through with your insurance company and how you managed and solved it.

A new data set published last week by CoreLogic, a provider of real estate information and analytics, indicates that the real estate market still faces a number of substantial problems – and not all of them contain the word “foreclosure.”

U.S. homeowners who are regularly making mortgage payments, and have no current desire to buy or sell, may still have a home equity crisis on the horizon. That could spell big trouble for anyone who used their home as a piggy bank, expecting future home value appreciation would make things right.

According to CoreLogic’s data, a full 23 percent of borrowers are considered to be “underwater” in their homes. How much underwater?

CoreLogic says U.S. homeowners have a whopping $750 billion in negative equity.

If you live in Florida, Michigan or the Southwest, the situation is much more dire. Here are the top five states that, according to CoreLogic,  average the most underwater properties.

Top 5 States for Underwater Mortgages

1. Nevada: 65 percent of homeowners are underwater
2. Arizona: 51 percent of homeowners are underwater
3. Florida: 47 percent of homeowners are underwater
4. Michigan: 36 percent of homeowners are underwater
5. California: 32 percent of homeowners are underwater

The numbers are awful, but it seems we haven’t hit bottom yet. CoreLogic’s report mirrors an industry consensus that home prices will fall an additional 5 percent to 10 percent in 2011, with a similar rise in negative equity averages.

It’s tough to swallow the fact that two-thirds of Nevada’s borrowers, who may have never been in trouble with their mortgages, still have less than nothing to show for their investment – and would have a doozy of a time selling their property.

If you sold your house today, would you turn a profit?

To view the full CoreLogic report, click here.

Q: I was divorced a little more than 20 years ago, and a quit claim deed transferred the property to my name. My name was never on the original deed or mortgage. When I sell my home will I have to pay taxes on profits over $250,000 over the value of the home when it was built in 1972, or can I use the valuation when the quit claim deed was signed in 1984? Many thanks.

A: When you were given the property, you were given the property at its original cost basis. So, if the property was purchased for $25,000 and someone gave that property to you, the cost basis is still $25,000 even if the property was worth $100,000 when it was given to you.

If you’re single and use the property as your primary residence, you’re allowed to exclude from federal income taxes up to $250,000 of profit from the sale of the home. And, if you’re married, you are allowed to exclude from federal income taxes $500,000 of profit on the sale of the home.

The key question for you will be what is your cost basis and how much profit will you receive from the sale of the home.

To determine the cost basis, you take into account what the home was purchased for and add to that number the costs associated with the purchase of the home.

Then you add all capital improvements made to the home over the years. If you put on an addition to the home, install a new kitchen and put on a new roof, all of these items will increase your basis in the home. And then when you sell the home, the costs of sale will get factored into determining your basis and the profit you get out of the home.

Given all of these issues, you should talk to a real estate attorney, tax expert or accountant who can help you figure out the cost basis for the home, and assist in helping you figure out whether you’ll have any taxes to pay or estimate the amount of taxes you will have to pay the federal government.

Good luck.