In the past short term investors focus on finding motivated sellers, especially homeowners who are in foreclosure or facing the possibility of foreclosure. Then they quickly turn around and flip the house either to another investor or a retail buyer. As the market was going up, any risk of holding on to these foreclosed properties was offset by the market appreciation.

The problem with this strategy in 2009 is that as the financial crisis hits the globe, bank foreclosed homes are everywhere. We are seeing a huge surge in supply in the housing market. It becomes increasing harder to flip the houses as there are lots of competitions and the price is dropping every day. Many investors who have thought they bought the property at "low enough" price quickly find out the market is dropping much faster than they have anticipated. In no way an average investor could possibly compete with banks that have thousands of foreclosed homes to sell and are willing to keep on lowering the prices until they are sold.

In 2009, investors no longer have problems finding foreclosure properties to buy. There are plenty around. You can still knock on people's doors to find pre-foreclosure deals. An easier way is buying REOs - foreclosed homes sold by the banks - they are all listed with real estate companies. The challenge now, however, is what to do with these properties once you bought them.

So how can one make a profit with the down turn real estate market?

Well, the time has come for the "real" investors. Sure, when the market is going up, anyone can make a buck in real estate. However, in this unusual foreclosure market it will take a true investor to shine.

Gone are the hit-and-run, quick-turn strategies. If you want to invest in foreclosures in 2009, you need to have a timeframe of at least 5 to 10 years. You must be willing to ride the down trend and wait for the market to turn around. If you are looking for overnight get-rich-quick scheme, then you shouldn't be in real estate right now. Go do something else. This may sound harsh but it's the reality.

While you are holding on to these properties, a great way to get cash flow is leasing out to the tenants and giving them an option to buy the property. With this strategy, you are able to charge a slightly higher than market rent. In addition, you get to collect cash as non-refundable option consideration - that's the cash you can spend today.

It may seem strange but the rental market is actually quite healthy right now. The homeowners that got foreclosed have to live somewhere. Since they can't buy another house, they have to rent. In addition, with banks are now more stringent on lending criteria, many people can no longer qualify for home loans. Renting becomes their only option. If you buy the right kind of property (good location, etc.), renting it out shouldn't be a problem in this market.

In summary, to profit from the current foreclosure crisis, you must think long term. Be patient and buy foreclosure properties that are truly great deals. Then hold on to them until the market recovers. Meanwhile, use lease option to offset your holding cost. In addition, let's not forget the tax benefits of holding on to these properties long term. When the market recovers, you will be able to get 100% or even 200% return on your investment.

By Leo Liu