The comments below are quoted from a recent speech by Ben Bernanke, a member of the

Federal Reserve Board of Governors...

"Looking forward, I am sure that the Committee will continue to watch the oil
situation carefully. However, future monetary-policy choices will not be closely
linked to the behavior of oil prices per se. Rather, they will depend on what the
incoming data, taken as a whole, say about prospects for inflation and the strength
of the expansion. Generally, I expect those data to suggest that the removal of policy
accommodation can proceed at a 'measured' pace. However, as always, the actual course
of policy will depend on the evidence, including, of course, what we learn about how
oil prices are affecting the economy."

In short, the Federal Reserve knows that there will be an impact. But no one knows
how big and how fast. During the oil embargo of the 1970's gasoline prices doubled
several times over a matter of months. The effect was dramatic and sudden. It was
difficult to adjust, because things were happening so fast.

This time around, it appears that the price climb will be gradual and steady, thus
allowing the Federal Reserve and the government to make adjustments as they go, by
examining economic data on a monthly basis. At least that is what they are hoping for.
They know that the economic climate is changing, but they are hoping that it will be
slow enough to control.

This week as I contemplated my own reaction to the changing economic environment, I
felt compelled to encourage you to give some serious consideration to your personal
economic circumstances. If you have a large percentage of debt relative to your in-
come, you should take steps now to eliminate as much of it as possible. Prepare your-
self so that you will be protected against unexpected economic upheaval.

Being debt free, or having a very low debt to income ratio is the best way to protect
yourself in an unpredictable and volatile world. As we learned on September 11, 2001
things can change dramatically in only a few hours. If you put it off, you may not
have enough time to get it done. The average person needs 4 to 5 years to pay off their
outstanding personal debt, not counting their home. In today's world, it will pay to
get started now. I have made it my primary objective to pay off my personal debt over
the next year or two.

If you currently own rental properties, be sure you have cash reserves for future emergencies.

But how might all this economic stuff affect real estate investing?

The interesting thing about real estate investing is that even bad economic conditions
tend to have a silver lining. There is a cause and effect relationship at work in any
given economy, whether it is considered a "bad" or "good" economy.

In good times, such as we've had the past 8 years, retailing or flipping for cash was
the hot ticket, due to high demand for housing and the ability to sell properties
quickly. In recessionary times, higher interest rates and lower housing sales fuel
more seller financing, and rental properties flourish. Of course there are always
exceptions to the rule, but generally speaking this is the case.

As interest rates got lower, rates of return for traditional investment vehicles went
lower and lower. The result? More and more money poured into real estate lending.
Hard money and other types of conventional real estate financing programs expanded
drastically, making millions of dollars in new funds available for real estate investors.

As housing sales reached record levels, home sellers began seeing a boom in housing
prices. It has truly been a sellers market since rates fell below 7%. What happened to
investment property? During the past 5 years of an investing bonanza in Atlanta, prices
for investment properties have doubled and even tripled. 3 bedroom 1 bath junkers
were selling in 1999 for as little as $25,000, even in liveable condition. Today, that
same type house regularly sells for $65,000 (or more) before repairs.

Going Forward:

Rising rates will have a positive effect for investors, by slowing housing sales even
further. As sellers get fewer solid offers property prices will get softer. Rising
rates could fuel more short selling of foreclosed properties, and this trend is likely
developing now.

Foreclosures may eventually get to levels not seen since the late 1980's, due to high
levels of mortgage debt among homeowners, who in many cases, have mortgaged
all of their equity to pay other bills.

If rates get above 7%, you can dust off your creative financing books, as
seller financing will increase. Rising rates mean rising monthly payments. This will
eliminate the borderline buyers from the housing market. They will start moving back
into apartments and rental houses. Vacancies will decline, rental rates will increase.

If rental rates increase, cash flows will increase. Rental property will be back in
style with investors who abandoned rentals and focused on selling for fast cash in
a hot market.

Companies that sell investment property can expect growing demand for rental
grade properties. While it is still very early in the cycle, I believe this shift is already under way.

Economic recessions are boom times for smart investors who are positioned to take
advantage of the situation. I am not predicting a recession per se' but rising oil prices
and interest rates will eventually have a big effect on housing.
Be ready to take advantage when the opportunity comes.

You have plenty of time to plan for it now.