The financial markets are shrouded in gloom, but R. Donohue Peebles is still bullish about real estate. Head of the Peebles Corporation, a Coral Gables, Fla.-based real estate investment and development firm with a $4 billion portfolio, he focuses on

properties in Nevada, California, Florida and the Washington, D.C. metro area. His latest book is The Peebles Path to Real Estate Wealth: How to Make Money in Any Market (John Wiley & Sons:2008). Here's what he had to say in an interview yesterday in Vienna, Va.:

Q: With all the financial upheavals of the past week, does it still make sense for the average investor to buy residential real estate?

A: It's a tremendous buying opportunity. Unless you need liquidity, real estate is the best long-term investment. I like the great leverage it gives you. You can live in it. And at some price, you can always rent it out.

Q: Under the current scenario, should you liquidate stocks to invest in real estate?

A: I have no money in the stock market. It's too volatile, and it hasn't had a leveling. If you have patient money, real estate gives you the ability to ride out bad times.

Q: How long do you think the current downturn in real estate will last?

A: I think it will bottom out in 2009 or 2010. There will be more job losses and increased inventory that will further depress home prices. This means if you're buying a house, you don't have to rush.

Q: What's the best way to negotiate a price?

A: Start out 10% to 15% below what you want to pay. That way, you'll be able to negotiate for two or three rounds without going over your limit. Don't let your emotions rule you. If you don't have a deal, walk away.

Q: What's the best way to ensure that you don't overpay?

A: You've got to look at what's selling, what other [properties] have listed for, who are the sellers. For instance, in Las Vegas, the sales volume is up, but they are short sales and foreclosures, so you know sellers will make a deal…[in general] if you can buy at what the price was in 2001 or 2002, that's a safe place to be.

Q: What's the best way to make money in foreclosures?

A: I don't think you should buy, upgrade and flip. You need to buy, rent and hold.

Q: Should you look for foreclosure properties priced in the bottom, middle or top of the market?

A: Stay away from luxury properties, because they won't command enough rent to cover your equity investment. And working-class neighborhoods will continue to have job losses--though small, easy-to-manage multifamily properties in close-in areas can be opportunities. I would buy mid-priced houses in areas with good schools, transportation and job growth. When the market improves, your tenants may want to buy the property.

Q: What's the biggest mistake buyers can make in this market?

A: Becoming too focused on being victims, rather than being opportunistic. There will be a lot of people making a lot of money during this downturn. You need to think: Why not me?