While foreclosure homes often make for a profitable real estate investment, those who purchase distressed properties must engage in due diligence. Most foreclosed real estate requires considerable repairs that can impact profit margins. Therefore it is crucial to calculate the true cost of foreclosure investment property prior to making an offer.

Buying foreclosure homes through public auction is a common practice amongst investors. While good deals can be found through auctions there can also be pitfalls to this purchase method. Buyers must be prepared to transfer funds within 24 hours after submitting the winning bid. If creditor or tax liens are attached to the home, investors must engage in lien removal practices which can be timely and costly.

A lesser known pitfall of buying real estate through foreclosure auctions is occasionally evicted homeowners refuse to leave the premises. When this occurs, investors are responsible for initiating eviction action. Not only is this stressful, it can also be costly.

One alternative to foreclosure auctions is to purchase pre-foreclosure houses directly from homeowners. In some instances, mortgage lenders enter into short sale agreements which allow borrowers to sell their home for less than owed on the home loan.

When investors purchase preforeclosure short sale properties they must obtain preapproved financing prior to placing an offer, unless submitting a cash offer. Buying houses with cash often provides investors with additional bargaining power to further reduce the asking price and expedites the closing process.

One of the most profitable ways to buy foreclosure homes for investment purposes is to locate private real estate investors that specialize in wholesaling. Investors sometimes purchase entire bank portfolios consisting of multiple properties. This allows them to obtain wholesale pricing and pass savings along to other investors or individual buyers.

Investors who have never purchased foreclosure real estate can benefit from working with a foreclosure specialist or investors who specialize in selling distressed properties. These individuals can offer advice and guidance to provide investors with greater bargaining power. Their expertise can help investors obtain reduced closing costs and purchase prices.

Established real estate investors can help buyers locate foreclosure homes more efficiently. Instead of scouring multiple foreclosure lists and real estate databases, investors do the work on behalf of buyers.

Investors can help property buyers locate foreclosure real estate in the area where they want to purchase and provide comparable sales reports and pertinent information about the neighborhood such as anticipated property taxes, school systems and employment opportunities.

Investors who choose to locate foreclosure homes without help from real estate specialists must take time to understand the pros and cons of investing in distressed properties. Research the area where foreclosed real estate is located and determine property values and anticipated growth in the area.

Many investors new to buying foreclosure homes are often tempted by low-priced properties. It is important to realize if properties require major repairs or renovations, the home can end up costing more than it is worth. It is best to seek out foreclosure homes that cost more but require fewer repairs to obtain the best return on investment.

Simon Volkov is a private real estate note investor who specializes in foreclosure homes, REO, bank owned, and distressed properties. His website provides resources and articles about investing in today’s real estate market. Learn more by visiting www.SimonVolkov.com today.