how to invest in foreclosures

In foreclosure investing -also known as a "foreclosure flip" - a savvy investor can purchase foreclosed homes that are essentially in good condition, then turns around and sells them for big profits. The challenge lies not in knowing where to find foreclosed homes, but rather how to do this in such a way that you have a ready buyer. Otherwise, foreclosure investing could cost you plenty instead of making you money. It also pays to know the market and the laws of the community. The First Rule of Foreclosure Investing

Don't be like Professor Harold Hill, who didn't know the territory. Before you start to purchase foreclosed homes, you need to either learn about local real estate ordinances or consult with a local real estate lawyer. The reason is that while any individual with sufficient credit or capital can purchase foreclosed homes as the mood strikes them, there may be city ordinances that prevent their immediate sale.

The reason why foreclosure investing is highly regulated is because the practice of house flipping was largely responsible for the run-up in home prices that caused the recent real estate "bubble." In response, some municipalities have passed laws to regulate the practice by requiring home buyers to actually live in the home for a period that ranges from six to twelve months.

There are some ways to deal with these regulations and still have a successful foreclosure flip; if the home is damaged and in need of repairs, it might take you that long to fix the home to begin with. Alternatively, you can find foreclosed homes that could be used as rental properties and actually provide you with a stream of income while you look for a buyer.

The Best Places to Find Foreclosed Homes

Of course, before you start foreclosure investing, you'll need to know where to find foreclosed homes. The best places to start are local banks and mortgage companies. These lending institutions have extensive listings of what are known as "distressed properties - and since it costs the bank money to hold on to these properties, they are often willing to negotiate a price that is much lower than you would pay otherwise.

Local real estate auctions are another place to find candidates for your foreclosure flip. Keep in mind however that such auctions, though local, can attract nationwide attention thanks to the World Wide Web. Therefore, you will be competing with many prospective buyers and may not wind up getting such a great deal as the prices are bid up.