Investing in real estate during a bad market requires a hard look at foreclosed homes. Learn how and why investing in foreclosed homes is right for a willing buyer

With the real estate burst followed by a recession many homes have found themselves now in a foreclosed status as the owners can no longer afford to keep up their payments with the bank. For many who are in need of secondary income or looking for an investment, this flood of foreclosures can be a great thing. Foreclosed homes provide investors with two options: one is to try and flip the house for a profit and the other is to get in at a low price and rent out the home to cover the mortgage and a small monthly profit.

Competition is tough to get a good foreclosed home, but as many who are in the real estate business generally have an inside direct line with the banks or realtors and try to strike a deal with a homeowner before the house ever goes into foreclosure. Once in foreclosure the property will be marketed and listed in a variety of places for you to find and begin your selection process.

The first thing you need to always remember is that you are buying the house from a bank. Not a homeowner, the homeowner has already lost the house since it already was foreclosed upon. Therefore one thing you need to learn is what the bank hopes to get out of the sale. When a house is foreclosed on the bank is left with a loan unpaid and they seek the remaining balance of the loan or somewhere close to it. Banks are in the lending business, not the real estate business. They do not want to have properties on their books so are very motivated sellers when it comes to foreclosed properties to the point where they will even come down thirty percent of the asking price to get the house off of their hands.

If this is your first foreclosure or you are newer to the game find an experienced realtor. They will be able to help you do some research on the property and give you advice regarding an offer as well as a good feeling of the current condition of the house. The second thing you need to remember is that you are buying the house "as is" – there is no room for demands or asking to repair anything. When you buy the house, you adopt all of the problems that come with the home. As in the case of foreclosure this can often be a costly expense to get a house back in working condition. Consider the previous homeowners could not afford mortgage so assume they could not afford basic upkeep or maintenance. Further, they were removed from their home so may have done damage on the way out in anger. Be sure you have a large amount of capital outside of your asking price for repairs.

Work with your realtor to get listings, check foreclosure magazines and newsletters and keep doing tours of all of the houses you can find that fit your budget and location requirements. Once you find one you are interested in and can afford have your realtor do research regarding the background, the neighborhood, and compare prices to the nearby houses to ensure you are getting a good deal on the home. Have a home inspection done understanding that no damage will be paid for, but it will be good for you to know what you are getting into so you can budget accordingly.

If everything is lined up the way you want it to be, make an offer and see what happens. Again the foreclosed home business is very competitive so banks may get many offers the same day within hours of being on the market for a good investment. You need to be active in your search and be willing to pull the trigger as soon as you feel comfortable. If you win the bid there is more paperwork than normal for a foreclosed home, but with your realtors help it should not a problem.