Investing in forclosures can be profitable....or can they be?

Foreclosed homes provide the best deals in real estate today, but they can also be the biggest money pits on the market. Although foreclosure properties generally sell for 15 to 20% less than the market value, houses at auction are also sold as-is, and buyers don't get a complementary tour of the inside of the home before purchase. The houses are often left trashed and stripped of anything inside that could be sold, even to the copper piping. There might also be liens against the property that carry over to the new owner. So, investing in foreclosures can be a gamble. If you've ever attended a public auction, you'll know also how difficult it is to secure a good deal in a desirable neighborhood beside cash bidders and other aggressive buyers.

Given the abundance of foreclosures created by the housing market crash and underemployment in America, their are currently hundreds of thousands of foreclosure listings, with even more to come in 2010. Becoming involved in foreclosed home purchases, therefore, requires a lot of time, research, discernment, and avid, hard work. If you're willing to do the homework and make educated wagers, however, you can find great properties at an impressive discount. Not everyone has a bad experience buying foreclosed and preforeclosure properties; in fact, they comprise 37% of home sales in the last half of the quarter.

Purchasing pre-foreclosed homes through short sales is a less risky venture that also yields great savings. Short sales are houses that the bank agrees to sell for less than the balance of the existing loan against the property. Because it's a sale through the bank, they usually clear any liens and title issues before offering the property for purchase. Also, short sales are done through a real estate agent who will help you through the short sale process. Short sales still take homework, though. Check out listings on bank websites. Big names in foreclosures include Bank of America and Wells Fargo. When you find a property you like, contact the listing agent on the ad to make a date to see the property. Another plus to buying homes in preforeclosure: potential buyers can make their purchase contingent on a home inspection. Potential buyers could be waiting for a while, however. The downside to short sales is that good listings receive dozens of offers and it will likely be months before you hear from the bank, if you ever do at all. And average buyers still face competition from investors with cash in hand. Freddie Mac and Fannie Mac, the government's mortgage lenders, have programs in place to help secure offers of non-investment buyers, so use their listings to keep from being outbid by cash over and over, if you'll need a bank to take a larger mortgage for you to finance your home.