Foreclosures usually sell below their actual market value. They present an opportunity to get higher returns for a smaller downpayment.
Investing in foreclosed properties is thus an attractive prospect, but due diligence, or the lack thereof, can make or break the investment. An investor has to choose his foreclosure wisely.
To begin with, focus on a specific area. Location is key in real estate. Choose a location that's proven to be on the rise. Consider also its accessibility from your own location, especially if you want to personally inspect the foreclosure and oversee its repairs and renovation. If you're hands-on about flipping the property, you may need to drop by to check on it often.
Secondly, determine your budget. From your chosen area, look for the foreclosures that you can afford, taking into account the loan that your credit can get you. Make sure that you can also afford the downpayment, which is often at 10 to 20% the actual price.
Next, narrow down your search based on the type of foreclosure. Check the description beside each item, which should indicate whether the property is a vacant lot, a house and lot, an apartment, a condominium, a townhouse, or some other type. Keep in mind that vacant lots are harder to sell, since they aren't readily usable.
Finally, choose from the remaining properties by floor area. The more floor are the foreclosure possessesthe more potential there is in improving its value.