Turn on CNN or pick up the Wall Street Journal any day this week, and you are bound to see a story about the number of home foreclosures taking place in the United States right now.

While it is always sad to see people lose their home due to foreclosure (especially so many people), it also represents investment opportunity for home buyers. In fact, buying a foreclosed home often means that you can get the property for less than market value. Upon hearing this, most people immediately want to know how it's possible. Here's how it works.

Buying Foreclosures Can be a Good Investment

The first thing you'll notice above is that I said buying a home in foreclosure "can" be a good investment, suggesting the possibility (but not the certainty) of getting a good deal on a home. This is what attracts people to the practice of buying foreclosures in the first place, the possibility of getting a home for less than market value.

Some people use this practice as a way to purchase the home they intend to live in. Other buy foreclosure homes for a living, turning them around for a profit and moving on to the next deal. Regardless of which camp you fall into, there are certain things you need to know about buying a home in foreclosure before you venture out to do so.

Why It's a Good Investment

Foreclosure is an expensive process for the lending institution. Lenders are good at making loans -- it's what they do. But they're not so good at managing and marketing foreclosed homes. On top of that, many foreclosure properties need maintenance and/or repairs, which adds even more costs that the lender must pay.

Bearing this in mind, it's easy to see why most lenders want to avoid the foreclosure process as much as the homeowner wants to avoid it. And when they do take possession of a home, they want to sell it off as quickly as possible. Typically, this is done through a real estate auction. Many homes sold at auction start out below market value. And unless inexperienced bidders drive the price up at auction, the buyer often comes away with a great purchase -- at or near "wholesale" price instead of market value.

So the real estate auction is one way to purchased a foreclosed home, but it's not the only way. In some cases, the homeowner will avoid foreclosure by selling the home through a "short sale." In this scenario, the lender allows the homeowner to sell the home for less than the amount owed to the lender. Pricing a home this way will normally ensure a quick sale, which is what both the homeowner and the lender want.

The longer the lender keeps the non-performing loan (a mortgage that is not being paid by the homeowner), the more money they lose. That's why they are usually eager to get the loan off their books quickly, and it's also why lenders sometimes agree to short sale techniques to begin with.

So now we have talked about two ways the savvy investor / buyer can get a foreclosed property on the cheap - through a real estate auction, or through the short sale process. Combine this with the number of foreclosure assets on the market right now, and you can begin to see why this is such a hot topic among real estate investors right now.

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