Foreclosure homes are quickly becoming attractive to real estate investors and first-time home buyers. However, if you have never invested in distressed properties it's important to understand the pros and cons of this type real estate transaction.

Once in awhile, great foreclosure homes can be found, but it's extremely rare to find one in perfect condition. More often than not, you will need to either engage in physical labor or hire contractors to get the property back in good condition.

If you have never purchased a foreclosure home before it's best to work with a realtor or private real estate investor who specializes in this type of real estate. Working with a foreclosure homes specialist can provide you with greater bargaining power and help you obtain additional benefits such as reduced closing costs or a lower purchase price.

There are four ways to purchase foreclosure homes:

1. Purchase the property at a foreclosure auction

2. Buy directly from the seller

3. Hire a real estate firm to bid on foreclosure homes on your behalf

4. Work with an REO (real estate owned) or foreclosure specialist

Unless you have the ability to pay cash for foreclosure homes it's a good idea to obtain pre-qualified financing before you begin looking at distressed properties. Doing so will ensure you are qualified to buy the property and provide you with extra leverage when it comes time to make an offer.

Realtors and REO specialists can help you locate foreclosure homes more efficiently than if you search for them on your own. These professionals have access to thousands of distressed properties and can help you quickly locate a house in the area where you wish to reside or purchase investment property.

If you prefer to conduct real estate transactions without the assistance of specialists, be certain to do your homework. Thoroughly investigate the area to determine the market value of other homes and anticipated property value growth. If you have school-aged children or plan to rent the property to families with children, check for availability of public or private schools in the area.

After conducting research, it's time to compile a list of potential foreclosure homes. When working with a Realtor, your agent will make viewing appointments for you. If you're working alone, you will need to contact the seller to make an appointment.

Take along a pen and pad of paper, video or digital camera so you can document potential problems. Check the house from top to bottom and make note of any structural damage, plumbing or heating issues, termites, rodents and other common problems.

When it comes to foreclosure homes the more problems you can find, the better your bargaining power. Don't skimp on the process and take time to thoroughly investigate the house before you make an offer. Doing so could potentially save you thousands of dollars.

While it might be tempting to purchase low-priced foreclosure homes, it might not be your best bet. If the house requires extensive renovation it can cost considerably more than investing in a foreclosure home that has a higher price tag, but requires few repairs.

Last, but not least, be certain to determine if there are any liens against the property. Creditor and tax liens can be a huge legal hassle that consumes a great deal of time and money to resolve. Take time to engage in due diligence before placing an offer or it could end up costing much more than you expected.

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