A not insubstantial number of homeowners in foreclosure, after saving or losing their home, realize that real estate can be a pretty good investment. Especially with their first-hand experience with the foreclosure process, these homeowners may get into the property management or investment business after taking a few years to reestablish their credit and maintain a savings account for emergencies and down payments. Real estate investing can be a great opportunity for previous foreclosure victims to help others in similar situations in their communities and make money for their own families.

The main difference between various types of foreclosure investment properties is that of pre-foreclosure properties and foreclosure properties. Purchasing a pre-foreclosure homes indicates that the original homeowners are still living in the house and may be looking for ways to stop foreclosure. They have not made a payment in some months, and are quite likely being sued for foreclosure by the bank and its attorneys, an experience previous foreclosure victims can well relate to. The house has not been sold at a county auction (sheriff sale) yet, though, so it is not considered a fully foreclosed property yet.

To buy a pre-foreclosure house, the potential buyer would negotiate directly with the owners of the property for the terms of the sale. The bank may have to accept a short sale if necessary or hold off on the sheriff sale if there is little time to make a deal, but the actual decision to sell or retain the property, and for how much to sell it will be up to the homeowners. Foreclosure victims who realize that they can not stop foreclosure any other way may be willing to sell the house for little just to end the process, which gives investors many possibilities to find good deals in the current real estate market.

A foreclosure house that an investor buys has already been through the entire foreclosure process in the county courts. The homeowners have most likely been evicted or have moved out, if they are not illegally continuing to occupy the property. Either way, if a new investor buys this type of property, the bank should guarantee in the sales contract that it will convey clean possession of it, meaning no one else living there. Great deals in foreclosed properties can also be found, as banks are watching houses sit on the market for months while property values continue to decline.

Buying this kind of home means that the bank (or a third party) purchased the house at the auction and is now the legal owner. This purchaser from the sheriff sale is the party the potential investor will negotiate with for the sale -- not the previous homeowners whose ownership interest in the house was eliminated by the forced sale of the property. Third parties often buy properties at local sheriff sales to rehab and sell or quickly flip, so they will be looking for as high and quick a profit as possible. Banks, though, would rather sell the house on the market and recoup some of their losses from the foreclosure process, which gives the buyer more leverage to negotiate a lower purchase price.

There is no one "best route" to go in buying a house in some stage of foreclosure. There are simply too many different factors to consider and parties to work with. Sometimes, homeowners will sell for very cheap to stop foreclosure from taking the home, and the bank will accept a low short sale offer. Other times, the bank will not accept a reasonable offer and the homeowners will hold out until the last second, hoping to find some magical way to avoid losing the house. In this case, the best deal might be had after they have left the house, but there is danger the property will be damaged or vandalized by resentful former owners. Either way, potential new investors should do as much research as is prudent to make they you are getting a good deal -- in a world of possibilities, it is impossible to know which is the best way, but a good route to go to help fellow neighbors in the area is better than not going any route and leaving them to the same depressing foreclosure situation.

If the potential investor buys the house with a large down payment, or buys it for substantially less than the market value, they will create instant equity in the house and protect it against future declines in value or foreclosure. These are really the best ways to obtain equity in a property right away, besides creating it slowly over time as the mortgage is paid off. Either get a good deal, or pay down the mortgage over time; just hoping that property values increase forever to create equity has been proven by the current real estate market to be quite misguided.

This article is not about former foreclosure victims becoming new real estate flippers and ending up back in trouble due to overextending themselves on numerous foreclosure investment properties. There have been numerous failed investors of this sort who attempted to make money through real estate rehabbing and flipping in all the hottest markets of the country. This was the wrong way to make money, as is evident from the fact that so many have now lost their investments and are losing their properties to foreclosure. But in the coming economic downturn, homeowners who have experienced the foreclosure process and have survived can provide valuable solutions to their communities based on their experience.

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