Learning how to flip real estate is like learning how to find diamonds in the rough. A common misconception among rookie foreclosure investors is that every house is a deal worth pursuing. The reality is that finding profitable foreclosure real estate to flip is a numbers game. If you do your homework and due diligence properly, you will come to realize that for every one hundred houses in foreclosure, only ten will be worth pursuing. That means that the other ninety houses would result in a loss if you were to invest in them. Then of those ten houses worth pursuing, you will only end up making an offer on three. Of those three houses that you make an offer on, only one might be accepted.

Imagine the amount of time involved in researching one hundred houses to find one deal. It is easy to get worn out, discouraged, frustrated, or disillusioned by the process. But, by Darwinian logic, only the strongest will survive. Only those who have the will to succeed will survive and come out wealthy beyond their wildest expectations. Notice that I said that all you need is the will to succeed. Notice that I did not say anything about needing money. You do not need your own credit or your own money in order to make big money in real estate. You don't know how many people dismiss real estate investing as a scam because they refuse to believe this. But this is part and parcel to the core foundation of successful real estate investing. I have done several estate deals, and I never invested a dime of my own money into the deals.

So how do you recognize these "diamonds in the rough"? Here are ten tips:

1. Only pursue a foreclosure lead if the total amount of all mortgages on a property does not exceed 70% LTV (loan-to-value). For example, if a house is worth $100,000, then the first mortgage must not exceed $70,000. If it does, then steer clear of that house. If you invest in it, you will lose money or break even at best. This applies to whether or not you are buying the house directly from the homeowner or bidding on the property at an auction.

2. Vacant / abandoned homes take priority over foreclosure homes that are currently occupied. It is far easier to negotiate with a homeowner who has already moved out, than one who is in denial about his or her situation and does not want to move out or sell.

3. When negotiating to buy a foreclosure home from a homeowner, create a win/win for the homeowner. Look for a means to create a solution and solve a problem in the homeowner's life. Do not approach a homeowner like a wolf approaches a sheep. Honest and ethical foreclosure investing entails serving the interests of the homeowner and not merely lining your own pockets.

4. Go for the houses that look like they need the least amount of repair. You may not be able to find out everything about a property without a proper home inspection, but you need to keep repair costs in mind when you buy a foreclosure.

5. Learn to do the math: How much profit do you think you can make if you have a $100,000 house with a $70,000 mortgage on it, and which needs $10,000 worth of repairs? If you think the answer is $20,000, then guess again: You're wrong! You have to pay closing costs, you may have to pay mortgage and utility payments on the property until you are able to resell it. You may have to pay realtor fees. Plus, the homeowner will likely want some cash for the trouble too. After all, if they have nothing else to lose, then when a real estate investor approaches them, then their house suddenly becomes their biggest bargaining chip.

6. Always conduct a title search before you buy a foreclosure property. It is important that you ensure that you understand what all of the liens and encumbrances on the property currently are. What if the homeowner got sued for $50,000 and a lien has been put on his house for that amount? Guess what? Using our $100,000 house example above, even if you were to take the property subject to the existing loans, when you go to flip it to someone else, any profits you receive will go toward paying off the lien.

7. Always always always drive by a house before you make a decision on whether or not to invest in it. Always drive around the neighborhood to get a feel for the house's fair market value and its overall marketability. Many novice real estate investors assume that if a house looks like a deal on paper, then it must be a deal. What if the numbers look great, but the house is in the middle of a swamp?

8. Always have an exit strategy mapped out for each property that you are considering to invest in. Can this house be fixed and flipped profitably in two months? Will you need to hold onto this property for six to twelve months before you can flip it? Will you be able to rent this property out for enough rent to cover the monthly expenses of the house? What is the rental market demographic? Is this house in need of serious repair or just some minor touch-ups? Is this the only old house on the block full of a bunch of tear-down new construction homes? It is very important to have an exit strategy: How will you profit from this house? What is your bail-out plan in case things go south and you must ditch the property before you suffer a financial loss?

9. Here's a gold mine for you: If the total LTV is greater than 70%, are the mortgage companies who are holding the first (and possibly the second) mortgage open to negotiating a short sale? Let's use our example of the $100,000 house. Suppose the mortgage on the house is $80,000. You might just pass up the house, based on the 70% LTV criteria, right? But what if the mortgage holder has a "short sale department" and they are open to accepting an offer to accept a payoff of less than the total amount due in order to release their lien on the property so that the homeowner can sell the house to you? Let's say you make an offer of $70,000 and they accept it? Then there you go! You have a house with 70% LTV. You just created a deal out of thin air, when the house was not a deal to begin with!

10. NEVER get emotionally attached to any one deal. If you find a beautiful house, or if you find a house that would net you $100,000 profit, or if you find a homeowner who is open to your help, but for some reason or another the deal cannot be done, then just MOVE ON! Do not get attached to the deal, because if you do, you may end up becoming discouraged. This is not to say that you should not be persistent in getting a deal either. On the contrary, sometimes it takes a lot of negotiation, research, and phone calls to get into one deal. "No" today does not mean "no" tomorrow. Sometimes you have to send several post cards or leave several messages or knock on a homeowner's door several times before they will finally be ready to work with you. After all, their primary interest is in keeping their house and your primary interest is in buying their house. If the two of you are not on the same page, the deal can never happen. And if a homeowner can save his or her house, he or she will. You only become an option for them when they are at the end of their rope and have no other alternative.

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