Profiting from foreclosures isn't just a matter of looking for foreclosed properties and buying them up. You need to be aware of the strategies and methods you can use to ensure you get a return on your investment. If you aren't careful, you could encounter all sorts of pitfalls that could eat into your profits, or even wipe them out.

So what are the possible ways of profiting from foreclosures?

• One way, of course, is to find and invest in pre-foreclosures. This means locating a home in the default phase of foreclosure, where the foreclosure sale hasn't yet taken place. Why is this profitable? One of the fundamental principles of real estate investing is to find motivated sellers - and sellers don't come much more motivated than those in pre-foreclosure. They are usually desperate to find a way out of their predicament and you can offer it to them. The lenders can often be persuaded to discount what is owed on their pay-off, in order to avoid having to take the property back. So you can negotiate increased equity - plus you can make an offer subject to being able take over the financing already in place. This can be a win-win deal for you and the owner.


• Another way of profiting from foreclosures, which novices often go for, is to invest in foreclosure properties that are in need of repair, do them up and sell them on at a substantial profit. The drawback to this is that if you buy a foreclosure property at auction, you have little or no opportunity to inspect the property to see exactly what repairs are needed. You may think you have obtained a good bargain but then find that the cost of repairs is greater than you expected. Moreover, the longer the repair takes, the more costs like mortgage and insurance payments will eat into your profits. So you need to exercise a lot of caution if you want to adopt this method.


• A very popular way of profiting from foreclosures is by flipping. This means buying and selling very quickly at a smaller profit, without doing any of the repairs. The best way of doing this, if you can manage it, is by having your buyer in place before you purchase the property, so that you know exactly how much you will be able to sell it for. You need to be prepared to let the property go for less than it is worth, so that there is still some profit potential left in it for the next buyer. The advantage of quick flipping from your point of view is that although the profit on an individual property will be smaller, you can repeat this several times in the time it would take you to do up a property - so your total profit at the end of the year will be at least as much and probably more. But it's not for the novice investor - you need a lot of skill to identify the right properties and to line up your sale at exactly the right time.


• Finally, there is the possibility of profiting from foreclosures by buying REO (real estate owned) homes which have reverted to the lender. But you have to be realistic. A REO home in good condition will probably go for at or near its market value. However, some REO properties are in mediocre or poor condition, and you can sometimes beat the bank down because of its reluctance to be stuck with the property. Profit on these can be in the 15-20 percent range, and the advantage over buying at auction is that you can inspect before buying - plus there are no title worries.

If you are interested in profiting from foreclosures it's essential not to be naïve, unrealistic or greedy. It's a business, not a get-rich-quick scheme, and you need to know what you're doing before you start. Even overbidding on a single property - as many novices do - can lead to financial ruin instead of making your fortune. But do it right and you can find yourself very much better off.

If you would like to find out how you can profit from foreclosures and find the greatest selection of foreclosure properties, come and visit http://www.bizwrite.co.uk/realestate/foreclosures.html

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