The Foreclosure Buying Toolkit

Three things every investor should have before trying to buy a foreclosed home.

This year, all real estate investors will receive an 'F' for their efforts. But it doesn't stand for failed. It stands for foreclosures.

Why do investors get an 'F' for foreclosure? Because there are more foreclosed homes on the market now (at the time of this writing) than at any other point in the past. If you've been watching the national news lately, this probably won't come as any surprise.

After all, once you get past Britney Spears, the war in Iraq, and the latest presidential campaign coverage, the most common news utterances are "subprime" and "foreclosure."

But for real estate investors, the mere availability of foreclosure properties is not enough to ensure success. The savvy investor will have the right tools for the job -- and when it comes to buying foreclosed homes, this means three things above all else.

The Three Most Important Tools

So what are the three primary ingredients of the foreclosed home buyer's toolkit? They are liquid financing, foreclosure tracking, and procedural awareness. Let's take a closer look at these tools:

1. Liquid Financing

We already talked about the amount of news coverage foreclosures are getting lately. So these properties are certainly no "secret" from an investment standpoint. If you are looking at foreclosed homes in your area as a way to get a good deal, you can bet there are hundreds (possibly thousands) of other folks doing the same.

So depending on where you live, there could be a lot of competition for foreclosure properties. Thus, you should have ready access to financing before shopping around for a good deal. If the home you are interested in goes into real estate auction, you will be bidding against other investors. And chances are, most of them have their financial "ducks" in a row already.

2. Foreclosure Tracking

Of course, before you can even evaluate a foreclosed home (much less try to buy it), you need to know about the property to begin with. This is where foreclosure-tracking services come into the picture. By signing up for one of these web-based services, you can receive email notifications about homes going into foreclosure in your area.

We talked about the level of competition in some areas, when it comes to buying foreclosures. It often becomes a scenario where the person with the freshest data gets a big head start on buying the property. In other words, stale data is nearly worthless.

There are quite a few foreclosure-tracking services online today. These services will monitor pre-foreclosure activity in your area and notify you about new foreclosures. Two of the most popular services are Foreclosure.com and RealtyTrac, mainly because they both combine good data with easy-to-use websites.

Learn more about tracking foreclosures in your city.

3. Procedural Awareness

Foreclosure procedures can be fairly complex, especially in the more litigious states such as California. So before you plunge into the world of buying foreclosed homes, it's a good idea to do a little homework first. Start with your state's laws on this subject.

You don't necessarily have to become a legal expert on the foreclosure process in your state, but you should at least understand the basics of how the process works -- particularly the steps leading up to foreclosure, and the subsequent auction that typically follow.

Once you have familiarized yourself with your state's foreclosure laws, you should research the process in your city or county as well. Often, the foreclosure proceedings in one county will be different from other counties in the same state.

While you can certainly learn a lot from reading books on the subject, or by visiting websites like this one, there is simply no substitute for having a mentor. So do your best to find somebody in your area who has purchased a foreclosed home before. If you can find somebody who buys foreclosures on a regular basis, even better. Buy them lunch and pick their brain a little. You'll gain some valuable insight in the process!