The housing market is cyclical and is currently in a gradual recovery from the 2008 real estate crash. The number of foreclosed properties is less than it was a few years ago, but there are still opportunities to buy a foreclosure at a respectable price.

I don’t know what you’re doing, don’t buy

Buying a foreclosed property is not for those who have not studied the foreclosure process as thoroughly as possible. prior to buy a foreclosure (also known as real estate, REO, bank owned). Study information available online, take community college courses, and attend foreclosure investing seminars.

Line up your financial ducks

The next step in shopping for foreclosure is to develop a detailed budget. Determine the absolute maximum you’re willing to spend, including mortgage, property taxes, and insurance. Include some funds for possible repairs.

Then research REOs in your real estate market of interest.

Many foreclosed homes need at least some rehabilitation. How much are you willing to spend on repairs? Are you planning to do sweat equity or will you need to hire a contractor and crew to get the job done?

Now look at your budget and make a list of what you can afford for a down payment and security deposit. Will you have to take out a mortgage loan?

Having the financing lined up before you make your foreclosure offer tells the selling financial institution that you are a serious buyer. Please note that most REOs require this information along with your offer.

Be prepared to stick to your budget and if the deal doesn’t come under your limit, be prepared to walk away.

smart buy

Some REOs are priced above market value. Find out what price similar properties are selling for in the area. Several online real estate organizations list “offsets” for the property you are interested in, as well as similar properties.

The REO bank does not normally offer information about a foreclosed property. Some houses are in terrible condition, even uninhabitable. DO NOT consider, much less make an offer, foreclosure without first having a full inspection of the property by a licensed inspector. And be very careful with any property that is listed significantly below market value. It may be hiding some serious problems.

Don’t go it alone – work with a real estate agent who has a lot of experience dealing with foreclosures.

The good deal

A good deal on an REO property is one that needs little or no restoration. Or, it could be the rehab property that fits your budget and financing.

A stronger offer is one for which you can pay cash. Be prepared to act quickly. Bidding wars for desirable property can be common. Do not lower your offer. Do it clean, in cash (if possible), with few or no contingencies and a quick close.

The best bet on a foreclosed property is the one you prepared for, even before you began your search.