I couldn’t resist the temptation to write a little something on foreclosure investing; you can’t read the paper or surf the web without seeing articles on the topic.  So, here goes.

The process basically—though oversimplified a bit—goes like this: it begins when a borrower falls behind on their payments and the bank decides to repossess that home.  That bank then turns toward the county courthouse and puts the house up for sale at a public auction.  But many properties do not sell on the courthouse steps, and in that case, it is put back on the market through a real estate broker at a decent price.

Considering the potential length of the foreclosure process, you can see how different stages lend themselves to different investing techniques.  For example, some investors specialize in pre-foreclosure investing.  Here, you’re working with a motivated seller who needs help and needs out; the sellers at this stage are often one step away from having their property seized.  So, when an investor steps in, offers to relieve their anxieties, and saves them the damage incurred by a gigantic hit to their credit the seller is all too willing to negotiate.

But there are other investors who prefer the auction setting.  These are the intimidating folks you see on the courthouse steps with a knack for smart bargaining.  While auctions can definitely prove lucrative, many of the properties presented at an auction don’t possess enough equity to lure potential bidders.  In the same vein, homes that are potentially lucrative will generally attract several competitive bidders--hiking up the price.

Some investors bide their time and get involved even further down the foreclosure road.  These investors prefer negotiating with a traditional broker once the house is back on the market--cleared of any title troubles.  At this point, you can imagine the bank’s motivation level, especially after the property sits on the market for more than three months.  This, not coincidently, is when a foreclosure investor sweeps in for the sale—at a discounted price.

So, regardless of which stage appeals to your talents, there is real money to be made in foreclosure homes.