Many new investors assume that all they need to get started in the bank owned homes business is some basic foreclosure information, a bank loan and bank foreclosure listings. This is not the case. The reality is that successful investors work with teams of professionals in order to invest in bank foreclosed homes. If you're not an expert on every aspect of property buying, making the most of bank foreclosures means working with professionals who can help you with the legal, financial and other aspects of investing.

Investors buying bank owned foreclosures often work closely with mentors, lenders, attorneys, title companies, marketers, contractors and other professionals. It is true that these professionals' services cost money, but scrimping can mean falling prey to the many pitfalls--such as title issues or legal wrangles--that can cost you your profits. If you are serious about buying houses foreclosed by banks, consider:

1. Working with a mentor program to avoid making mistakes on your first bank owned properties.

2. Hiring an attorney to avoid zoning problems, due diligence issues and other legal problems.

3. Seeking loans from lenders who work with real estate investors.

Action Steps
The best contacts and resources to help you get it done

Hire a coach or mentor in order for guidance throughout the bank foreclosure investment process

When you are putting together your first bank foreclosure purchase, you may be confused about the many legal, contracting and management details surrounding the real estate deal. For the new investor, there are many potential pitfalls, and a good coach or mentor can help you avoid many of them. Coaching services allow you to ask your mentor specific questions related to your deals and offer personalized help from experienced investors.

I recommend: The American Dream Alliance features foreclosure investment professionals who can guide you through the process of setting up your first bank foreclosure investment deals. The company offers both coaching and mentoring services. Carleton Sheets offers a well-known real estate investment coaching program that can help guide you through the process of buying bank owned property.

Work with an attorney to avoid any legal hassles when investing in bank owned homes

While legal issues are less common with a bank foreclosure than with other real estate deals, because the bank usually takes care of title problems and tenant evictions, hiring a good attorney is still essential. An attorney with experience in bank foreclosed homes can help you with zoning issues, contract questions, due diligence and other legal matters that can affect investors' ability to buy houses foreclosed by banks.

I recommend: Kenny Tan, a California-based attorney, specializes in legal cases and issues surrounding bank owned properties for sale and other types of foreclosures. Michael C. Adges works with real estate investors in Florida to ensure they get the homes and contracts they deserve.

Borrow money from a lender that understands the special needs of bank foreclosure investors

Making the most of bank foreclosures means getting a good loan that comes with a good rate. While the bank selling a foreclosure will often offer you a mortgage, you may be able to find a better rate by shopping around. Make sure you work with lenders that understand the special needs of investors-- these lenders will understand that you need money quickly and that you need a good rate that is based on your income potential.

I recommend: C-Loans will find lenders willing to work with you based on a description you provide of your foreclosure investment. HardMoneyLoans.org offers money to investors looking to buy real estate owned (REO) properties. Since the company works with a group of international investors to provide financing, it can promise larger loans than those available through most competitors.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  When looking for professionals offering bank foreclosure information and services, do your research. Many professionals in the real estate industry are very knowledgeable, but some lack scruples or are improperly trained. Always ask about a professional's specific experience in working with real estate investors before entering a business relationship. Ask for and check references carefully to make sure you are working with people who can really help you.

Investing in bank foreclosures is a risky game. Profits are made by buying houses foreclosed by banks at a discount and reselling them. While there is the possibility to make huge profits investing in bank foreclosed homes, investments in bank owned homes also involve considerable risk.

The risk involved in investing in bank owned homes is related to the condition of the bank owned property, the limited access you have to the bank foreclosed homes prior to the bank auction and the condition of the real estate market where the bank owned property is located. You can minimize these risks by having an experienced and skilled team on your side made up of a real estate expert, a financing expert and a construction expert. With these people on board you will be able to find the diamonds in the rough and avoid the lemons.

The process of investing in bank foreclosure homes involves five steps:

1. Use bank foreclosure listings and foreclosure information to identifying bank foreclosure investment properties.
2. Evaluate the potential of foreclosure listings.
3. Acquire financing and buy homes using foreclosure information.
4. Prepare home to maximize sale price.
5. Sell the home for a profit.

Action Steps
The best contacts and resources to help you get it done

Obtain foreclosure information

Before you can invest in bank foreclosures, you need to know what properties have been foreclosed on. To find this information you have two options, visit your local city hall for a listing of bank foreclosures or subscribe to a foreclosure listing service.

I recommend: Foreclosure listings and Foreclosure Data both offer listing services for foreclosure and pre-foreclosure listings.

Assign value to your targeted bank-owned property

After identifying potential bank foreclosures to invest in, your next step is to evaluate the home and determine what it is worth now and what it could be worth with a little work.

I recommend: The Quicken Home Value Calculator and the Yahoo Home Value Calculator can be used to estimate the potential value of a home based on its current condition and its anticipated condition.

Amortize your financing for bank foreclosed homes

In order to buy a bank foreclosure you will need some sort of financing ready to go on the day of the auction. To help you determine how much you can afford to invest, amortize possible purchase prices.

I recommend: HSH's Amortization Calculator and Bankrate's Amortization Calculator are both easy to use.

Create a budget for preparing the investment property for sale

The key to making a profit in this industry is the budget. At the start of your project create a budget that makes sense for the project and stick to it.

I recommend: These tools are great for project budgeting: Cost Estimator and Quick Calculators.

Sell your bank foreclosure investment property for a profit

In order to make a profit you need to sell your property. To accomplish this, you will need a qualified real estate agent to work with.

I recommend: Realtors.com and Remax.com will help you find a qualified real estate agent in your target zone.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Investing in bank foreclosures is a team event. The stronger your team is, the more money you are likely to make.

Many investors who opt to invest in bank owned property never bother to find out what bank owned properties really are or how the foreclosure process works. While it is still possible to invest without understanding foreclosure basics, it really does put you at a disadvantage. Bank owned homes are properties that have been repossessed after a homeowner has not been able to make mortgage payments.

Banks and other lenders have insurance on mortgages so that even if the homeowner cannot make payments, the lender does not lose all of its money. After due warning, a bank can take over a property or home in the event that a mortgage holder falls behind in payments. The bank can then resell the property in order to recoup the money lost on the mortgage non-payment. When buying discount properties from a bank, consider:

1. Familiarizing yourself with the bank foreclosure market by studying listings.

2. Learning the basics of buying repossessed properties to prepare for your purchase.

3. Tabulating your finances to determine your best options.

Action Steps
The best contacts and resources to help you get it done

View listings of bank foreclosed homes to learn more about the market

Bank foreclosure listings are an excellent way to learn about the market for foreclosures in the area you wish to invest. Perusing foreclosure listings before actually buying allows you to understand what the types of properties available in various condition, as well as their price. This is an important stage of research, since it allows you to distinguish a good deal from a rip off when you eventually do seek to buy.

I recommend: BankForeclosuresSale.com lists bank properties by state, so you can find properties in your area. ForeclosureRepos.com is also organized by state and by location, but the listings also allow you to search by city or by county.

Participate in training programs to learn about REO properties (real estate owned properties)

Gathering foreclosure information from listings is not enough--once you understand the foreclosure market, you still need to understand how to buy and invest successfully. You must learn how to get low-cost financing, how to make smart home repairs to increase the value of your foreclosure and you need to determine how to evaluate specific properties. Classes and seminars developed and led by successful investors can help you understand the foreclosure market so you can make successful investments.

I recommend: DC Fawcett offers free seminars, online courses and other resources to help investors learn how to buy and sell bank owned properties successfully. Andy Tolbert offers live real estate investment classes in Florida and a home study course for those who wish to learn about bank foreclosures investing from home.

Use online resources to determine what you can afford and what bank owned properties you can afford

Once you have bank foreclosure information for your market and understand how to invest in this type of real estate, you need to determine specifically what you can afford and how much a bank owned property will really cost. Online mortgage calculators, online credit reports and other online resources are a good way to do your math before approaching a lender. Once you understand the bank foreclosure basics and your financial reality, you should be ready to buy.

I recommend: ForeclosureNet.net has a number of online calculators and resources to help you determine how much you can borrow, what your mortgage payments will be, what mortgage is most beneficial and how much home you can afford. The site even takes you to resources that help you calculate your credit rating and help you find a contractor and real estate agent for your purchase. Foreclosure.com also has a number of free online calculators to help you do the math on equity, home loans and other financial details.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  While many new investors assume that bank owned foreclosures are always sold at a discount, this is not always the case. Buying houses foreclosed by banks can sometimes mean paying above market price. Banks often incur high legal costs when foreclosing properties and these costs get passed onto the buyer. Additionally, many homeowners lose all equity before losing their home, in some cases mortgaging the property for more than it is worth. If a bank has repossessed a property which has been mortgaged at 110% or more, it will try to sell the property for more than market value to recoup the cost. Banks are under no obligation to sell at a discount, even when they comfortably can. As a result, you need to research carefully to ensure you're getting a good deal.

The variety of types of bank foreclosures can make learning about this topic a bit difficult. A foreclosure results when a lender repossesses a house that the buyer has defaulted on. The ownership of the house is given to the lender, the VA or HUD, depending on the guarantees on the loan.

Action Steps
The best contacts and resources to help you get it done

REO properties, real estate owned properties

REO, or real estate owned, properties are those owned by the bank that originated the mortgage. During foreclosure, the bank takes possession of properties homeowners have defaulted on. When a bank owns the properties, they are called REO properties. In many cases, the bank will then auction off or sell them to recoup some of their losses.

I recommend: To learn more about REO properties, including why they may be a good investment, visit U.S. REO Properties.

Pre-foreclosure

Properties that are in the process of being foreclosed on, but are not yet bank owned, are called pre-foreclosure properties. Investors may offer to buy the property directly from the homeowner, usually at the break even point to pay off the lender to settle the debt.

I recommend: RealtyTrac provides a solid overview of pre-foreclosures on their website.

Short sale

A short sale is another option to avoid the foreclosure process. It may be part of the process some homeowners go through when they enter foreclosure with a home worth less than what is owed to the bank. In a short sale, the homeowner hires a real estate agent to sell the property. The agent finds someone willing to purchase the property. But in order for a short sale to occur, the bank needs to agree to sell the property and absorb the loss.

I recommend: BusinessWeek has an in-depth article on short sales, including an example of how it works.

HUD homes, HUD foreclosures

When a residential property is a HUD home, or U.S. Department of Housing and Urban Development home, the property was obtained through a foreclosure on an Federal Housing Administration (FHA)-insured mortgage. These properties are similar to bank foreclosures in how they are obtained, sold, financed and invested in. HUD foreclosures must be purchased through a HUD approved real estate agent, usually at auction.

I recommend: Visit the U.S. Department of Housing and Urban Development website to learn more about this type of foreclosure.

Tax deed sales

Tax deed sales are sales of property in which the homeowner failed to pay property tax. Those who purchase bank foreclosures may also be interested in these properties. The properties are sold for the back taxes, penalties and court costs, usually for well below their value. These properties are often sold at a public auction to the highest bidder.

I recommend: Visit Foreclosure to learn more about tax deed sales.

VA property

Another type of foreclosure is through the VA, or Veterans Affairs Office. The VA helps to guarantee loans to mortgage lenders for veterans of the Armed Forces. If a homeowner defaults on his VA guaranteed mortgage, the VA gains ownership of the property and offers it for sale.

I recommend: Visit the U.S. Department of Veterans Affairs to learn more about this type of foreclosure.

Under water, or upside down mortgage

When the value of a home is less than what the homeowner owes the mortgagor, the property is said to be under water, or upside down.

I recommend: Read this article by Bankrate's Holden Lewis on refinancing an upside down mortgage.