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Foreclosures can seem like every real estate investor’s dream: a beautiful house in a desirable area can be purchased for almost pennies on the dollar, with the potential for a quick profit.  Once upon a time, this dream would often come true; however, with more foreclosures than ever before set to plague 2009 (in fact, filings have increased by 30% since last year), purchasing a foreclosure can not only be risky – it can leave you saddled with a house that no one wants to buy.

Erica Medd from bad credit loans explains how to avoid the “get-rich-quick” real estate scams that are clogging the internet, and instead concentrate on the following points:

Know What The Owner Owes.  At first glance, foreclosures can seem awfully tempting, since you can purchase the home for much less than what it was originally worth.  However, with many distressed homeowners now owing mortgages that are worth far much more than the sale value of the home, it’s not worth it to take up these kinds of foreclosures.  Make sure that the value of the home in question outstrips the mortgage, or you could stand to lose a tidy profit.

Get A Feel For The Climate. No, we’re not talking about the weather here.  The foreclosure business is so rift with emotional and political turbulence that it can often spell trouble for the innocent buyer.  Many homeowners are emotionally invested in their homes, which can make for a long and rather painful selling process riddled with frustration and tears.  In fact, there are several human rights coalitions that seek to side with victims of foreclosure by resisting eviction through civil disobedience.  Even if you don’t have picketing protestors on the front lawn, many evictees can be uncooperative, if not downright angry. 

The Competition Can Be Fierce.  Don’t forget, you’ll be up against several buyers once a foreclosure is made public – and many of these buyers will be much more experienced than yourself.  Before heading to that auction, make sure you get advice from a real estate expert who can make your bid much more appealing. 

On The Other Hand…  Auctions are notorious for creating a buying frenzy, which could spell disaster for your bank account.  In order to beat out other competitors, you may end up paying much more than the house is worth – and that would completely undermine the purpose of buying a foreclosed home.  Don’t forget, you’ll have to factor in renovations, mortgage payments and closing costs into your final price, so don’t blow it all at the auction!

Know The Area.  Before you sign the check for a foreclosed home, ask yourself why exactly that home went belly up.  Was it simply a case of bad luck for the previous family living there, or is the house sitting in the middle of a notoriously difficult job market?  If the latter is the case, you’ll find it extremely difficult to turn a profit, as no one will be tempted to move to such an economically depressed area.