Key #1 - Good neighborhood: Pick areas where owners spend their time and money on their houses. Other qualities: well-maintained homes, streets with no junk cars or garbage, no or low-crime areas, convenient location, and active real estate market

Key #2 - Concentrate on low- and middle-income areas: Start with foreclosure properties located in low- and middle-income areas. Stay away from expensive neighborhoods. You may not able to find enough fixer-upper foreclosures in expensive neighborhoods. Property values in expensive neighborhoods may change dramatically, which means too much risk!

Key #3 - Go the extra mile: Pick up foreclosure houses that require more than cosmetic repairs. The worst-looking house may be your best bet, since most people stay away from them due to their appearance (don’t judge the book by its cover!). Your profit potential increases as you go from cosmetic fixing to more comprehensive fixing.

Key #4 – Stay away from the following foreclosures: Homes with structural and environmental problems. These are problems that only professionals, not you, can correct. Look for homes that are not next to interstate highways, freeways, apartment complexes, behind shopping centers, industrial parks, and commercial zones.

Sellers are motivated: Lenders (banks, credit unions, private lenders) holding foreclosed properties (called Real Estate Owned, or REOs) are highly motivated to sell because they are not in the real estate business and want to get rid of foreclosure properties as soon as possible. They want to get cash to improve their liquidity ratios in order to meet federal and state requirements and reduce the amount of their “non-performing” loans.

In addition, avoid serious common mistakes in buying foreclosures and get in the foreclosure process at the right time.

Strategize and write down your foreclosure business plan to:

set your goals and have an agenda and a roadmap;
enable you to attract investors for additional funds;
help you easily obtain funds from lenders; and
develop good criteria for future projects

Expand your plan with the experience you gain after each successful foreclosure home buying and selling and add new strategies for more profits.

Improve your profits by doing-it-yourself

Make your foreclosure business more profitable:

Minimize cash payments.
Target to create positive cash flow at the start or within two years.
Do it yourself as much as possible after estimating foreclosure repair costs. Delegate difficult and specialized tasks to others. Ask your spouse, kids, relatives and friends to join you. Let them share the experience and enjoy the profits. Let them feel the team spirit … the spirit of success!

Hold it or flip it?

Hold a property when:

you have a positive cash flow from the start. You will be able to increase the rent every year.
property is in an appreciating neighborhood. Your positive cash flow will go up and the property will appreciate.
you expect an increase in interest rates.

Flip it when:

there is no positive cash at the start.
your immediate profit looks good.
you expect a downturn in the market.

The number of foreclosures reached record levels. You can find homes at below-market prices and make a great profit by adding value through repair and improvement.

About the Author: John Anderson worked as real estate agent, Realtor® in Florida and Virginia and publishes foreclosure newsletters on bank and government owned foreclosures.

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