There are a vast number of investment opportunities in foreclosed properties. The recent crumble of the mortgage industry stands as evidence of just how many people have had their homes foreclosed in recent years. As a buyer, this is a great time to purchase foreclosed properties that will give you a tremendous return on your investment.

Many investors are quite savvy with the numbers end of the real estate investment market. However, they often lack the ability to perform due diligence on the properties that they are considering buying. Due diligence is simple the process of investigating a potential investment to see what it is really worth. Performing due diligence on a house then, is simply the process of inspecting it to see what its true value is. There are several aspects to performing due diligence on a property, and many investors only do one or the other.

The first is the title search. Generally, you will have to hire a title search abstractor to perform the title search for you. After this is completed, you will need to know how to analyze and process the information. A title search will provide a historical timeline of the property that you are considering. You will be able to determined who owned it, for how long, and what they did there. This is a great way to identify potential problems that could one day negatively affect the value of the property. If there was a toxic waste dump on the site fifty years ago, then you may want to reconsider.

On that note, you should always perform a check for records of any environmental contamination. A title search will help begin this process, but you should ask your local municipal clerk about the best way to access record on contamination reports. These should all be public record and available to you if you are willing to put in the time and effort to dig them up.

Another part of due diligence is to research the properties in the surrounding areas. The sale price of real estate is public record, so take the time to find out what other properties in the neighborhood have sold for. This will help you estimate current market value for the property that you are interested in. While it doesn’t happen often, sometimes the beginning auction price that is set by the bank in foreclosure is actually higher than the estimated value of the property itself. The bank does this in an effort to reclaim the amount owed to them. You can’t just assume that you are getting a great deal because a property is foreclosed. You need to perform the due diligence and compare three comps in the same area to ensure that you will be able to recover your investment when you decide to sell.

Having completed researching the paper trail on your property, you are now ready to take a close look at the physical property itself. This is the part of due diligence that investors are either very good at, or miss completely. There are many subtle features of a house that can make a big difference in its resale value on the open market. 

Inspecting for structural roof damage involves much more that just looking up at the roof and identifying a few shingles that need to be replaced. Either you, or the inspector that you hire, needs to get up onto the roof and see if there a soft spots. You also need to get into the attic and inspect the roof deck from the underside. If you see area’s where water has run down the rafters then you’ll need to be very certain that there isn’t dry rot somewhere in the deck. This can be costly to repair and can take a big bite out of your re-sale profits. If you do suspect that there is dry rot, then you should also have the house checked for mold contaminations before you bid at auction. If you are hoping to buy a foreclosure and then turn it around quickly, then you should probably stay away from homes with structural problems. Again, take the time to perform the proper due diligence to avoid getting stuck with costly repairs.

Another area that should be carefully inspected in your due diligence is the foundation of the home. Sinking or cracked foundations require careful inspection to determine the severity of the problem and if you aren’t comfortable identifying it, then hire a consultant. Sometimes a crack is just a crack; while other times it can a be a billboard advertising a house that is ready to fall. Foundation repairs can be very costly and if you don’t account for them in your investment plan that can chew up, not only your profit, but also the principle amount of your investment. In other words, make sure you go down into the basement, no matter how dark and dank, and carefully check the foundation.

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