With the influx of REO properties on the market, this is a good time to again consider trading in those properties as an investment strategy. However, what is different today is that it is not simply a buy and sell scenario where a bull market will lock in a profit. You’ll take value into account, understanding the cost that will be incurred to improve the property and knowing whether the property may need to be rented for a period of time before the market gives you the profit you want.

Due to the different dynamics of the market, all the fans have fallen by the wayside. There will be less competition for those houses that need a little TLC. Buyers often cannot see beyond the wear and tear of a foreclosed property to understand the underlying potential.

One of the criteria that should be considered before pulling the trigger on an acquisition is the neighborhood. One of the best things to watch is the difference between what you can buy the property for and recent sales data for that particular neighborhood. Is there enough room to hold the mortgage for a month before you can rent it out or put it up for sale? How much additional investment is needed? Is it just cosmetic? Or is there an actual capital improvement that needs to be done?

Calculate the purchase price, the cost of improvements and maintenance costs and see if you can make a reasonable profit or if the current rental rates will cover your monthly expenses. This is not a step to take lightly. Success in real estate investment is 90% planning.

Another criterion to take into account is the seller’s motivations. Real estate is an expensive game of poker. Seat the seller, the agent cannot divulge the seller’s motivations, ask why he is selling, and observe his facial expression. He will be able to tell how urgent the situation is by his reaction. His motivations can vary from the house being an inheritance that they want to liquidate or that they are facing foreclosure. His level of urgency will let you know how to negotiate and if you will be able to get the property at a price that fits your property and neighborhood analysis.

Therefore, you will look for houses that can be bought at a discount in the market but can be improved aesthetically, but at a low cost. Going around the house will be the relatively easy part. If you’ve done your planning and shopping correctly, all you’ll need to do is make the improvements within budget and then list the house slightly below market value for a quick sale.