They make it sound so easy. Earn tons of money buying foreclosures! No money down! Achieve financial freedom! Earn hundreds of thousands of dollars a year working part time! Buy valuable properties for pennies on a dollar! All you have to do is read a book, listen to a couple CDs on your drive to work, or watch a video to learn the secrets of foreclosure investing. In a short period of time, you will have amassed a portfolio of properties worth millions of dollars and be well on your way to a comfortable retirement on your own private island.

You can find plenty of these pumped up promises on late night TV infomercials, 24/7 Internet websites, and local (FREE!) foreclosure seminars. The foreclosure gurus who pitch these promises all look pretty much the same in their designer suits posing in front of their posh possessions -- their private jets (which they typically rent), their million dollar estates, and their fancy sports cars. Of course, they never tell you that they earned most of the money to buy this stuff not by investing in foreclosures but by selling their seminars, CDs, and books.

As a salesman, I have to admit that these foreclosure gurus are excellent salesmen. They tell you exactly what you want to hear, "Foreclosure investing is an easy way to make a lot of money, and you do not even need to know all that much about it." These pumped-up promises, however, are over-inflated balloons ready to pop the life savings out of the unwary investor's bank account.

Sure, you can make a lot of money buying and selling foreclosure properties. I have done it myself. But making money in foreclosures is challenging work. You have to know a lot to make a lot, and if you do not know enough and are not careful enough, you stand to lose much more than you stand to gain.

Every time a foreclosure guru holds an investment seminar in my area, I am flooded with calls from people who lost tens of thousands of dollars by following the guru's advice. In one case, a very intelligent woman attended a foreclosure auction after taking a seminar and purchased several foreclosure properties for a total of nearly $100,000. Well, at least she thought she was buying properties. She was actually buying junior liens (second mortgages or other debts that use the house as collateral). Because junior liens are typically wiped from the books after the foreclosure becomes final, she actually purchased nearly $100,000 in useless paper. And she's only one small example of the many cases I have personally witnessed.

Other novice investors get burned when they buy a property at auction that they have not even seen. They pay $30,000 for a property thinking they just got the deal of the century only to find that the property has been gutted by fire, ransacked by vandals, or teetering on the brink of collapse. They just paid $30,000 for a property that no one will buy.

To make money investing in foreclosures, do your homework, and take the following precautions:

• Research the title at your county's register of deeds prior to auction, making sure the title is in order and finding out which lender holds the senior (first) mortgage.

• Inspect the property prior to auction. Get inside to look around, if possible. If getting inside is impossible, then at least drive around or walk around the house to inspect it from the outside.

• Know the values of comparable properties in the same area and know how much you can sell the property for once you acquire it, so you are not tempted to overbid.

• Set an upper limit for your bid, and never exceed that limit no matter how excited you become during the auction.

• Bid only on first mortgages, never on junior liens.

• Realize that if you submit the winning bid, you may not be able to take immediate possession of the house. The current owner controls the property until the redemption period expires, which can last up to a year in some areas.

Foreclosure investing is a competitive, high-stakes arena that draws the savviest of real estate investors, and they are rarely concerned with keeping rank beginners out of harm's way. Do your homework. If you want to swim with the sharks, you had better be prepared to think and act like one.

Published: November 24, 2006

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Ralph R. Roberts, CRS, GRI is an award-winning and internationally recognized real estate agent, author, coach, and speaker. Throughout his career, Ralph has proven his commitment to helping other real estate and sales professionals build upon their past and present success, grow and expand their businesses, and provide a rich and rewarding future for themselves, their customers, their employees, and their families. As president and CEO of Ralph Roberts Realty, Ralph has personally helped thousands of consumers realize their dream of homeownership. While selling over 10,000 homes (and buying and selling over 3,000 investment properties) throughout his 30-year career, Ralph has made the time to mentor and coach hundreds of professionals in real estate, sales, and a host of other fields. Ralph is a recognized authority on Real Estate and Mortgage Fraud; Residential Real Estate; Personal Salesmanship; Sales Force and Office Management, Motivation, Design, and Team Building; and Foreclosure Self-Defense and Loan Modification, fields in which he has demonstrated his commitment to preserving the American Dream of Homeownership. Ralph's numerous websites, blogs, seminars, and speaking engagements engage, entertain, and educate both consumers and professionals. Ralph is also an accomplished author with several successful titles to his credit, including: Power Teams: The Complete Guide to Building and Managing a Winning Real Estate Agent Team Financing Real Estate Investments For Dummies (John Wiley & Sons) Mortgage Myths: 77 Secrets That Will Save You Thousands on Home Financing (John Wiley & Sons) Foreclosure Self-Defense For Dummies (John Wiley & Sons) Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership (Kaplan) Foreclosure Investing For Dummies (John Wiley & Sons) Foreclosure Myths: 77 Secrets to Saving Thousands on Distressed Properties (John Wiley & Sons) Advanced Selling For Dummies (John Wiley & Sons) Flipping Houses For Dummies 52 Weeks of Sales Success (John Wiley & Sons) Walk Like a Giant, Sell Like a Madman (John Wiley & Sons) Cross-Cultural Selling For Dummies (John Wiley & Sons) To learn more about Ralph, visit AboutRalph.com, check out his daily insights on real estate and mortgage fraud prevention at FlippingFrenzy.com, or visit his latest blog dedicated to helping distressed homeowners fight foreclosure, KeepMyHouse.com. You can reach Ralph at or by calling (586) 751-0000.