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Distressed Properties in Foreclosure are an REO Investors dream.

Distressed properties, such as foreclosure and real estate owned (REO) properties, are becoming quite popular amongst investors. Many investors are seeking out distressed properties in hope of making massive profits. The question is, are distressed properties worth the time and effort in the long run?

Many experts suggest investing in distressed properties will not create quick wealth. Instead, they recommend purchasing auction and bank foreclosures to obtain steady investment portfolio growth. However, investing in distressed properties is also a smart strategy for those involved in house flipping.

Although house flipping isn't quite as easy as it was a short while ago, there is still money to be made. Flipping distressed properties isn't for the faint of heart. It requires considerable real estate knowledge and the ability to make repairs quickly and affordably. House flipping is best for those who possess the skills to make repairs on their own or those who have sufficient funds to hire contractors.

Investing in distressed properties requires knowledge about the real estate market and the area where the houses are located. It is important to locate distressed properties which are affordable enough to cover the mortgage payment with rental income.

Rental properties can be rented long- or short-term. Many investors prefer renting on a long-term basis to ensure consistent income. However, investing in distressed properties located in areas where people vacation can yield a tidy profit as well.

Investors who prefer long-term tenants will usually receive a better return on their investment if they purchase distressed properties located in family-oriented communities. Families generally rent houses for longer periods of time, as they prefer to keep their children in the same school system. Therefore, it is important to research schools in the area when renting to tenants with school-aged children.

Although vacation rentals are usually seasonal, the amount of rent charged is generally much higher than when renting on a long-term basis. Investors who purchase distressed properties as vacation rentals should be prepared to offer furnished houses equipped with cooking items, linens, telephone, cable and Internet services. Keep in mind, vacation rentals will require cleaning after each renter vacates the premises. Factor in the cost of utilities and cleaning services and include the costs in the rent.

Overall, investing in distressed properties can be quite profitable, but is not without risk. Real estate investors must engage in due diligence and thoroughly understand the market where houses are located.

A well-kept investment secret is to purchase distressed properties from private real estate investors who specialize in purchasing bank portfolios. Real estate owned bank foreclosures can oftentimes be purchased at 30- to 40-percent under market value.