During the first quarter of 2025, U.S. foreclosure activity rose 11% from the previous quarter, according to HousingWire. Between January and March 2025, 93,953 properties had foreclosure filings. The number of properties first beginning the foreclosure process during the first quarter of the year was 68,794.

Investing in a foreclosure property could help you snag a lower purchase price compared to a non-distressed home in the same market. It’s common for a foreclosure property to be offered below market value, which offers you the opportunity to turn your real estate investment into a big moneymaker.

Mortgage lenders are not in the business of owning homes. They’re in the business of writing loans. When properties fall into foreclosure, lenders are often eager to sell them quickly to recover as much as of their outstanding loan balances as they can. 

As an investor, this gives you a leg up in negotiating a price for a foreclosure property. But it’s important to find a foreclosure with the right attributes and in the right market so it ends up being a smart investment property for you.

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Property foreclosures aren’t all the same. Each type has its own process that can vary based on state rules.

Real estate investors can benefit from foreclosure properties due to the lower price point. But it’s important to know where to find them. A good place to start is online real estate platforms such as:

Some banks also list foreclosure properties on their websites, and there are government websites where you may be able to find foreclosures, including:

You can also check local county websites for public records on upcoming foreclosure auctions or foreclosure notices. To this end, Eli Pasternak, real estate investor and CEO at Liberty House Buying Group, says, “I spend hours every week reviewing foreclosure notices and preforeclosure lists because the real deals never make it to Zillow or RealtyTrac.”

Pasternak also suggests doing some physical legwork to find foreclosures. He says one of his clients “found her best flip property by driving neighborhoods and spotting overgrown yards with foreclosure signs that other investors missed completely.”

It’s also a good idea to work with a real estate agent who specializes in foreclosures. The National Association of REALTORS^® lists agents with the SFR^® designation, which stands for Short Sales and Foreclosure Resource, so it may be a good starting point. 

In terms of choosing a foreclosure property, Pasternak recommends that new real estate investors try to find a bank-owned property as opposed to buying one as is at auction. This way, it’s possible to inspect the home prior to closing on the sale. 

It’s not unusual for a foreclosure property not to be in the best shape. But Pasternak says it’s important to look out for certain red flags, including:

He also says, “I recommend avoiding houses where previous owners stripped copper wiring or appliances, because that signals major damage throughout the property.​​​​​​​​​​​​​​​​”

It’s also important to do a thorough market trends analysis when buying a foreclosure property. If your goal is to rehab the property and rent it out, see what the local vacancy rate is and what average rents are. If you’re aiming to flip the home, focus on neighborhoods with desirable features like highly rated school districts and amenities like local entertainment and access to transit. You may want to avoid areas with higher rates of crime or unemployment. 

Once you’ve managed to close on a foreclosure property, the question becomes what to do with it to make money. The two main options are holding the property and renting it out, or fixing it up and flipping it for a profit.

Holding a foreclosure property could be advantageous if you’re buying at a time when property values are down. If you wait out a market recovery, you have an opportunity to then sell the home at a significantly higher price. 

However, do note that market recoveries can take years, during which time you may be shelling out a lot of money to maintain the home (and you’re not guaranteed to have it occupied during that period, either). Plus, timing the real estate market can be challenging. Even when the housing market is doing well on a broad level, local markets can cool suddenly for different reasons. 

But for this strategy to work, you need to buy a foreclosure property in an area where there’s reasonably strong demand for rentals. You’ll also need to make sure you can command enough rent to cover the cost of owning the home in the interim, including property taxes, insurance and maintenance. 

Keep in mind that being a landlord can be time-consuming work. You’ll have to screen tenants, stay on top of rent collections and address issues as they arise. 

Another option is to flip a foreclosure property and sell it at a higher price. To pull this off, you’ll need to be prepared to not only address obvious problems with the home, but also make improvements like upgraded kitchens and bathrooms. 

You may want to stick to the 70% rule if you’re looking to flip a foreclosure property, which involves spending no more than 70% of the property’s estimated after-repair value minus the cost of repairs. If the property has an estimated after-repair value of $300,000 and the estimated cost of repairs is $100,000, the 70% rule would have you paying no more than $140,000.

No matter which route you choose, make sure to have a clear exit strategy. If you’re flipping a foreclosure property, it’s important to set a sale deadline and, if needed, be prepared to adjust your price. Failing to develop a clear exit strategy could not only erode your profits, but also potentially result in losses, especially if market conditions lead to an oversupply of homes at the time you’re trying to find a buyer.

Once you find the right foreclosure property for an investment, you’ll need a way to pay for it. Many foreclosure auctions require cash payments. If you’re dealing with a very quick timeline for closing and a conventional mortgage isn’t an option, you could consider a hard money loan. However, these loans tend to come with higher interest rates.

If you’re buying a bank-owned property that is not being sold at auction, you may be able to finance it with a conventional mortgage. This holds true if you’re buying a foreclosure as an investment and it’s a second property. But do note that properties being sold at auction generally require cash.

That said, lenders tend to impose stricter requirements for foreclosure properties, since these homes carry more risk than a traditional home purchase. You may be required to make a larger down payment than with a traditional home. You may also need a great credit score and a low debt-to-income ratio.

You can also explore other loan options for flipping houses. They may include loans from private lenders, personal loans and home equity loans.

Investing in a foreclosure property could be a profitable venture, but only if you go about it the right way. Make sure you understand the foreclosure process thoroughly and research local markets carefully. It’s a good idea to work with a real estate agent who specializes in foreclosures to get valuable insights that could help you identify profitable investment opportunities.

It’s also important to vet any property you’re looking to buy to the greatest extent possible, since ignoring hidden costs could eat away at your profits. This includes conducting a thorough title research before bidding on a property at auction where applicable. Auction properties are typically sold as is, so they come with no guarantees regarding clients, title or condition.

It’s just as important to develop an exit strategy early on, as this could help you streamline the process of finding the right foreclosure. If you stick to these rules, you may find that a foreclosure property is an investment that pays off.

Ben Shapiro is an award-winning financial analyst with nearly a decade of experience working in corporate finance in big banks, small-to-medium-size businesses, and mortgage finance. His expertise includes strategic application of macroeconomic analysis, financial data analysis, financial forecasting and strategic scenario planning. For the past four years, he has focused on the mortgage industry, applying economics to forecasting and strategic decision-making at Quicken Loans. Ben earned a bachelor’s degree in business with a minor in economics from California State University, Northridge, graduating cum laude and with honors. He also served as an officer in an allied military for five years, responsible for the welfare of 300 soldiers and eight direct reports before age 25.

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