What next?

There is a sign on the property. Should you call the listing office? Pricing on a foreclosure/REO/ bank-owned property needs to be right.

At this stage, you need to find a local realtor who knows the market. The realtor will show you comparable sales to justify your asking price.

Never get represented by a seller's agent. They are getting paid by the seller, so they will work for their best interests, not yours!

Be aware: These properties are SOLD at a discount, usually 50% to 100% below market price, depending on the home's condition, location and market in your area.

If these types of sales are predominant in your market, I would expect a big discount price. Most of these homes are priced with all comparable foreclosures.

It seems that most lenders/investors who are selling these homes understand the importance of getting them into move-in condition.

The more people that qualify to buy these homes, the higher chance you have to sell them. I have seen a lot of homes with mold, all kinds of fixes needed, and I can already see some issues concerning their appraisal.

The role of the appraiser is to get pictures of the house and suggest all needed repairs. I can see this possibly turning into an issue in their loan conditions. Whatever the appraiser writes, the underwriter sees.

If an REO property doesn't satisfy FHA conditions or cannot qualify for a loan, you are taking at least an 80% chance of selling it.

Warning: Some of these homes have been painted to cover mold and hide all kind of defects that will not be disclosed anywhere. I have seen some house-flipping where the sellers did a very good job at hiding everything, especially mold.

Going back to the issue of price: A technique that some agents use is to list these homes at very low prices, looking for multiple offers, and cash offers if possible. For a normal foreclosure listed at $250,000, an agent will list it at $174,000, ending up with 7 or 8 offers, or even more.

These homes will sell for more than their asking price. If you have a cash offer, you might be lucky to get it at $195,000 and if you are planning financing, you might need to come up with $215,000 or more if the loan is FHA.

If you have a cash offer, you will need to provide a funding verification. If you are a first-time home buyer or an investor who will need financing, now is not the time to shop for a loan.

At this stage, you should be all set, meaning you are working with a loan officer who has pre-approved you. You should know what kind of a loan you are getting, including the monthly payment and PITI. FHA is the easiest type of loan to get with a down payment of only 3.5%. For any loan, your loan officer will need two years of tax returns, credit and rental histories, and you will need at least two years' experience in the same line of work.

Usually realtors are hooked up with a couple of trusty loan officers who they use. It's a good idea to work with your realtor's loan officer.

I was driving in Salinas and I saw a large banner on a building saying "100% Financing, State of Income, No Down Payment, Available, Come Apply!" In today's market, none of these products are available, and it will be that way for quite a while.

When you are ready to buy an REO property, you will need to work with a local realtor who knows his or her market. DO NOT USE the seller's agent; they are getting paid by the seller and their main interest is to best represent them. If it is a cash sale, you will need to provide a verification of funding. If you are using financing, now is not the time to shop for a loan.

DON'T get yourself into any of these dumb state of income loans, or low down payments for investors. They don't exist any more. With FHA, you can get a down payment as low as 3.5%. We do not have two loans anymore to avoid the mortgage insurance. They don't exist anymore. End of story.

The sale of an REO property is AS IS. You will have a very limited disclosure, usually useless, just to protect the seller. You will need to do all your investigations, and if getting a loan, you want to be sure that the property will be approved.

When buying as an investment, BE OPEN MINDED. You have to look at the return on your money--nobody cares if it is not in the best neighborhood, with a white picket fence. I like to have at least 12% to 15% in return. You will need to check with the rental market...and most of the time, let a property management company do the renting for you. You will only have so many days to close the sale, and any extension might be at a per day cost, so be sure to work with a realtor who is familiar with these type of sales.

This won't be one of the last years with a large inventory of foreclosures and REO properties. We will still have them coming in the market for a while.

Higher-end homes start to come into our market, and of course not everybody can afford them. But with the high-end home, you are going to get the same kind of bargain...and they are also good investments.

Take any money that is sitting in your bank account at 1% to 2% and turn it into at least 12% to 15% in return. These REO properties are SOLD below market price, 100% and more... Just pick the right one.

I know that it is so hard to make these kind of investment decisions, and I hear it all the time: What if? What if? I never thought would be possible to see a real estate drop as we did, but now it happened, and we have all the facts to make the move and get wealthy, but what if?