Pre-foreclosure is a tough period for a home owner, that begins when the bank or the lender starts foreclosure proceeding and ends when the bank or the lender actually takes possession of the property. In exchange, pre-foreclosures are great opportunities for real estate investors or bargain house hunters, always on the lookout for the best deal that would bring them a healthy short-term profit.

If you are buying properties directly from the homeowner, most likely you are buying pre-foreclosures or homes that have not yet legally been repossessed. Although the pre-foreclosure homes owners are usually facing financial difficulties that could lead to losing their homes, they still legally own them and have the right to sell. The pre-foreclosure process usually lasts for two to three months. In the meantime, the actual homeowners could solve their problems, pay the loan in default and have the house for themselves again. But more than often, this scenario is unlikely to happen. So, for real estate investors or bargain house hunters this is a good time to invest in the properties, especially since the property owners are highly motivated to sell in order not to ruin their credit rating. In order to successfully purchase a pre-foreclosure property, pre-foreclosures experts recommend a six step guiding procedure.

The first thing to do is to identify pre-foreclosure properties. Loans in default can be located through different means: reading the newspaper classifieds or the courthouse public notices, call up lenders or banks, or access online foreclosure service providers.

The pre-foreclosure listings need to be evaluated so that the pre-foreclosures selection to narrow down to the properties that meet your criteria and that best suit you. More than that, the gross equity in each property must be determined, because this figure also reflects the gross profit potential. If there is little or no difference between the amount of debts and the market price, you better move on to another pre-property. If there is a big difference, there might be enough equity in that particular pre-foreclosure property to bring a substantial profit.

The third thing to do is to contact the homeowner by phone, email or in person, in order to establish a meeting and inspect the property. You might need to deal with an angry homeowner, so be polite and show some understanding for his dilemma. Also, during the meeting, which has to take place at the property, you should check the loan, mortgage and insurance documents, as well as the foreclosure notices.

After seeing the pre-foreclosure property, you are now able to determine the market value, the fix-up costs, and the potential sales price and profit. Don't forget to calculate all legitimate expenses associated with buying, repairing, carrying and selling the property. The all-inclusive figure is your offer.

State your offer to the homeowner. This bottom line figure has to pay the homeowner for his property and generate a profit for you. Don't expect everything to go smooth. You need to negotiate with the homeowner and the lender. Usually, pre-foreclosures discounts off market can range from 20% to 35% on average. With the lenders you can work out flexible sales agreements and low cash down payments.

After you reached an agreement with the homeowner and the lender, it's time you close on the pre-foreclosure property and start the repair or refurbishing works. Have the property prepared for re-sale. Or you could keep it and rent it out so it brings an extra income for you.

If done correctly, buying pre-foreclosures can be a great investing opportunity. Finally, if everything goes well, you paid the money for a pre-foreclosure property way below the market price, in a good neighborhood, a property that you can sell or rent to produce a positive cash flow.