The foreclosure cycle has three distinct phases, each of which offers a unique market in which the investor can participate. The pre-foreclosure phase is that period (which varies by state but typically is 120 days) between which  the lender files notice of default and the property is sold at a public auction (trustee's or sheriff's sale). During this period an investor can purchase the property directly from the seller. The second phase is the public auction or trustee's/sheriff's sale, where the investor has the opportunity to bid the house at an auction usually held at the county courthouse. If the house is not purchased by an investor at the auction, the lender will take back or otherwise acquire the property and it becomes part of bank REO inventory (third phase). Investors can then purchase the property either directly from the lending institution or through a local real estate agent.

Some investor specialize in one particular phase of the cycle, while others pursue all three.

Every day all across America, people lose their homes because they can't make their mortgage payments. Without a doubt, it is devastating tragedy for the family who face this dark reality. The general public is generally unaware of these opportunity. If they do know of their existence, they will shy away because the deal is too complicated or they just don't want to be involved in a transaction where somebody loses their property.

But for real estate rehab investor, those properties offer the potential for significant profits because they often are in bad shape and need renovation. The skilled foreclosure investor will buy properties at discount of 20 percent to 50 percent of market value. The pool of acquisition prospects simply cannot be overlooked if you're serious about the rehab business.

In spite of the potential rewards, you need to understand that profitably purchasing properties before or at foreclosure sales requires you to have a good understanding of the laws and procedures differently widely from state to state, and it's in your best interest to acquaint yourself with the regulations for your area if you choose to pursue these opportunities.

Purchasing properties after foreclosure, from the bank or other lending institution (referred to as REOs or real estate owned) is essentially the same as buying from any other seller in a normal transaction. And REOs are perhaps the best all around source of rehab properties.