When it comes to creating wealth, I’m with that famous billionaire J. Paul Getty. The legendary oil baron once said that the key to wealth creation was easy: “If you want to make money – big money,” said Getty. “Just do what nobody else is doing.” That’s what I love about foreclosure investing – the topic of last week's blog and an issue I'll be covering some more today. Practically nobody else is doing it. The thing about foreclosures is that there are few folks doing it right. Take the issue of finding good foreclosure properties. I’m not saying it’s easy, but if you apply a little science and elbow grease to the process, it sure seems easy.

Here’s a primer on finding good properties. Use it and see if you don’t strike some foreclosure gold.

Getting Started

The easiest way to begin your search for possible locations is to immediately eliminate those foreclosure properties residing in places that are in decline and have little chance of improvement in the foreseeable future. These are the “dogs” of the foreclosure investment world, and you want to avoid them as if you were the mailman. Even if you can obtain these properties at a bargain price, you will spend a considerable amount of time, effort and ultimately money to convert such acquisitions to cash. It's better to avoid these problems and pursue more lucrative endeavors.

Here’s a List of Eight Location Pitfalls You Should Avoid:

1. The area shows a lack of pride in the ownership. Un-mowed lawns, overgrown trees or bushes, broken or torn fences, damaged sidewalks.
2. High crime rate areas. Graffiti, vandalism, burglary, assault–random crimes to property and/or persons.
3. Several abandoned buildings and boarded up properties reside within the surrounding blocks? Surrounding homes or lots that appear severely damaged, vandalized and vacated for extensive periods of time.
4. There is junk in the streets. Cars disassembled, stripped or on blocks, broken glass, oil and chemical stains.
5. There is a lack of appealing shopping close by. Numerous closed stores or poorly maintained storefronts, no major grocery stores or malls/retail outlets within close proximity.
6. It is a difficult commute to major roads leading to work or points of interest. Poor signage, bad/heavy traffic conditions and roads in disrepair.
7. The freeway/expressway system is too close by. There is nothing to obstruct the view of the road system (e.g. trees, hedges, wooden fences) and trash and excessive noise are caused by the presence of these major roads.
8. Intrusive industrial/commercial sites are close by. Chemical, rendering or manufacturing facilities emitting dark smoke, foul odors and/or excessive noise.

Find Your Rising Star

Then there are those properties I call “rising stars” They should be your bread and butter.

How do you find them? Let’s have a look: Rising stars are those properties that may not be perfect “as is”, but have great potential to become so with a little effort. Neighborhoods that have an established reputation in the community for low crime and cleanliness are appealing to homebuyers. These are properties that new buyers realize have some flaws, but nothing that a little hard work can’t fix-up. Researching these types of opportunities has a great advantage because locations have existed for some time make it considerably easier to determine normal traffic conditions, the local attractions the surrounding areas have to offer, what the neighborhood feel is like and what the property values have historically been. Rising stars are where you have the greatest chance of finding a diamond in the rough. That one investment that will turn tremendous profit when you properly market it.

I’ve listed the key elements of locations with big upside potential below:

Seven Location Possibilities with Upside Potential:

1. Predominantly clean, older homes. Houses established in the neighborhood but well kept by owners.
2. Older neighborhood but no trash in streets or uncut lawns and abandoned cars. Homes in surrounding blocks look as though the owners have maintained them on a continuous basis.
3. Neighborhood beginning to show signs of age. Trees are of significant height, traffic patterns well established, some homes have already changed owners once.
4. Area appears to be improving. A few homes have already been rehabilitated. Significant landscaping, well built structural additions, quality decks or sunrooms, improvements to overall appearance from roadside.
5. Shopping, churches, parks and schools close by. Facilities are clean, well maintained and popular with the community at large.
6. Fix up costs 5-10% of purchase price-cosmetic improvements. Interior and exterior alterations are minimal and only for upgrades, not major repair or rehabilitation work.
7. Little or no structural repair required. Solid foundations, siding and/or masonry undamaged, no sagging or settlement present.

Cashing in on “Cash Cows” Your cash cows are the investments in properties that you just want to keep making. These are the homes that are always in demand and require minimal effort to obtain their full market value. Why? Because the ideal location is, as its name suggests, perfect as it stands. The house and its lot are in pristine (or nearly pristine) condition. The residence has the features and amenities that are continually sought. The location meets the needs of the residents while surrounding crime, noise and pollution are virtually non-existent.

Here’s a list of ways to find your cash cow.

Nine Characteristics of The Ideal Location

1. Clean, well-maintained streets with only a few cars parked curbside, others garaged, freshly cut and landscaped lawns, hedges and trees.
2. Good curb appeal; the first impression from the roadside is clean and favorable to viewers.
3. Upscale neighborhood; homes display signs of high to superior quality in materials and construction.
4. No damaged homes, all well kept and maintained (including yard and sidewalk).
5. Homes are homogeneous in size, styles and financial value.
6. Recent renovation work was for the purpose of improvement/upgrading the property.
7. Only basic cosmetic changes are required (e.g. carpet, drapes, linoleum and exterior paint).
8. Not located on a main or busy street. Think cul-de-sac.
9. Short drive/good access to expressways and public transportation systems.
10. Short drive to grocery stores, churches, schools, recreational facilities and upscale shopping.

Do Your Homework A good foreclosure investor does his or her homework. Finding a cash cow and avoiding the dogs is all about good, common sense, and doing your research. If you can manage that, then finding your next great foreclosure property is only a step away.