Like the rest of the country, the Dallas-Fort Worth area has seen its share of foreclosed properties — especially at the height of the recent recession. Buying a foreclosure as a future residence or as an investment opportunity can be both risky and rewarding.

Some buyers seek out foreclosures because it can be a cost-effective way to buy a home to reside in, while others may want to purchase a foreclosure to renovate and remodel the home and then resell it. This process, also called flipping, can be a very competitive process, especially because some companies specialize in this type of real estate investing. Flipping is not uncommon in the DFW area. In fact, MSN Real Estate named Dallas County as one of the top 10 markets for flipping homes after foreclosure.

The Basics on Foreclosures

A foreclosed home is no longer owned by its former occupant. Instead, the home is owned by the bank or lender who granted the home’s loan. As a bank-owned property, a foreclosure may be sold at a price below market value. These types of properties are very enticing for buyers because the property’s worth can be significantly more than its listing price.

Depending on the status of the property, according to Wells Fargo, a potential buyer must pre-qualify for a loan or pay in cash to purchase the property with the help of a real estate agent. Some foreclosures are sold at public auctions, too. The foreclosure section of Bank of America‘s website also offers insight on purchasing a foreclosure compared to a traditional real estate transaction. The site states that before a loan or sale of the home can be approved, buyers should have the home appraised and inspected, both of which are out-of-pocket expenses. Earnest money (funds to convey earnest intention to purchase the property) may be required as well.

What to Look for in a Foreclosed Home

Although a great price may be enticing, buyers should be vigilant and cautious when considering a foreclosure. Josh Moody, a Dallas-based mortgage lender, offers a few tips for purchasing foreclosures on his blog. He cautions against judging a home solely on its price. Instead, buyers should look for signs of foundation issues, plumbing problems, and pest infestations through a thorough inspection conducted by a licensed home inspector. He also encourages buyers to look for damage caused by the previous occupants, which could include removed appliances and fixtures or cosmetic damage to walls and floors.

Ideally, the cost of the foreclosed home should come in under or at its market value after factoring in repairs and remodeling costs. When buying a foreclosure, a licensed real estate agent with experience in bank-owned properties will be especially helpful in determining value of a property and assisting with representing buyers throughout the purchasing process.

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