Buying a foreclosed property is one way to make the most of your money when you buy a home. If you do it right, you can get a fantastic price on a beautiful piece of property. If you aren't prepared for the amount of work that might be involved, you can easily get lost in the process. Here are some tips on buying a foreclosed property the right way.

1. Don't buy at a foreclosure auction.

There are risks to foreclosure auctions that you don't want to encounter unless you plan on doing this on a regular basis. That great house that's up for bid for only a few thousand dollars? If it has been sitting empty for a while (which it probably has, if it has made it to auction), there's likely some issues related to disuse.

More than likely, the previous owner didn't just one day disappear—he or she probably struggled financially for a while before losing the property. The first thing many people start letting slide when they have financial problems is home repair, so the house you are looking at could have significant issues with the electricity, the chimney, the plumbing, and more—none of which you can check out or have inspected prior to bidding.

If the previous owner was the vindictive sort, he or she may have intentionally damaged some of the property, just to "get even" with the bank. You won't know until you've handed over your money and finally walk inside.

Another problem with buying at a foreclosure auction is that you don't usually have any ability to check out if there are outstanding liens or taxes on the property—which become yours when you buy the place.

2. Buy an REO property instead.

A real-estate owned property is one that the bank is holding onto, for whatever reason, until it's ready to sell it. You'll have less trouble if you buy one of these properties because you can at least get it inspected prior to buying and the banks are required to clear off liens and taxes before they sell.

Many of the banks will also do a little cleanup on the property before they sell it, so you might get lucky and not have to worry about the place being trashed out by the former owner or about pipes that have busted from disuse in the winter.

Keep in mind you're still buying a property "as-is," though, so whatever you don't find out before you buy is still yours to deal with, so make any inspection fairly thorough. 

3. Be prepared with the right team of professionals.

An attorney with connections in the REO market can help you find properties that are ripe for purchase and put you on the right track. Some work with real estate agents who also specialize in handling foreclosures. Keep in mind that unless you have enough cash to purchase the property outright, you can expect the process for any loan approval to go slower. Appraisals sometimes come in lower than expected because of the disuse of the property and hesitation on the bank's part to back a loan on a property that might have hidden problems. A real estate attorney can often help you get through the paperwork for the loan process much more easily than trying to handle it on your own.