Find out the value of the property – Many people use only on-line research for this purpose. This is a mistake because without physically inspecting a property you will neither be able to make a comparison with neighborhood properties nor will you be able to get a feel of the neighborhood and the property as well which is vital for assessing its real value. Prices of properties sold in the neighborhood serve as benchmarks for property value in the locality. Make a record of the prices of run down properties and improved ones as well all that are sold in the vicinity.  The local county office, tax assessor’s office, offices of real estate brokers and appraisers are some of the places you can visit to gather this information. After assimilating all information you can do a CMA or comparative market analysis of property values.

Prepare a cost estimate – After you have the necessary information on actual property values in the neighborhood, make an estimate of costs involved to see if you can make a profit from the deal. The costs involved will include acquisition costs i.e. the price paid to the owner, documentation and other costs involved in transfer of title, taxes, origination fees and all other related costs. Added to this would be the costs involved in repairing the property.

Repair costs include all expenses needed to improve the overall condition of the property. By physically inspecting the property you can collect ideas about what repairs need to be made. You can cross check the correctness of your own repair estimate by asking for quotes from contractors for the repairs. You will also need to take other costs into account like a title search, home inspection, survey, certificate of occupancy, etc. for preparing a realistic estimate. Finally, do not forget to consider the holding costs. Holding costs are those costs that you will have to pay while you are renovating the property, such as mortgage payments, utilities, taxes, insurance, etc.

Over time, by concentrating on a few neighborhoods, you will develop the ability to quickly estimate the property value and repair costs so that you can make quick determinations of feasibility, so that you do not waste too much time on unprofitable projects.

Check project feasibility – If you want your investment to be profitable you must ensure that it is feasible. To evaluate feasibility take the current value of the unimproved property and add all costs of improvement along with other incidental costs and the amount of estimated interest. This will give your the overall project cost. Now add your expected profits to this figure. If the cost of comparable improved homes in the neighborhood is lower than your total, the feasibility factor is negative and it is advisable that you simply forget about this particular project.

Fix the cut-off level in the purchase price – The price paid for acquiring the property is vital. To determine what the highest price payable take your expected sale price for the property and deduct the costs of repairs/renovations and all other expenditure involved in the project along with your profit margins from it. What you have as the remainder is the maximum purchase price you should pay for the property.

Negotiate intelligently- Profits from your real estate investments depend mainly on the cost of acquisition. That is to say, you make your money when you buy, not when you sell. When you make a fair estimation of other costs involved, it provides you with an understanding you need for negotiating a profitable purchase price.

The first thing you do is to connect with an experienced and reliable contractor who will take care of the technical side of repairing, repainting and other general repairs of the home that you buy. Ensure that all his work is up to the local building codes.

If you are new to this business engage an experienced real estate broker to guide you. Identifying the correct house is very important. Stay away from homes that are structurally damaged. The costs of replacing beams or fixing concrete foundations is difficult to estimate. You never know what you are going to uncover. Worn out carpets, peeling wallpaper, leaking taps, outdated cabinetry and even broken doors and windows are easy to fix or replace and result in great returns on investment. Make sure you point these defects out to the seller to negotiate a better price. If the house has any existing loan on it then get all details from the lender. Calculate the cost of repairing the house and add in an additional figure in case of any hidden expenses that may pop up after you start work on the house. If the house has good potential, then you could re-do the house and make it even more beautiful than it originally was when built. That will help to get you a higher price.

Remember not to let potential buyers peek when repairing and re-decorating it. Showing them the finished product is very important since first impressions can be profitable impressions. Always buy houses in areas where the demand is high so that you have a greater number of potential buyers ready as soon as you finish your work. You can even find a badly maintained house for a low price, in a short sale, which the owner has not maintained due to shortage of funds.

You will also need the services of an attorney and a tax consultant to handle the paperwork and the repair bills related to the house. With enough experience you could even buy ill maintained houses and custom make them for specific confirmed buyers. This could propel you into a niche market and the profits in that line could be tremendous. Normally, you should look at a profit of around $25,000 to around $100,000 or even more in such deals, depending on the location of the house and the workmanship of your contractor.

So, if you want to create a different area of expertise for yourself and want to earn more profits as compared to just buying and flipping houses, then buying houses in bad condition before turning it into a beautiful masterpiece and then flipping it for a higher price is a very satisfying way of making money in the real estate market.