If you want to become a real estate investor, the most tried-and-true way to do that is by a simple formula: find distressed houses at bargain prices, fix them up, and then sell them. If you do that on a consistent basis, you can become a multimillionaire.

How to Find Fixer Uppers

Financial difficulties can cause homeowners to stop doing maintenance on their houses and to get behind on their payments. There are as many reasons for that as there are sellers, but the most common problems involve job loss, divorce, illness, or addiction. Regardless of how the homeowner became distressed, the house suffers as a result. Repairs don't get made and payments get skipped, making it a perfect candidate for the buy--fix-up--sell strategy.

Of all distressed situations, the one that will net you the most money involves a "Triple D," which is a doghouse (one that's rundown, but in a desirable area), owned by sellers going through a divorce who are in default on their mortgage.

Ugly fixer houses are the most difficult types of houses to sell, because only certain people are interested in them. The average homebuyer would much rather move into a house that needs only a minimal amount of work. They've not interested in tackling substantial repairs or upgrades. In other words, they're looking for a home, not an investment. Your task is to find a fixer that, with some work, can become a home for buyers who want to move in and immediately begin enjoying their new residence.

Before you start, however, know how you're going to get the repairs and upgrades done. Are you competent enough to do repairs yourself or will you have to hire them done? It will make a big difference in your bottom line if you hire subcontractors to do most of the repairs, so don't buy any investment house until you know how the work will get done and have a good handle on how much the repairs will cost.

Once your team is in place, look in your local classified ads for headings such as "as is," "handyman's special," "fixer," or other wording that indicates a home in need of TLC. You can also use local real estate agents as scouts for locating likely properties. Once you've done a few transactions, people will get to know you and call you when they want to sell.

Solving Sellers' Problems

Once you've found a home that fits your criteria, your next task is to discover the seller's problem and offer a solution. Most distressed sellers are having serious financial problems, so if you're ready to offer a quick close, you'll be in a position to negotiate a lower sales price. You can offer quick closes if you've been pre-approved by a mortgage lender.

It's not rocket science, but you need to approach fix-up investing cautiously, since mistakes can be disastrous. However, if you get a team in place, shop carefully, and always estimate on the high side, you can use the system again and again to put thousands of dollars in your pocket with each transaction.

Copyright 2006 Jeanette J. Fisher