The secret to profitable investing in real estate is the ability to see profits where others see problems. Evaluate every potential property with all the possibilities in mind. Think outside the box - don't even consider homes that are in good condition. Homes that don't need immediate renovation are in high demand, and high demand means high sale prices and low profit potential for you. You need to be looking for the homes that no one else wants.

Become an area specialist

Choose a geographic area to work in and find out everything there is to know - schools, shopping and especially how much houses sell for. Specializing in one area is the secret to finding great bargains. The more you know about the area, the quicker you can spot the bargain when it comes along.

Go for affordable neighborhoods

There is a larger market for lower priced homes. Renting or buying an expensive home is not an option for most people. It's true that more expensive homes have a higher profit potential per house. But you also take on a higher risk of not finding a buyer or tenant right away.

Homes in expensive neighborhoods cost more from beginning to end. Expensive homes are also more sensitive to swings in market conditions. And finding a fixer upper in an expensive neighborhood is an extremely rare occurrence.

Find the right neighborhood

On the flip side, you don't want to invest in a run down neighborhood either. Most people live in high-crime, run down neighborhoods because they must, not because they want to. Would you buy a good home in a bad neighborhood?

The ideal neighborhood has a history of rising property values - this indicates demand. If you can supply a gorgeous home in ready-to-move-in shape, you'll have an ample supply of buyers. You should also look for other homes that are being upgraded - this signals confidence in the neighborhood. Finally, look for a low ratio of renters to owners.

Select the right property

Look for a home that blends in well with the neighborhood. Don't go for the odd house that's out of character. Next, stay away from properties that need major structural repairs. You're looking for something that needs a cosmetic rehab. Major repairs are expensive, time-consuming and eat away at your profits. Your goal should be maximum upgrade at minimum cost so you can profit and buy your next property.

Consider minor layout changes

Generally, you should avoid properties with impractical or just plain bad layouts. At the same time, if you can improve the layout with some minor, relatively inexpensive changes, you could realize a lot of extra profit with only a little extra work.

Save money with inspections

Remember, you are making a significant investment. You should make the final deal contingent on a satisfactory inspection. The inspection will either confirm that no major structural repairs are needed, or it may highlight problems that kill the deal. A few hundred dollars for the inspection could save you thousands.

Handyman specials are without doubt the best properties to invest in. You can buy them at an attractive, below market price and quickly add value with a few minor repairs. But these opportunities won't come to your door. You have to find a neighborhood and make it your second home until you know what properties are worth and why people want to live there. Then you'll be able to spot the handyman specials as soon as they become available.

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