The Real Estate Alchemist: Dust to Diamonds

So, you're new to the real estate market and you're having lofty dreams of making a mighty mint flipping houses, well, take heed of this solid advice that'll help you choose a "good" fixer-upper. Flipping houses can be risky business, but it need not be so. The goal here, is to find a true diamond in the rough- a diamond that needs just a bit of buffing up in order to shine. Especially if you're just starting out in the flipping market, you don't want to be dumping tens of thousands of dollars that you just might not re-coup at the end of the day. Ideally, you want something that with the magic of paint, a sharp stylistic eye and some good old elbow grease can turn into a gem- a gem that'll pay you back your invested time and money, and then some.

The classic rule for a good real estate investment is to purchase the worst house in a great neighborhood. This rule holds even greater weight when it comes to flipping. Oftentimes these are the houses you can scoop up for a deal, and then your job is relatively easy. If the house is structurally sound, you just need to bring it up to snuff with the surrounding neighborhood. This is ideally a cosmetic job- one that'll require minimal funds and maximum sweat. You want to mine out a job you can do without hiring any outside contractors. The sweat input will be all your own and so you won't be dumping huge dollars anywhere. The only time you'll see the huge dollars is when you turn around and flip the property.

Now, it may be a challenge to find a great bargain in a hot neighborhood. In this case you'll have to expand your hunt. Again, you still want to follow the advice of the friendly chime, "location,location,location". You may end up having to scout out potential "up and coming" neighborhoods that are bordering already established and affluent neighborhoods. Look for early signs that point towards a neighborhood's gentrification, such as other renovators working on homes. Look for perks in a particular neighborhood that make it stand out, such as proximity to parks, trails or beautiful views of water or mountains. Likewise, central location that is close to a downtown and/or other important amenities speaks volume about a neighborhood's inherent worth.

Another aspect to look for in a good "flippable" neighborhood is the quality of schools. It is said that quality of education tends to be a number one selling point for buyers. So make sure you do your homework and know the proximity and quality of educational institutions in the neighborhood you're scouting in.

When searching for that perfect bargain remember, dirt, grime, clutter and bad curb appeal are actually your friends! So many other buyers may judge a home's worth based on first impressions, and the aforementioned elements are definite turn offs. All the better for you, because if the house is structurally sound and just needs minor repairs, some thoughtful landscaping and some paint, well then you're looking at a good investment. These houses tend to stay on the market for longer, in which case you may be able to low ball on your offer, optimizing your profit margins even more.

Be systematic when scouting our the homes. Know that all that clutter might be hiding the true layout of the space. Pack a tape measure and digital camera to remind of the true dimensions of a space.

You really want to be judicious about your limitations. One extra big project could slash your potential profit margin. Stay away from homes that needs major upgrades in order to be marketable, such as roof replacement, leaky basements, cracked foundations and severely uneven floors. Having to completely upgrade a kitchen can set you back $20,000, and if you're looking at a bathroom, keep in mind the investment could be in the ball park of $10,000. Again, think of cosmetic upgrades that will lift the property to new market heights, and won't drag you down financially.

As you're hunting you'll also want to be cautious of homes with existing renovations as you have no assurance if they were done properly. They'll also tend to jack up your cost of purchase.

When looking at homes, keep an eye out for hidden treasures, such as hardwood floors tucked under green shag carpet. Yes, sometimes, you just might find $15,000 under an ugly carpet- or at least that much worth in wood flooring.

As mentioned earlier, no curb appeal is a great thing for the house flipper. Some thoughtful landscaping elements can add huge value in curb appeal to your home, and is certainly a project you can "dig" into yourself.

So just remember, young flipper, a real bargain is one that needs only cosmetic touch ups, and not a complete face lift!