Investing in real estate is one of the best ways to build wealth, and buying a fixer-upper can be a great way to get started. A well-chosen property can offer a strong return on investment (ROI), but not every run-down house is worth the effort. I’ve been flipping homes in New Jersey and Central Florida for a while now, and I’ve learned that the difference between a money pit and a profitable deal comes down to knowing what to look for.

If you’re new to real estate investing and want to find a fixer-upper that will actually make you money, here’s what you need to know.

Location, Location, Location

The most important factor in real estate is location. You can change almost everything about a house, but you can’t change where it’s located. A fixer-upper in a good area will always have more potential than a beautifully renovated home in a bad neighborhood.

When evaluating location, consider:

• Neighborhood demand: Are homes selling quickly in the area? Look at recent sales to see how long properties stay on the market.
• School districts: Even if you’re not planning to live in the home, buyers care about schools. A good school district increases property values.
• Proximity to amenities: Are there grocery stores, restaurants, parks, and public transportation nearby? The more convenient the location, the more attractive it is to buyers.
• Future development: Check if there are any upcoming infrastructure projects or new businesses moving in. These can drive up property values.

A fixer-upper in a high-demand area is more likely to turn into a profitable investment.

Structural Issues vs. Cosmetic Fixes

One of the biggest mistakes new investors make is underestimating the cost of repairs. A house that looks like a disaster can often be fixed up affordably, while a home with hidden structural issues can drain your budget fast.

Cosmetic issues are usually easy and inexpensive to fix. Look for houses that need:

• Fresh paint
• New flooring
• Updated kitchen cabinets and countertops
• Modern light fixtures
• Minor landscaping

These are all things that can dramatically improve a home’s value without breaking the bank.

On the other hand, structural issues can be major red flags. Be cautious if you notice:

• Foundation cracks
• Roof damage
• Water damage or mold
• Termite infestations
• Major plumbing or electrical problems

These issues can cost tens of thousands of dollars to repair and may not be worth the investment. If you’re unsure, always bring in a professional inspector before making an offer.

The Right Floor Plan

A good layout can make or break a flip. Some things are easy to change, but major structural modifications can be expensive. When evaluating a fixer-upper, consider:

• Does the home have a functional layout? Homes with awkward layouts (like a kitchen in the middle of the house) may be harder to sell.
• Are the bedrooms and bathrooms well-positioned? A three-bedroom, two-bathroom home is often more desirable than a four-bedroom, one-bathroom house.
• Is there open living space? Buyers today prefer open floor plans over small, closed-off rooms. If knocking down a non-load-bearing wall can open up the space, it could be a worthwhile renovation.

A house with good bones and a practical floor plan will be easier (and cheaper) to flip.

Estimating Repair Costs

Before you buy a fixer-upper, you need to have a solid understanding of what the repairs will cost. Walk through the property and make a list of necessary renovations, then get quotes from contractors or use online cost estimators.

A simple rule of thumb I follow is the 70% rule:

(After Repair Value × 0.70) – Repair Costs = Maximum Offer Price

For example, if a home’s after-repair value (ARV) is $300,000 and it needs $50,000 in repairs:

($300,000 × 0.70) – $50,000 = $160,000

That means you shouldn’t pay more than $160,000 for the property.

This formula helps ensure that you leave room for a solid profit after renovations and selling costs.

Understand the Market

Not all fixer-uppers are created equal. Understanding your local market is crucial to making a smart investment.

• Who are the buyers? Are you flipping for first-time homebuyers, families, or retirees? Knowing your target audience helps you make the right renovation choices.
• What features matter most? In some areas, having a backyard is a huge selling point. In others, it might be a modern kitchen. Focus on upgrades that add the most value.
• Are homes appreciating? If property values are rising, you may be able to take on a bigger project. If prices are flat or declining, stick to low-risk, budget-friendly flips.

Build a Reliable Network

Flipping houses isn’t a solo effort. To succeed, you need a strong team, including:

• A real estate agent who understands the market
• A home inspector to identify hidden issues
• Reliable contractors for renovations
• A lender or financial backer if you need funding

Surrounding yourself with experts helps you avoid costly mistakes and ensures a smoother process.

Key Takeaways

Finding a profitable fixer-upper takes more than just luck. It’s about knowing what to look for, estimating costs accurately, and understanding the local market.

I’ve seen people make great money flipping homes, and I’ve also seen people lose big by choosing the wrong property. If you’re just starting out, take your time, do your research, and don’t be afraid to walk away from a deal that doesn’t make financial sense.

With the right strategy, patience, and a keen eye for value, you can turn a run-down house into a profitable investment—and build a successful real estate career along the way.