With all the real estate shows on TV like "Flip This House," "Flip That House," "Design on a Dime," "Extreme Home Makeover," and the plethora of others available, I've heard the questions "is it really possible to make that kind of money?" Well, it depends (don't you hate hearing that?). With all the books out there, the bottom line of so many of them are that "The Key to True Wealth is to Buy and Hold" when it comes to real estate--just ask Donald Trump. Most times that means you become a landlord, or you're holding vacant land for future sale. Of course it's harder to sell it quickly than if you were to sell stocks or bonds.

But that option may not be for you, and the thought of making $50,000+ in one flip transaction can make anyone's mouth water. So how do you know if there's money to be made in your local area? While there is a lot involved, I'm going to outline what you need to look at here to give you an idea of what to consider before making that step.

Before you buy an investment property, the first thing you need to think of is multiple exit strategies. While your intent may be to flip it, what happens if you have more money in it than its worth by the time you're finished? Or the market takes a serious downturn before you're finished. Hopefully you prevent this by coming up with a budget and time frame and sticking to it, but having an idea of maybe renting it out, or various ways to sell it (maybe seller financing could be an option), will help you adjust quickly if you need to.

That said, you need to compare your "target house" with similar others in the area that aren't fixer uppers and see what they are worth "now" on the re-sale market, as well as the rental (in case that becomes an option you need to use).

Some fixer-uppers only need a coat of paint and new flooring--which considering how much is done on some (just watch any of those TV shows I mentioned!), is not bad. If it's possible prior to buying or closing on the property, the best thing to do is to get a professional inspection on the property, and then have people come out to give you estimates on work that's required. A general contractor can do just about anything that's required, however, they can also be quite expensive. Sometimes it is more cost effective to hire the different subcontractors yourself or do the work yourself, depending on your time constraints and personal experience. The best thing to do is get 3 estimates--or more if you're not comfortable with those three. In this area, estimates can vary greatly. Don't be afraid to call around, and ask a lot of questions. The things you need to consider are the electrical and plumbing (if the house is older, it may need to be brought up to code for the best benefit). What about the A/C system? Pulling out old carpet and painting will get rid of most smells (especially if previous owners/tenants had indoor pets and/or smoked inside). Just make sure to wash down walls and floors before painting and putting new flooring down to help eliminate those smells. What is the overall condition of the walls (1970's paneling? or holes to be repaired?) as well as the condition of the bathroom(s) and kitchen. Some updating can be done by just putting a coat of paint on it, others require complete replacement. And as the new owner of this property, that choice is up to you. The point is that you want to market your home to the highest number of buyers possible--so while thinking of what needs to be done, keep that in mind.

Of course, as you are getting your estimates together, you add up what your budget should/will be, and add that to what you are paying (or planning to pay) for the property. If the current fair market value is well above what those costs are, then it looks like you'll be able to make money. But keep in mind what your holding costs will be as well. If there's a loan, there are loan payments. As always, property taxes and insurance will need to be paid.

And, as always, there are taxes on the profit you do make. Everyone's situation is different, so it is best to contact your tax professional--one that deals with real estate. If you hold a property for over a year, then your capital gains on it is 15%, however, in the case of fixing and flipping, it may be considered "ordinary income" and get tacked on to whatever your earned income is for the year--so depending on your tax bracket, you may pay higher taxes than that 15%.

The bottom line? When buying any property for an investment, make sure you do all of your homework first. Ask a lot of questions, do a lot of research. The information is out there for everything you need, but it does take time to find it, put it together, and then to fix up the property. Many people like the idea of doing something like this "on the side" in addition to their day job, however, there is a lot of work involved, whether you choose to do it yourself or hire someone else to do the work. If you're serious about it, there is money to be made, but you need to have a plan and go from there.