Profits in real estate are driven by the acquisition cost of a distressed property, estimating the cost of repairs and projecting what the finished product would sell for in an open market. Sounds simple enough,Investing in real estate right? It’s a classic, “buy low-sell high” paradigm. But ask someone who has done some research on real estate investing and you’ll discover that the entire process is much more than comparing before and after values. There’s much more to it and each individual piece to the puzzle must be performed exactly as projected or those looming profits begin to dwindle.

Finding the property is the first hurdle. You’re looking for more than just a “For Sale” sign stuck in a front yard or paying someone to provide you with a list of foreclosure filings. You need to identify not just a property listed for sale but you have to compare that listing with recent home sales in the immediate area. Homes that were sold that were not in some stage of foreclosure or already owned by the bank. You need a real estate agent with access to the local multiple listing service that can go back at least six months to arrive at a potential sales price of your subject property.

If you intend to keep the property and rent it out instead of flipping it, again you need your real estate agent to research market rents for the area. Either way, unless you’re an experienced agent, this first step is a critical one.

Once you acquire a property to rehab, you’ll need to seek permanent financing from a bank, to take out the existing loan used to buy and fix the property. Research the property taxes and get an estimate on insurance. Compare your mortgage payment, taxes, insurance and maintenance costs with expected rent. If it cash flows, move to the next step.

Calculate the cost of repairs and how long the repairs will take to be completed. Interest will accrue during your rehabilitation period and the longer the repairs take, the more interest you will pay. Again, unless you’re an experienced contractor, you need to employ the services of a professional. Guessing can be expensive.

The point is to seek the advice of professionals who are full time in their respective businesses. Make calculations based upon facts and honest projections. Buying and selling on hope will result in an early exit as a real estate investor.