Many people are enticed by the prospect of making money by repeatedly buying rundown homes, moving into them, fixing them up and reselling them for a profit. The strategy has become even more popular in recent years, thanks to homeowner-friendly changes in the capital gains portion of the federal income tax code. Given all the right circumstances, fixer-uppers can be a lucrative investment, but they’re by no means a sure bet or a license to print money. 
Is the fixer-upper life right for you? Here are some questions to consider: 
1. Do you have the expertise required to meet with contractors or make major improvements yourself? Most homeowners know how to paint a bedroom or install a new light fixture, but those routine chores are a far cry from adding a second bathroom, remodeling an out-dated kitchen, landscaping an entire front yard and the like. Tackling these improvements without the necessary experience and expertise can lead to costly mistakes. And if the home really only needs easy, inexpensive or purely cosmetic repairs, your efforts probably won’t add enough value to be profitable. 
2. Do you have a working knowledge of which improvements are likely to add value? As a general rule of thumb, improvements that are invisible to home buyers or merely bring the home in line with expected minimum standards don’t add much resale value. If you make the wrong improvements, you won’t see much, if any, return on your investment. Another potential pitfall is over-improving the home compared to other homes in the neighborhood. 
3. Are market conditions in your favor? There’s nothing worse than buying a fixer-upper with the intention of making a profit in a couple of years only to discover the real estate market has turned sour. If home values are depreciating, your fixer-upper might be worth less than you paid for it even if you make wise investments in improvements. 
4. Are you prepared to pack all your belongings, put your home on the market and move every few years? Moving is time-consuming and stressful, even when it’s anticipated and welcome. Will your spouse cooperate with repeated packing and unpacking? How will your children cope with switching to a new school every few years? Will you be able to bond with your neighbors? How much will it cost to move your furniture and household goods? 
5. Will transaction costs wipe out your profit? A convincing argument can be made that even the considerable advantages of homeownership aren’t always worth the transaction costs associated with buying a home for a short-term residency. The same advice should be taken to heart before you buy a fixer-upper with the goal of making a profit. Will the higher resale value of the home exceed your purchase price, plus your investments and your transaction costs? If so, will the profit-even tax-free–be adequate compensation for your time and effort?