What is the best way to earn big real estate profits in 2003?  Let's think together about the answer.  Maybe we should acquire a brand new house in excellent condition.  There probably won't be much maintenance needed for a few years. But we'll be paying top dollar for such a new home.  Is there a profit
opportunity in new houses (presuming you don't want to become a contractor and incur all the unknown risks of development and construction)?  Yes, there are profit opportunities if we can somehow buy a brand new house for a
below-market bargain price, perhaps because the builder needs quick cash.  But that's not very likely, is it?  Nor is it a formula we can repeat over and over.

Another way to earn real estate profits this year is to buy houses or other
investment property, rent it to tenants for a few years and watch our property's market value go up.  That's what I've done, starting with my first rental
property 35 years ago.  Lots of other investors did the same thing.  It's called the "buy and hold strategy."  There is nothing wrong with this get rich very
s-1-o-w-l-y technique, presuming properties continue to appreciate in market value.

David Schumacher wrote the famous book "Buy and Hold:  7 Steps to a Real Estate Fortune" (2000, $14.95, 306 pages; available in stock or by special order at better bookstores, public libraries and www.amazon.com).  If you haven't read that great book, you should.  Schumacher shares his many real estate profit experiences of buying for the long term and rarely selling.

However, most real estate investors are not so patient that we're willing to wait 20 or 30 years for the market value of our holdings to substantially appreciate in market value.  We would prefer to earn our real estate fortunes faster than that. One fast profit strategy to is to "flip" properties.  That means buy a property at a bargain below-market price, make some profitable improvements, and resell it for a nice profit in about six months.  An excellent new book on this topic (it was named one of the "top 10" real estate books of 2001) is "Flipping Properties" by William Bronchick and Robert Dahlstrom (2001, $18.95, 154 pages; available in stock or by special order at better bookstores, public libraries and www.amazon.com).  They recommend making a business out of buying, fixing, and flipping properties to earn big profits.

If you like this idea of reselling your renovated properties, why not make a
tax-free business out of it?  Uncle Sam even encourages it.  Internal Revenue Code §121 allows up to $250,000 tax- free resale profits if you own and occupy your principal residence at least 24 months during the 60 months prior to sale. That means you can buy a run-down house, move in, fix it up, and resell it after two years for up to $250,000 tax-free profits per qualified seller (up to $500,000 for a married couple filing jointly).  If you do this over and over, you'll soon
become known among your friends as a "serial home seller."  But this tax
exemption can only be used once every 24 months (with partial exceptions for selling sooner due to health reasons or a job location change).

But you probably spotted the big flaw in this plan.  Living in a house while it is being renovated is no fun.  Although I've renovated many fixer upper houses, I've never personally lived in one while it was under renovation.  But some of my friends have.  One couple, Mark and Laurie, have been renovating their kitchen for at least a year.  They tell me it's no fun "camping out" with two
children in their house while their kitchen undergoes major renovation.  Ask any married couple that lived in their house during renovation and they will tell you it is a miracle their marriage survived.