There are two types of buyers in the market place today. The first category of purchasers is looking for their own principal residence. The other set is investors looking to achieve profits from the buying and selling of real estate.

In either case, and depending on the requirements of the buyer, a fixer-upper home may be the right fit.

Typically, homes that need lots of tender loving care are purchased by buyers who believe they can make the necessary improvements and renovations to subsequently obtain an instant return on their "sweat equity".

For buyers in this marketplace, it is important to be fully aware that the present demand for such homes is high. There are many individuals looking for these "undervalued" properties and hence competition to purchase them is brisk.

An equally important consideration for individuals who are considering buying a fixer-upper is that the renovations, in most cases, are never as easy as people first envision. In many instances, quick and easy cosmetic improvements require more extensive work than first believed. A much greater appreciation and understanding of the costs — both nominally and in terms of time commitments — become apparent with actual experience in home renovations.

If someone does decide to purchase a fixer-upper home, then I believe there are several essential components that will assist them in obtaining a reasonable return on their investment.

Clearly, understanding the local market place, and buying at the "right" price is of utmost importance here.

Secondly, you need to have a thorough knowledge of what renovations you need to do to attain the "biggest bang for your buck". Some experts maintain you should strive for a 3-to-1 ratio when deciding on improvements. This means that if you are contemplating repaving the driveway and the projected cost is $1,000, it should increase the value of the home three-fold or by $3,000. If you keep this formula in the back of your mind, it will ensure you invest safely.

Depending on the fixer upper that’s purchase, there are many possible improvements buyers should consider undertaking. These improvements include: painting, carpeting, new closets, new toilets, newer showers/ tub surrounds, new doors, fences, gazebos, sheds and landscaping.

Remember, bathrooms and kitchens are important components of any home and thus are sought-after features to prospective buyers. It is important to spend wisely in these instances. If you deviate significantly from your budget, than you are compromising the potential profits that you have allocated for this project.

It is also important to start out small and make sound real estate investing decisions. For example, I wouldn't recommend buying a home that has significant structural problems. There may be many hidden, costly surprises that may take a lot of time and money to repair. Of course, it is important to buy in a desirable neighbourhood. This will ensure that the house values will be maintained.

To avoid further costly surprises, here are a couple of suggestions.

It is imperative to have a qualified home inspector carefully scrutinize the prospective property. This will allow you to properly budget the project.

You must also do the math and know what figures you are dealing with. It is best to err on the conservative side.

To determine your projected profits, you need to factor in these figures:

-- the projected sale price (be realistic and talk to realtors)

-- selling expenses (this includes real estate fees, and legal fees)

-- estimated repair costs (be aware that this number is often under-estimated)

-- carrying costs (If you have a mortgage, the cost to carry the mortgage needs to be factored in.)

Once you have these figures determined, you need to estimate your minimum desired profit. If the numbers still make sense, than there is merit in proceeding with the purchase. However, I can't stress enough the importance of properly researching the figures so that there are no financial surprises.

We at Team McDadi have developed a separate division that is exclusively focused on locating power-of-sale properties and fixer-upper homes. Because of the growing demand for such properties, we created this division in order that we are well positioned to assist our clients in this regard.

Fixer-upper homes have a certain lure. If you are contemplating purchasing one, perform the proper due diligence and if the results are positive, try your hand at it!