Greater fool theory. "I don't really understand this, but the people I see making money at it are stupider than me, so where could I go wrong?" The problem is they don't make reality TV shows about house flippers losing their shirts because it isn't in Home Depot's best interests for you to know that story.

You're a businessman, TNG, and a successful one. Break it down like a business.

- How much can I buy a house for?

- How much can I sell a house for?

- How much will I need to spend to get it there?

- How long will it take?

- How much will it cost me to carry the note for that long?

- How much work will I personally have to do, and how much is my time worth?

Friends of mine have been (what we now call) "rehabbers" and friends of mine have been flippers. The rehabbers exited the market in 2005-2007. They were used to making 50-70k on a house after spending 6 months restoring them to occupancy. Of the three people I know, two were contractors. They bailed because they knew their market, they knew what they could get out of a rehab and they watched as the hobbyists flooded in and took projects with $5k or less in profit potential. If your business model works at $10k a month but you're competing against people happy at $10k a year it's time to move on.

Those friends didn't lose their shirts. They're doing quite nicely, one of them as a GC, one of them in another market entirely and another doing commercial renovations.

On the other hand, I know three different couples that watched too many episodes of "Flip This House." Two of them moved into their "flip" to save face. One of them got foreclosed.

You can make money rehabbing houses. Let me show you one.

Let's do the math: This was a thrashed-out estate auction down the street from me (I'm in a good neighborhood surrounded by great neighborhoods). Jesse bought that place for $1.65m cash, and probably paid a 10% auctioneer's fee. Right out the gate he's into it $1.8m. Then he rehabbed it - it probably cost him $300k to do the renovations. He's at $2.1m. Now, Jesse sells crazy condos in Marina Del Rey. This is all gravy to him - no commissions to anyone. But he's still carrying $1.8m for 4 months, and another $300k for two.

Jesse is gonna sell this sucka. I'll bet it goes for $2.5m, but I'll bet it takes 8 months to a year - even around here, there aren't that many buyers for $2.5m houses. Maybe Jesse is the kind of guy who can carry $2.1m for 18 months. I'll bet he is or he wouldn't have done it. But you or me? We're fucked, son. And he's doing this for 20% profit. Which, granted, is $400k... but neither you nor I have our faces on bus benches.

Sure, divide by 10 for normal mortals. You're sinking $180k (or the money necessary to get the loan - and since this is an auction, it's gonna be brutal) on a $165k fixer-upper, throwing another $30k at it to get it into shape, then waiting 6-8 months for someone to buy it, all so you can make $20k. And that's assuming you know what you're doing.

I never wanted to be a contractor when I grew up, so I don't rehab houses. If you've always wanted to paint and run a nailgun all day, it might be just the thing.