magine buying property below resale value and selling it at premium prices. Now imagine doing that time after time. It's not a miracle. All you need to make it happen is a compendium of certain skills and basic know-how.

To succeed, you must master seven steps with precision and without emotion. If every run-down house looks like a lost dog that needs you, you won't do very well. Approach it with the icy eye of a surgeon about to cut. This is business.

But before offering the seven steps, there is a new twist you should consider, courtesy of the Taxpayer Relief Act of 1997. You'll have to establish the home as your primary residence and live there for at least two years to qualify. Yes, this goes against the credo of not living in a fixer-upper, but the tax advantages makes this option truly enticing. When you sell, up to $250,000 of the profit ($500,000 for a couple) is tax-exempt. It gives you the time to determine what's really needed and to make the repairs. Then when you do sell, you get a bigger tax bang than if you simply purchased it as an investment.

Most of you will have three sources of financing. First, you and/or your partners will need the required down payment and repair funds. If you can pay for the house in cash, all the better.

Second, seller financing may be available for homes needing repairs. This is also called "no money down." This is really part of the negotiation and will be discussed under Step Four.

The third source is private lending. The properties you'll want may not have a certificate of occupancy (C of O), or may appraise too low for conventional financing. To find private lenders, visit the HomeOwners Finance Center or Mortgage Bankers Association of America Web sites. These organizations are in the business of making short-term loans at 50 percent to 75 percent of the loan-to-term value (LTV) ratio, which is less than you can get on a regular home but better than most fixer-uppers. Unlike banks, they base the LTV on the "after repair value" of the property, which should be much higher than the home's value before the repairs are made.

Private lenders may require newcomers to submit a business plan. Do it. Make contacts and convince the lenders that if they help you get started, they have a constant source of A-rated lending ahead of them. Bring in a resume, a business plan and prepare to sell your proposal.

Don't be surprised if the interest rates are 12 percent or higher on your first loan. If you want the next loan with no questions asked, pay it off early.

To find your property, look at "for sale" signs in any neighborhood with which you are familiar. Call banks persistently for their real estate-owned (REOs) properties, go to auctions, tax sales and of course, use traditional sources like real estate brokers' multiple listing services.

Since the key to a good fixer-upper is location, pick an area and study the values until you know how much houses in good condition sell for in those areas. Study the multiple listing books for houses that sold in the last six months. Visit them. How long were they on the market?

Then look for a house in bad condition - dirty, shabby, cluttered, in terrible taste, poor landscaping and old fixtures. It doesn't mean there are structural defects, drainage, foundation problems, or full-scale heating environmental or electrical jobs. You'll need a professional inspector to find out those issues.

My secret tip: All six of my purchases have been vacant homes owned by relocation services. The executive homes are often forlorn, as the prior tenants knew they were transient. The best buy was a mansion repossessed by the bank after a drug bust. The IRS has such properties. Maybe you will get lucky.

If you pass a vacant property, run - do not walk - to the county tax assessor's office. There you will find the name and address of the owner. Call or write. You may find a very grateful seller.

Get a list from your broker of expired handy man specials. Call them, too. They may have removed the property from the market and need new hope from the likes of you.

Once you've located the property, forget the asking price. In fact, it would be better if you didn't even know it in the first place. Instead, calculate the costs of repair, your carrying charges (taxes, insurance, mortgage, and so on), legal fees and every other out-of-pocket expense. Subtract this from the price you expect to get when you sell it and then add in your profit. The profit can be whatever you think your time is worth, but no less than 5 percent to 10 percent of the home's value. After subtracting your profit, you have the top price you're willing to pay the seller.

Some repair and resale experts don't even bargain. They make their best offer and keep submitting it until it's either accepted or rejected. I'll typically make an offer that is only about 5 percent less than my top price, allowing me to offer one small price increase in the negotiating process. The key is to find a style that works for you and stick to it. What's important is to find a few properties at a time and tell the seller that a response is necessary by a certain date or you'll withdraw the offer. When that date comes, bid on the next best property immediately. This must be cold-blooded, with every intention of walking away.

If you're convinced the property has merit, but you need time to get your financing in order, take out an option on it. Offer an appropriate sum as a non-refundable deposit, say $500, if the seller agrees to take it off the market for a few weeks. Allow the seller to solicit, but not accept offers, during the option period.

In some cases, price may not be the essence of the negotiation. Financing can come into the picture. If your goal is "no money down," the seller may be the answer. You can negotiate the following terms:

Another important feature of the fixer-upper negotiation is the clause that allows you to get out of the deal if the inspection isn't satisfactory.

Closings of fixer-uppers are usually very simple, especially since they already may be vacant. However, if you purchased the property in foreclosure, at auction or from a relocation service, make sure you have either a deed of trust or a bargain and sale deed. These are the only absolute forms of ownership.

You must be sure that the owner no longer has a right of redemption - meaning that they can pay off the debt and take back the property. Some states give that right even after auction. Your title company will insure the title and in the future may also become a good source of new properties. Offer a finder's fee if they alert you to a foreclosure that you buy.

Now the fun begins. You can be an expert, without ever picking up a hammer. You can learn about the cost and grades of materials, as well as possible local contractors, by visiting various Web sites from the National Association of Home Builders or the National Association of Remodeling Industry.

Some things like roofing and painting should be separately bid out. A general contractor can do the other work. You do as much or as little as you like. That's a matter of time, temperament and the profit level you seek. Offer your contractor a finish-fast bonus and a "time is of the essence" penalty.

Whatever you do, don't be absent. Watch every step and learn from all the mistakes you will make.

Put your property on the market the moment you close. Put up the "for sale" sign immediately. Use local selling agents and give them a bonus for quick sale. But list with them for only three months at a time and don't give an exclusive. Find out how many actual sales the broker has made, not just how many houses he or she has listed. Some brokers are great at selling a house, others at getting sellers to list with them, some at both. You want the top salesperson.

Remember that you're on a short financing leash. Agree that if you find your own buyer, the broker will get a smaller commission. Your broker is not a drain on your business. An active local broker can be your biggest asset. That's because if you do this right and make a profit, you're going to want to do it again.