A friend of mine does this full-time (this is in NYC btw). She goes to auctions at
Tepper (an auction house) as well as flea markets and tries to get whatever she thinks looks good. Her parents own an art gallery in Buffalo, so she's got a lot of experience in the business and a pretty good eye as well.
She usually doesn't go for the bigger ticket paintings, but cheaper ones <$1,000 at flea markets and auctions and then sells them on e-bay usually for a fairly good profit. Most are never authenticated, but she lists them as "attributed to" such and such an artist, and that alone causes it to fetch a higher price.
Also, occasionally, she'll come across a painting for real cheap that ends up being worth quite a lot. It's not that lucrative and if you don't have a good eye and know what to look for, it'll be very hit-or-miss, but from what she says, if you live in a bigger city, where art is abundant, you'll find plenty that are worthwhile.