Why I’ll Never Fix and Flip Houses Again

by | BiggerPockets.com

Fixing and flipping houses looks cool on “reality” TV, but in actuality, many are finding that it isn’t nearly as profitable as what it is perceived to be.

House flipping TV shows have caused an epidemic. There are thousands of aspiring new investors out there, including my Uber driver, who are rushing to try their hand at it, after equipping themselves with a few episodes of a television series. Both the data and my personal experience seem to show that it isn’t nearly as profitable as many believe. In fact, it can be a highly risky venture.

Investors Are Losing Money on House Flips

One of the first things experienced investors will notice about these TV shows is that the rough numbers shown at the end don’t always appear to factor in a lot of the costs. That means even in these silver screen scenarios, the actors are typically pocketing a lot less than they are made out to be.

New data from ATTOM, the leading provider of real estate and property data, shows that many are losing money, too. The latest Home Flipping Report reveals that average house flip profits are declining. The number of flippers using cash has also dropped to an eight-year low. RealtyTrac says that 21% of transactions show a gross profit of less than 10%. That means once all numbers are added up, these deals likely lost money. That’s in addition to 8% of flips that sold for less than the property was purchased for.

Related: Breaking News: Newbie Flipper Makes Disturbing Discovery That It’s Not Like on TV

None of these numbers track the much larger pool of new investors who have bought properties, have gotten stuck on rehabs, or have over-improved—and are still sitting on these liabilities costing them money every month.

The Tax Issue

I have flipped properties in the past. Honestly, I enjoyed it. However, investors need to differentiate between getting into an expensive hobby and investing for a positive return.

One big flaw in the house flipping model is taxes. Uncle Sam takes a huge chunk of the profits in tax on flipped properties. It’s extreme. Most overlook the fact that they are going to have to give up 20% to 40% of their profits in taxes. If flippers have already spent the money by the time they get their tax bill, a vicious cash crunch cycle can kick in. Most won’t enjoy being chased down by the IRS for $50,000 or $500,00 in past taxes.

This is all in addition to the speculation involved in flipping houses. Even if you really know your property values and market, there are a lot of factors outside of your control. That includes neighboring foreclosures, natural disasters, interest rates, and the media. All of these can impact your ability to resell for more within a given window of time. Millions lost out on this strategy in 2008.


Related: 7 Ways TV Flipping Shows Are Completely Fake (As Any REAL Investor Knows!)

Why I Like Buy & Hold

I like the buy and hold model. It means that when I renovate a property, I know I will get a tenant in it who is paying rent and providing me with income. That property can keep on generating cash profit regardless of property values and the market.

The income on long-term rental properties is taxed at a lower rate than you get with flipping, too. By using 1031 exchanges or self-directed IRAs, you can defer taxes or make returns tax-free.

For me, buy and hold also checks two of the most important boxes that people invest in real estate for in the first place. Those are time and location freedom, which come from the passive income provided by good property management. You just don’t get that if you are rehabbing houses and are trying to flip them yourself.

We’re republishing this article to help out our newer readers.

What’s your strategy of choice—buy and hold, fix and flip, or something else?

Feel free to defend flipping in the comments!

About Author

Sterling White

With just under a decade of experience in the real estate industry, Sterling currently manages over $10MM in capital, which is deployed across a $26MM real estate portfolio made up of multifamily apartments and single-family homes. Through the company he co-founded, Holdfolio, he owns just under 400 units. Sterling was featured on the BiggerPockets Podcast and has been contributing content to BiggerPockets since 2014, with over 200 posts on topics ranging from single-family investing and apartment investing to wholesaling and scaling a business.


  1. David Krulac

    Fine article, but you understated the income tax hit, ask me how I know that. The top Federal Income tax rate is 39.6%, plus the 3.8% healthcare tax, plus 15.3% Social security Tax, plus State Income Tax (13.3% in CA for example) plus local income taxes ( 1 to2%) adds up to:
    wait for it!
    74% income taxes.

    Buy and Hold reduces the Federal Income tax to 20% versus 43.4% right there and B&H is exempt from FICA, Social Security saving another 15.3%.

  2. Jerry Kisasonak

    What Dave said! If you are successful with a flip, after taxes, are you really? Not only does HGTV leave out most holding costs, transactional costs etc, they also don’t subtract out tax costs.

    As Robert Kiyosaki says, the real game of the wealthy is about debt and taxes. In short, it’s about how to use debt/leverage and the tax code to your advantage.

  3. Curt Smith

    Hi David, Thanks for chiming in with in the extreme case numbers, CA + Dealer status+top tax bracket.

    I feel Dealer status for flipping AND wholesaling is the gorrila in the room. I wonder how many CPAs and self filers voluntarily fill out taxes based on being a “Dealer”? How many just do taxes as not being a Dealer and should be?

    Guess we’ll never know this answer. My guess is that under reporting as a Dealer happens until one gets audited, gets dinged as a Dealer and pays lots of fines.

    I’m well plugged into REI legal networks and all the Attorney talks on the Dealer status topic says there is not bright line number one uses to get tagged as a dealer. I wonder if the local CPA authors here have posted about any case law and general practices the CPA world uses??? Huge tax implications of NOT assuming Dealer status.

    • Add in the costs of being found out for running a business without a license, years later with interest tacked on and wait for it, thousands in “fines”. Add in another 10,000 dollars in fines here for stop work orders and $20,000 for other fines, and you’re outta business and in a hole before you begin. … Yeah, buy and hold seems ideal, as long as you’re not a slumlord who’s hoarding properties that could be serving the rest of society at a reasonable prices. This property game needs to stop. Period. Think of your neighbors, and quit being greedy. You’re driving up prices without ever thinking of others and you’re not even making a profit.

      • Chris Soignier

        Sterling, 3 full-on rehabs was all it took. I still do light rehabs for rentals and seller finance, but everything I invest in is aimed at producing recurring cash flows vs. 1 time profits. I had thefts at 2 of them, contractor issues at all of them. Budget and time variances were never favorable!

        I have friends who enjoy and profit handsomely from flips, but they’re not my cup of tea.

        • I do both. Love the monthly income from one market and getting into some larger projects. One of our rehabbing markets warrants additions to maximize profits and has been saturating as of late. Still looking for some small ones but buy and hold seems to be big picture for us.

  4. I think of all of my rehab to rentals as long term flips. Few properties will be held forever and you should re-evaluate your portfolio and shift into other properties for various reasons (age, location, value has reached a certain level, etc.).

    After a year, you are at long term gains. If you want to trade up you can increase the quality of a property and/or get into a better location with a 1031 with no tax. More properties is not always as good as having fewer high quality properties, provided the numbers work and you stay close to the fat part of the rental curve in your market.

    Yes, I agree that a short term flip does not make sense for my investing style and long term plans.

      • Yes, I have. Not too hard to do, but lining up possible replacement properties can be a challenge.

        I really wish the rules were simplified. The Gov’t has a way of complicating pretty much any issue. The QI rule may have spawned a nice business model for lawyers, but if you can prove your transactions meet the requirements, that should be the end of it. No reason I can see that an investor should be able to receive the proceeds of a sale, and then conduct a purchase transaction.

        • Yes, unfortunately due to IRS rules, you have to use a QI to have a valid 1031 exchange. The owner can never actually receive the proceeds from the sale.

        • Christopher Smith

          You can do a 1031 without a QI, I’ve structured my own in the past and they have always passed muster (or at least have never been challenged). For most folks a natural 1031 is likely not a very practical alternative, but in those cases where it can be done I have saved quite a bit in administration costs by doing it without a QI.

  5. Christopher Smith

    Interesting article. I’ve always been strictly a buy and hold investor focusing on newer upper middle income properties in very good neighborhoods all with professional Mgmt.

    In the early years all I ever heard was how I was missing out on all the really big fun and profits of flipping and landlord slummin it. Now I am sure there are a few that have done well in those endeavors, but the more I hear about the true results being achieved in those “fun and profitable” activities the more I am glad I did exactly what I did.

      • Christopher Smith

        Hello Sterling

        I bought heavily into the Far East Bay area of San Francisco 2011-2013 (no where near the city, about 50 miles East). It was like shooting fish in a barrel then, 2 to 4 year old homes selling at 35% to 40% of their previous new home sale price. Everything I hold from those acquisitions is at least 2x what I bought it for and still has good cash flow based upon my original cost. The only issue I have is whether I should cash out and reinvest for more income elsewhere. Probably won’t because of continued appreciation potential here, positive cash flow, and taxes and transaction costs.

        When I got priced out of the Far East Bay Area I started buying in the general Springboro Ohio locale where I had lived years ago and already had 1 rental in place. Prices had only moved up modestly by 2015 and cash flow was very solid. Bought my last one there in June 2016, now that market has really caught fire and I am nearly priced out of it now.

        The only thing that I would have done differently is to have borrowed a whole bunch of money. At the time I put probably about 70% of my total net worth into the California stuff which seemed terribly aggressive by my standards. However, looking back I should have borrowed a couple mil of additional funds, Ah the would of’s and could of’s. In any event, it has worked out really well, I’m up about 2M after 5 years or so (plus about 100k in rental income) and for a pip squeak like me I can’t complain about that.

        • Paul Merriwether

          Great job on East Bay property purchases!!! Use a future calculator to determine what those properties could be worth in 5, 10, 30 yr’s! You can use the history of older properties in the area to determine past appreciation. It should range between 4% & 8% it could be higher!

  6. Patrick Liska

    Good article Sterling, even as a General Contractor, i do not like the flipping side too many variables can go wrong and i have been doing renovation work for 30 years, i am a buy and hold myself. I did one flip recently because i knew i could make some good money out of it, 40k in repairs, 50k profit after all expenses/ holding costs except taxes, find that out soon 🙁 . I did a flip as a partial investor and contractor for someone recently as well, needless to say, i made the most money on that one, the initial investor says he made some, but not a lot, but with my rough calculations i do not think they made anything. Running your numbers and getting your properties rented is key, a good steady income that pays all your expenses and gives you some extra cash will grow your net worth. even if a property does not appreciate much, your making money, the tenants are paying down your mortgage dept and giving you equity. That’s money for your retirement or your kids future being built up.

    • Paul Merriwether

      As a contractor what area are you working? Have you ever considered the room addition consideration? EX: In the Bay Area we have many 2 bd room homes built 60, 70 yr’s ago. Some neighbors have done room additions taking their 1100 sqft 2 bd, 1 bth home to a 3 or 4 bd, 2 bth to a 2000 sqft home. With valuations of $400/sqft adding 900 sqft more really pumps up the value. Crossing to the other side of the Bay with similar homes the value jumps to 600 – $700/sqft. Lumber costs are the same on this side vs that side!!!

      • Patrick Liska

        I’m on the East coast, New Jersey, You can add a lot of value to a property by adding bedrooms, but you need to know the area, going bigger doesn’t always mean be better. what is the market looking for there ? do they want 2 bedrooms, 3 or 4 ? If most of the market is looking for 3 bedrooms, having 4 may not be a good thing, but adding 1 to a 2 bedroom would be good. you also do not want to put more into a house and over price it for the area.

  7. Blake Stevens

    This article points out some of the difficulties of fixing and flipping, and rightly so. Sterling White you are comparing apples and oranges. Are you really trading fix and flip active business income and instead just living off of passive buy and hold rental income? If so congrats. But I doubt it. Fixing and Flipping is an active business / self employed job, most people have to work a job to support themselves and their family and generate savings that they can then invest in rentals. Looks like you are no different. The title should read Why I moved from Fix and Flipping to Running a Crowd Funding Business. This is probably a good decision for you as I agree that the wealth is made on the rental side and it is probably easier to work full time raising money and partnering on a rental portfolio than working full time flipping to pay taxes and then invest the net profits in rentals. But the article is misleading you didn’t quit flipping and just buy and hold rentals, you formed some sort of SEC filing and went to work raising money and synidcating deals. The correct comparison should be national stats on house flippers vs syndicators. I’m sure you would find a similar percentage of synidcations that didn’t make money or made very little as well.

  8. Naveen Desai

    While the fix/flip business is not great anymore, I started in Real estate just doing that, by buying properties off auction, fix/flip. The formula worked well between 2009/2012 and profits started to diminish for the work. Then I started to do buy-hold. I might have lost a lot due to taxes, however with little start money I had, unless I did rotation i wouldn’t make any. So I had to do what I had to do then, but wont do fix/flips now unless someone gave away a property to me to deal with and they walk away. 🙂 .

    • Cora Kemp-Epps on

      Hi Naveen. When you were flipping, did you find your properties from realtors foreclosure listings, or did you search upcoming sheriff sales and reach out directly to sellers before their homes were auctioned. I’m keeping hope alive to be able to flip some homes to begin to build a business. Thank you, Cora.

  9. Jerry W.

    While I am a buy and hold guy, when the opportunity has presented itself I have flipped properties almost immediately. I did NOT do major rehab so they were almost wholesaling. I have only done 2 of them and both were in the last 4 years. While I would have made a lot of money by holding and renting, the quick profit allowed me to turn buying one rental property into flipping one and buying 2. The profit just allowed me to get a large chunk of the money for another down payment.

  10. Dante Pirouz

    Great article Sterling! And you are spot on…it is nice to have the flip option in case you can’t turn a good property into a buy and hold rental (as an example we bought a HUD foreclosure intending to use it as a rental but it happened to be on the side of the street where the city had designated no rentals allowed…so we flipped it for $30K profit which was great!). But to solely depend on flipping is as good as a bad job…waiting for the property to sell is an agonizing position to be in and the taxes are a real issue. But flipping does have its place in an investor’s arsenal of tools!

  11. William Marchiani

    So in reference to the after tax profits, if you show a profit you can knock down uncle Sam from 40 percent to about 17.5% if you do it the right way. I’d hope if we have been somewhat successful in flipping you take advantage of the tax benefits. First to start is say you have made 150k in profits on all of your flips in a year, you can write of 53k right off the top, by putting 53k into a solo 401k, then if anyone of you have kids, take a picture with them, advertise it on your website, business card or other choices, then you have the ability to write them off as models of your business, who make less then the poverty level of 18k. GET WHERE I AM GOING HERE!!! If you have a S “Corp and your business, you do not pay capital gains as long as you reinvest some of the profit into another flip, you can write offor mileage to and from the flip, any dinners out with your family. LLC’s are great for buy and holds, or rentals, but an S Corp let’s you write off everything. Talk to your CPA to find out more but in profits last year along I make 321k, and was only taxed on 102k.

  12. Chris Harjes

    Nice article! I’ve been rabidly building a buy-and-hold portfolio based on a few decent deals and a lot of 1099 money- and have now run out of money- so yes, the buy-and-holds are awesome, especially in the current rising market- but had I mixed in judicious flips here and there, I’d have more money for the next good buy-and-hold.
    I also think market dynamics are a huge factor- specifically the ratio of retail value to rental value, which may actually change while you are rehabbing. I even sometimes put a finished rehab on both rental and sales markets to see which one is hungrier 🙂
    Cash-flow rentals are hard to come by these days in Asheville, but flips, if you can ever find one before the hordes of sharks overbid it, can be quite profitable.
    My current plan is to flip primarily for a year or two while the market either settles out or implodes, then start holding again when the numbers work in that direction again.

  13. Celia Rudder

    Once again I think that we are taking our individual experience and making it a rule for everyone to follow. A lot of people seem to do that on Bigger Pockets. The numbers you state: 21% and 8% add up to 29%. Do I understand then that 70% of flippers are making gross profits of more than 10%? If I purchase a property for 25K , put 15K in it, including holding costs, and sell for 65K is this a failure? I have made 18K which I understand is nothing to lots of high end flippers. If I do this 4 times a year or 8 times a year or 16 times a year, the profits start to add up. There are places all across America where this is being done and and can be done. It is just that we as a culture like big profits, scaling and quick returns and these are what’re touted as examples of success. We really need to write these articles as examples as what has worked for us individually and stop making them prescriptions for all to follow.

  14. Mike Dymski

    Live in flips and flips rented for a year to achieve capital gains treatment are some ways around the tax problem for part-time flippers. I have a friend who uses cost segregation on some apartment complexes to reduce his active business taxable income (flips and other). Pay yourself a reasonable salary and avoid self-employment tax on the rest of the profit. Make very large contributions to retirement accounts and conduct future flipping out of them. Just throwing out many of the tax planning strategies for flippers. I’ve done the live in flips and flips rented for a year to make the tax burden negligible and I love the full tax benefits of buy and hold, as you mention.

  15. James W.


    I havent read the comments above yet.

    Ofcourse what you’re saying gets the flippers’ attention.

    I am in the middle of two flips right now – buy fix and sell. One should be closed out next month and a half.
    And I just bought another one yesterday.

    It seems fine so far and I expect to make a sizable dough.

    I hope to, and this is the first time i will see the sell side of a flip.

    Will see what comes out of them, and probably add here.

  16. Janice Harvison

    I bought a property intending to hold it for a rental, then my “partners” (husband and dad) decided it had to go, so we sold it. I had NO IDEA our tax bill would be almost half of the money we cleared, which was little enough considering it was bought with the intent to hold. We agreed not to do any more flips.

  17. Derrick W.

    Great read. I have grown up in construction and know how “easy” it is to flip a house. Architects, engineers, permits, termites, a suprise cracked/un level foundation and mold are just a few more cost that can sneak up on you. I buy and hold myself but have done a few buy and fix (brr). I took a 2,000$ unforeseen hit on my last project when we found termite damage and a gas leak. Fun stuff!!!!

    What world record are you training for?

  18. Jason Young

    I would like to B&H but the up front capital needed makes it seem like I can’t own but so many at a time. How is everyone buying these and holding? I bought a condo, freshened it up and now rent it out, but now I’m basically cashed out. My thought is to flip a few to build cash and then get a B&H and repeat. Is there a better strategy?

    • Sean Bennett

      @Jason Young Congrats on the condo! See if you can do a cash-out refi on it. The cash-out refi will allow you to pull money out of the property, typically at 75% loan-to-value. Did you buy at a discount or improve the value? You have to get it to appraise at a higher value to get your money out.

      Let say you bought it for $100k and put 20% down ($20k) and you’re carrying a $80k mortgage. And now your thinking, “Well, that $20k went quick!” Lol!
      But if the real value of the property is $130k, you can cash-out refi at 75% of that $130k which is $97500. That will pay off your original loan and now you’re mortgaging $97500 and only leaving $2500 in the property. You’ll get back $17500 of your original $20k down payment. You’ll be financing a lot more but you’ll increase your cash on cash return because you’ll have little cash invested in it.

      Using this strategy you will always want to buy at a discount, at least 25% or more. Look for distressed properties and motivated sellers.

      Like Chris Ellis says. He’s buying at $40k and selling at $80 with $15k going into repairs. He’s all in at $55k. Instead of selling, he could cash-out refi at 75% of the After Repair Value giving you $80k x 75% = $60k. He could get all his money back out and do it again as a buy and hold investor. Just keep using the same block of money over and over again.

      Just note that your bank may require a 6 month seasoning period before you can cash out. If so, start the process at 4 months from closing just to get the ball rolling.

      Hope this helps! Best of luck!

      • Jason Young

        I think I got a pretty good deal. I bought at auction for $100k, it had been on the market for $135k and of course didn’t sell and went to auction. I put roughly $20k of work into it. I don’t think I would have a problem selling it for $160k. So yeah, that would put me up $40k not including selling fees.

        I see what everyone is saying that I could now get my money out, keep the tenant in place and move on to another one. This does seem like a pretty good strategy. The problem comes when I want to quit my 9-5 and will need that income for my own living expenses. Perhaps while I’m doing the 9-5 I can pick up a few more rentals with this strategy and then if I quit, I think I’ll have to do a few flips to feed the family and then do B&H’s when the timing and deal is right. The passive income that I have and will hopefully create more before I quit will help offset living expenses. With my costs now though I would need like 7 more units producing what my 1 unit does now, uhhh.. that seems so far away.

        Instead of the cash out refi, I did things a bit different. I was already in the process of a HELOC on my primary home so I went ahead and kept that in place. I should have the funds soon. I understand it’s a little riskier to put my home on the line but I think there are some pros. I don’t have to pay a single fee for the HELOC and the rates should be lower (from what I’ve heard).

        I guess my initial thoughts on this was, should I sell the condo, get about $160k out of it and move on? Since ultimately the goal really is to keep as many rentals as possible for that passive income and my tenants are amazing, that I really should keep it and pull the cash out either from here or with the HELOC in my case. I’ll be getting $100k from my HELOC and my Dad has offered up about $80k if I need it and he will basically act as silent partner.

        @Chris Ellis.. (hyperlink isn’t working) Have you thought about holding and to rent, thus creating passive income? Seems ultimately the way to go.

  19. Chris Ellis

    Here’s what I’m doing. I’m buying properties for about 40k, putting 15K into them, selling for about 80K. Once I get done with everything I’m figuring roughly 15K. Do that twice…30k Profit. Take that 30k maybe add 5, rehab for less than 5 (it’s a rental) and it’s free and clear.

    Bringing in 800 / month. Do that 2 more times…2400/month. Yes, I know…taxes, insurance, SS, etc. But, I can keep doing a couple a year, not get hit with dealer status, and not work for anyone either. Plus, I know how to do all the work myself and I enjoy it. And go travel for a month any time I please.

  20. Chris Ellis

    I buy off MLS, pocket deals from brokers, door hangers, I have signs on my car, on the corners of particular streets. I had one guy stop me and give me 10K to take the house off his hands because he thought it needed that much work. It did if I paid someone. I did the work for 3 and used the 7 to fix up another house.

    You have to know your areas…all towns have good areas and bad areas. What makes one area good for one investor may be bad for another…depends on your fear factor, skill set, money, etc. My skillset in rehab is very high. I found a house that is a realistic FMV 135K today, but is up for grabs at 45K. It needs WORK!!! And it has a violation. My realtor is checking into the violation (I’m betting meth). That means almost all the sheetrock has to come out.

    Is it an awesome deal? Don’t know yet. The one I’m in is…because the fix up is low. And yes, once I can do one more I have money to buy a free and clear rental. You got it…add 5 if I have to in order to buy free and clear.

    I’m in Tulsa, Ok. Things are cheaper here…so that does work for me.

    When I get done I’ll put before during and after pics online to show what you can do for very little money if you do the work yourself. As my Trademark says “The Hustle Is Free” tm As long as you first use your hustle muscle, your mind.

  21. Flipping houses is an investment and investments can be risky. It isn’t wise to get yourself involved in an investment if you have no idea what you are investing in. The same goes for flipping houses. You need to do your research and consult someone who has experience and knows what they are doing. With that being said, flipping houses is definitely not for everyone. Buying and holding is also a great investment option. This post has a lot of information that will be helpful to anyone trying to decide which type of Real Estate investment is best for them. Thanks for sharing!

  22. Hunter Fitch

    When I first started educating myself on RE I thought flipping would be ideal. In my line of business I get to talk to a lot of RE investors so I started picking their brains and asking a lot of questions. A very large percentage of them said they regretted flipping and wished they had held them. Now that I’m officially ‘in the business ‘ I’m strictly B&H and I love it.

  23. Karl B.

    I like the idea of buying and perhaps doing a ‘slow flip’ and selling 1+ years later – fixed up and tenant occupied.

    For me, it all depends on how the property performs and how big of a headache it is. If it’s got long-term tenants and is easy to run, I keep it. Though if I had a property that was a pain (despite being occupied and rehabbed) I would definitely consider selling and doing a 1031 exchange.

  24. Craig Pfeffer

    You stated that the income on long term rental properties is taxed at a lower rate than flip properties. I always thought the same but my CPA told me that they are both taxed the same rate via your tax bracket. He said long term capital gains tax ( 20%) only refers to dividends on stocks. Can you explain?

    • Christopher Smith

      I think the point he is likely making is that income from rental properties can be offset by certain non cash expenses (e.g., tax depreciation), which reduces the “effective” tax rate by sheltering from tax (at least temporarily) the element of your cash flow attributable to those no cash expenses. So the tax rate applied is the ordinary income tax rate, but that rate is applied to reduced income base (i.e., an amount less than your total cash flow from the activity).

        • Geoff Neidenbach

          Agreed with Craig. Flipping and rental income is taxed the same, at ordinary rates. Flips are short term capital gains which is at ordinary rates. Rental income is designated as passive, thus exempting it from self employment taxes. Tax rates and tax liability are two different things. Rental income also has the massive benefit of deducting depreciation. I’m sure most are aware of this and most are also aware of the big bite of depreciation recapture when you go to sell a longer term rental property, taxed at 25% I think on the depreciation taken. I’m not a big fan of the 1031 despite it’s popularity. This is mainly because it lowers your basis on the replacement property thus less effectively sheltering your rental income. Also if you trade up 2, 3, or more times over a long period of time then you want to sell after 20+ years of exchanges, your depreciation recapture portion will be devastating.

  25. John Murray

    If you have been in this game for a while you know that BRRRR is the way to maximize your investment return and reduce taxes. The feds reward investors that provide housing. The feds do not reward earned income. So it’s a no brainer.

  26. Tresea Burrell on

    We do buy & hold, we are so blessed that all our rentals are paid off. We have eight total,2 duplex and the rest houses. My question is what is the safest & best strategy to purchase another rental? We don’t have enough cash to buy another one. Does anyone have any suggestions?

  27. Russ Nettles

    True the house flipping shows suck a lot of people in who don’t get the real picture. Flipping is profitable if you buy at the right price, the right area, good flow through the home with the right finishing touches. I like flipping simply because I know what my spread will be. Try to figure that in the stock market. I haven’t yet invested in rental properties so I can’t really comment, When I do I will be looking at the exit strategy of the rental portfolio.

  28. Lakeem Allen

    There are ways to reduce taxes as a flipper or Wholesaler, very rarely would someone pay the maximum amount of taxes possible. I’d choose $30,000 ever 1.5 months with higher taxes or $1000 per month at this point in my career. Buy and hold is old man’s game, jk.

  29. Mike McDevitt

    Recently presented with a flip opportunity in a hot Phoenix burb. $200K SP, $285K ARV.
    Holy cow! An $85K spread, right?
    After repairs/updates, insurance, HOA, utils, property taxes, income taxes, and commission, and 4 months (fast) holding period – – – my net was $14K.
    Just wasn’t worth it to me to take on the risk and hassle for $3500 bucks a month. And if the project went into extended innings, the take went down by about $1K/month.
    I have a full time corporate gig, and might have considered this deal if I were retired. But this kind of net doesn’t warrant the crazy hustle and risk that goes with flipping.
    Most Mom and Pop flippers are probably doing half-wit diligence and analysis. Commissions (sometimes on the wholesale buy side too) and income taxes are killers.
    The seller wouldn’t entertain $175K cash – – – which is where it needed to be to pique my interest.

  30. Vaughn K.

    Flipping versus buy and hold is fundamentally a difference between an active business (or job) and a (semi) passive investment. You can make a lot higher cash on cash returns, IN THEORY, flipping because of the active nature of it. But really what you’re getting paid for is your work, not even the capital deployed.

    If you do work yourself you’re making the contractors wages, which can often be $50-100+ an hour depending on the task. If you’re hiring it all out you won’t make that, but still make something for being willing to put the deal together and arrange everything.

    If you want to replace a JOB with running your own BUSINESS then flipping is perhaps viable. But it’s a completely different thing from buying long term hold rental real estate.

    I’ve never done it, but am contemplating trying a mild flip (not a hardcore tear everything down to the studs type deal) at some point in the future. I’m pretty handy with some types of stuff that needs to be done commonly in such projects (painting, refinishing wood, drywall repair, minor electrical/plumbing, etc, not to mention anybody can clear out a horrible looking lawn or tear out ugly carpet etc), so my actual cash downside potential would be fairly low. I would at least make the contractors wages out of the work I do if I buy even remotely right! But painting, sanding, and patching drywall, etc isn’t all that fun at the end of the day either. So do I really want to bother? Maybe. I may give it a go, or maybe not.

    If you structure things right on the financing side, the one plus side of flipping is that IF it doesn’t end up working as a flip (not enough profit to be worth selling), and you can finance it long term, you can always hold it as an alternate exit strategy. In other words if you end up where you’ll make 40K on the flip pre tax, take the money and run! But if you’re only going to pocket 5K, maybe just hold the darn thing since you went through the trouble of buying and fixing it. That may well be the only reason I might try it some day. The downside just isn’t that big if the numbers made any sense up front, but you get caught with a few unexpected expenses that skew the projections.

  31. Perry Gower

    I’ve been on different sides of flips: I’ve done several in the past with partners that were successful (because I built sweat equity and was paid out at sale, as a contractor instead of a partner) and I’ve also been the guy that was hired to fix what had been done by the “flippers” after they had remodeled without knowing that they needed permits in their area, and not built to code 🙁

    I believe that flipping, like any business, requires depth of knowledge that many people don’t have. In our case, when I first entered that partnership, I consulted a CPA first, and told the partners that I wanted to be contracted underneath them for the work instead of being a partner on the house paperwork, so i could avoid the taxes on the sale. They ended up doing less of the work, and in turn made less than I did, because we worked out an agreement that made more sense for the hit they took on taxes and fees.

    To me, it really is situational. If you have the self-awareness to know your limitations and surround yourself with the right people to come out ahead, you will succeed.

  32. Doug Smith

    I approach real estate from many angles, many streams of revenue. I,am a contractor in Boston that has a full time crew doing flips. Also manage rental properties that I have accumulated over the years, as well as managing other peoples properties. We also do construction projects for individuals and institutions in our area. Flips are (ACTIVE) investments that require a lot of experience and a hands on approach to make sure they meet projections. I’ve made a lot of money with flips, but you must pay close attention to your project and the market, “lest you be caught holding the bag”. Buy and hold (PASSIVE) also makes money, cash flow, appreciation and mortgage paydown, “a long term wealth generator”. When I hang up my hammer in another 5yrs. @ 65, I will be very happy with the income those buy and holds will provide. Been swinging a hammer since 1981 and will retire a multimillionaire with a $200k/yr income stream because of real estate.

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