What do Flippers do with the profits?

24 Replies

When I watch TV shows about flipping houses and the big profits they make, I wonder if they are paying taxes as the go, or using 1031 exchanges on every one.  My wife is a realtor and about half of what she makes goes towards taxes which she pays quarterly.  Just curious so thought I would ask the BP flippers.

@Glenn McCrorey

 Paying taxes as you go can cost you money.  If you are disciplined enough to pay them once per year you can use the money to make more instead of giving it to the government to invest/hold until April.  If you are wanting to maximize your profits it is wise to keep your money as long as you can.      

I assume each investor has their own plan for the profits they make.  We reinvest the money into more deals and marketing.  

Either use it to buy a buy and hold, or use it to do a bigger flip and make even more money so you don't have to use a hard money lender and can save on interest and points.

Whenever I watch those TV flipping shows it seems as if most the "profits" are heavily inflated.  In any event, if they meet the criteria, they have to pay estimated quarterly taxes.  It's not a choice (assuming they meet the criteria), and there are penalties for not paying it.  A typical flip doesn't qualify for a 1031 exchange.

Fixing and Flipping like you do on TV is an ordinary income activity.  It is not eligible for 1031 treatment because the demonstrated intent is purchasing a property primarily for re-sale.

I gotta think the TV contracts are lucrative enough that they're not too worried about margins.  The money's in the entertainment and endorsements.  The rest of folks are not so lucky and have to work to increase margin.

Originally posted by @Dave Foster :

Fixing and Flipping like you do on TV is an ordinary income activity.  It is not eligible for 1031 treatment because the demonstrated intent is purchasing a property primarily for re-sale.

I gotta think the TV contracts are lucrative enough that they're not too worried about margins.  The money's in the entertainment and endorsements.  The rest of folks are not so lucky and have to work to increase margin.

 i just read that the initial "fix and flip" contract was 10k per episode. they are now in their 3rd year, i think

@Dave Foster   @Kyle J.   That's what I thought about it being ordinary income and taxable.  When they say they made 50K for example, I assume half of that is going to Uncle Sam if they are following the rules.  I've never flipped and haven't had a 1031 since I've been buying and holding for cash flow.  Thanks for the info.

We use ours to take trips to islands. A great incentive to keep flipping. Good luck.

Pay a lot of taxes and a lot of realtor commissions.  With the sliver you have left, you can take trips to islands or re-invest in your business!

@Glenn McCrorey

  if your lucky enough to have A TV flipping show.  the flips you do is inconsequential.

The real money for these folks Is in doing the GURU seminar business when they elevate to that level. they make 5 to 10 million a year.. and all is good for them. and they could care less what anyone thinks of them.. and any on line bashing is just a little nat to them.

that's were the money is made  its not in the flipping of homes.

I personally flip more homes than any TV guru by probably a factor of 10 to 20.. and I don't make 10 million a year.. but I don't starve either  LOL 

@Glenn McCrorey

  A Tv show then a  marketing company like Premier marketing out of Utah to create and run your travelling guru business... or as they put it their education business.

All public figures do the same in some capacity.. Dave Ramsey sells something I am sure maybe his book or other items.

Kiosaki we know has a travelling guru show .

Montalongo  ,,,  The flip vegas folks,  Than Merrill   all these started with their TV flipping show then moved on to Education business for all these newbies that want to get instant success in the business without putting in their apprenticeship.. so they sell a dream .. same dream that is sold on BP only this one just cost you thousands of hours of listening but the messages are all the same...

However if someone offered me a flipping show I would do it in a heartbeat then I would do the guru thing in a heartbeat as well.. that way I could afford to upgrade my personal aircraft as I have wanted to... LOL  That would be the only reason.. I could finally buy my JET that I want.  And say goodby to propellers.

The only guru class I have taken was RDPD in 2009 and it was awful.  I didn't go back the third day.  On day one they gave everyone a task to perform on the lunch break, call your credit card company and get your limited raised or interest rate lowered.  This was to make room for the training they planned to sell which was tens of thousands of dollars.  A week or two later I received a phone call and an offer to get 10K of training for 2K.  

I spent 30 years in avionics and have an A & P but I'm not a pilot.

1. Let the wife buy some shoes and furniture.

2. Plan a nice trip somewhere... Like a tax-deductible "business trip" to Maui!

3. Re-fill the living-expense account.

4. Re-invest the rest.

Happy investing!!!

@Glenn McCrorey

As noted, flipping creates ordinary income.  It will also likely be treated as self-employment income and be subject to self-employment taxes.  

For anyone doing any real volume of flipping (more than 1-2 per year, or even just 1 big dollar flip), a smart move is to work with your tax planner to turn the activity into a true business.  This creates the potential for deductions and also the ability to defer some of the income into a retirement plan such as a Solo 401(k).

You can then use the Solo 401(k) to make passive investments such as holding rentals, private lending, etc. and grow that money in a tax sheltered manner.

You are going to give up a good bit of your current income in some fashion.  It is better to give it up to your future self in the form of a tax-deferred retirement plan than to just give it to Uncle Sam today.

"My wife is a realtor and about half of what she makes goes towards taxes which she pays quarterly."

If that is true you need a new tax accountant. Shouldn't be paying anywhere near 50% of gross income making commissioned sales. 

The comments made here about using a solo 401k to shelter earned income are right on the money. For example, for tax year 2015 the owner-owner employee can contribute as much as $53,000, and, if  are age 50 or older, an additional $6,000  for a total of $59,000. 

See following link to learn more about the solo 401k contribution limits.

http://www.irs.gov/Retirement-Plans/One-Participan...

For flippers who are doing a TON of consistently large amounts of income, you may want to look socking away those proceeds ina defined benefit plan. This particular type of plan allows you to put away a LOT more money than a 401k, IRA etc. These plans are most often used by high-income individuals like medical professionals.

Of course, check with your accounting and tax professional first, but DBA's allow you to put away a lot of money in a tax approved manner.

Thanks all for the advice and insight.  I was just wondering if a flipper is making big bucks are they paying half towards taxes.  It sounds like they are some ways to shelter at least some profits into tax deferred savings plans.  I don't flip and most of my income is off-set by depreciation.  

The problem is paying taxes--the more you make the more you pay --its a fact unless you figure out away to minimize your taxes. Also recognize there are CPAs that are better than others and can help you come up with a plan based on your personal circumstances. 401k's and defined benefit plans are great vehicles to thwart some of the taxes. Brian Eastman,Mark Nolan, and Rob Green make great points. It may also be worth while looking to flip inside those plans although it may also be taxed because the plan may have to pay Unrelated Business Income Tax(UBTI). Knowledge is tantamount to increasing wealth. It is worth talking to a knowledgeable CPA/tax attorney because with a couple of tweaks you could possibly do like Mitt Romney did and make a $100 million dollar IRA. You can then pick up Jay Hinrichs and Douglas Larson in your personal jet and take a few trips with the rich and famous and forget the TV show. Good Luck.

the flipping shows don't make that kinda $. it's a scam. they just include the purchase price & the rehab and that's their "profit." no mention of R.E. commissions, closing costs, holding costs, seller concessions, etc.

I like to take the profits and put part of it into my personal Roth IRA.

Originally posted by @Rob Green:

For flippers who are doing a TON of consistently large amounts of income, you may want to look socking away those proceeds ina defined benefit plan. This particular type of plan allows you to put away a LOT more money than a 401k, IRA etc. These plans are most often used by high-income individuals like medical professionals.

Of course, check with your accounting and tax professional first, but DBA's allow you to put away a lot of money in a tax approved manner.

 Here's a link that explains more about the defined benefit plans you can use to sock away a ton of money: http://www.onepersonplus.com/onepersonplus/faqs.html

Last year I didn't pay taxes quarterly and I ended up getting a penalty from the IRS for $440. Although not a huge penalty, this year I'm paying monthly payroll tax out of my S corp. 

Wow, lots of negative stuff on this!  Personally I want to be in the highest tax bracket known to mankind.  Not wanting to make money because you'll have to pay taxes? Small thinking, just my opinion on that.  

I had the same view of the gurus until I saw what Than Merrill of Fortune Builders is doing, and the wealth he and his team has helped people generate, and the sheer number of people that are successful following his continually evolving school of thought.  

Negative thinking will only slow you down if not stop you.  Don't play into it, it will not help you evolve.  

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