All Forum Posts by: Michael Plante

A lot!  Depending on your state taxes and whether or not you have other depreciation or deductions you can use to offset some of the income, you'll probably end up losing about 30 to 40% of it.

WA doesn't have an income tax. WA has a 2% excise (sales) tax on the entire sale amount of the property, not just on the profit, when you sell a property. So, a $300,000 property has a $6,000 excise tax. 

I was actually referring to the IRS though. Flips are taxed at the highest rate. Call your CPA and ask this question: "If I buy and rehab and sell houses, after all expenses are deducted, what is my tax rate?"  You will be unhappy they take so much.

Keep in mind most people also use a real estate agent to sell after the flip. So a $300,000 property takes about $15,000 out of the mix. I'm told by my flippin' friends that prices on materials are up and they are waiting longer for materials to arrive. Sometimes 4 to 6 weeks longer. In flipping, time is money. When you lose momentum, your contractors look for other work to fill in the time. Then it's hard to get them to return to your project. If you have them on the payroll, they are sitting around carving toothpicks out of 2x4's waiting for material.  Project management is important. 

I was self-funded but a lot of people use hard money which is expensive money. Generally 2% origination and 10% to 12% interest only payments. So, a $300,000 loan is about $3100 a month with $6,000 up front origination. and they generally will do 70% to 75% LTV with you bringing in the difference (30% is $90,000). Then you have to do draws, and that means at certain points you have to show a certain amount of progress to get the next draw. But you can't order materials because you depend on the draws to proceed. Project management is everything.

According to the National Association of Realtors the average Flip Grosses $67k and after materials and expenses are paid actually Nets $15k. The average Flip takes 6 months from finding the property, to rehabbing, to listing, to selling to closing. It might be a month faster right now since the market is so hot and since houses are are goinig for above asking. I haven't seen the numbers for 2021 yet. But, that might be offset since it's hard to get materials and they cost more. 

The IRS is a big hit to the bottom line that most flippers (and wholesalers) don't think about until tax time and that is a big mistake. Do your tax planning first so you know what your actual profit will be. 

Wa doesn't have an income tax. WA has a 2% excise (sales) tax on the sale amount of the proeprty, not just on the profit, when you sell a property. So, a $300,000 property has a $6,000 excise tax. 

I was actually referring to the IRS though. Flips are taxed at the highest rate. Call your CPA and ask this question: "If I buy and rehab and sell houses, after all expenses are deducted, what is my tax rate?"  You will be unhappy they take so much.

Keep in mind most people also use a real estate agent to sell after the flip. So a $300,000 property takes about $15,000 out of the mix. I'm told by my flippin' friends that prices on materials are up and they are waiting longer for materials to arrive. Sometimes 4 to 6 weeks longer. In flipping, time is money. When you lose momentum, your contractors look for other work to fill in the time. Then it's hard to get them to return to your project. If you have them on the payroll, they are sitting around carving toothpicks out of 2x4's waiting for material.  Project management is important. 

According to the National Association of Realtors the average Flip Grosses $67k and after materials and expenses are paid actually Nets $15k. The average Flip takes 6 months from finding the property, to rehabbing, to listing, to selling to closing. It might be a month faster right now since the market is so hot and since houses are are goinig for above asking. I haven't seen the numbers for 2021 yet. But, that might be offset since it's hard to get materials and they cost more. 

The IRS is a big hit to the bottom line that most flippers (and wholesalers) don't think about until tax time and that is a big mistake. Do your tax planning first so you know what your actual profit will be. 

Depending on your market buildinging new construction might be the better path at the moent compared to flipping. J Scott has always followed the market, he bought forclosures when they were abundent, laster short sales and guess what he is doing now?

Regardless if you flip or build, both are tough businesses (have done both in Milwaukee) and I respect the hell out of everyone who is able to scale, bring on staff, manage and grow the contractor base... this is a massive effort! And a lot of stress! Every dollar earned!!

Here is the problem: you are always between feast or famine between your input (old houses, land) and output (production, sales) and you have to align both with your capacity.

Flipping 30 houses in a year will take about: 

# 20,000 to 30,000 man hours to complete

# about 2,000 to 5,000 receipts for your accountant to process

# at least one full time sales person

The only way to scale from 5 flips a year to 30 flips a year is to hire a few great people who can do what you did - so they need to good at their jobs! This is a massive undertaking! And heavily taxed.

When you have been through this you really start to appreciate buy&hold - making a million in appreciation is completely passive and has zero tax implications if you refi the new equity!

Lol. I just wanted to get that information out there.

That's why I quit flipping. The money was great, the taxes were greater. Alas.

For me it was flipping a few big houses a year in Seattle. I had a team and we did one or two at a time depending on the scope of the rehabs. But, taxes ate up a HUGE chunk of that. I no longer flip. I buy and hold quality properties in good neighborhoods in landlord friendly states (NOT in Seattle! or WA). ;-) I get tax write offs now that make me so excited I want to pee my pants. And I make a whale of a lot more money as a result of changing from flipping to buy and hold. (I call it "cash flow".)

I did it for several years by flipping between 30-40 houses per year, with net income of about $25-35K each.