Scottsdale Real Estate Investors Are Losing Money on House Flips


Over the past 10 to 15 years, home improvement and real estate show hybrids have dominated television programming for older audiences. Charismatic, risk-taking entrepreneurs, real estate agents, and builders all in one host these shows, with many viewers being inspired to start their own house-flipping endeavors only to have their dreams crushed and debt pile up around them.

American television, especially now that networks are fighting tooth and nail for the relatively few who remain in their audiences, have been incentivized to push “reality” TV over the past 15 to 20 years, largely predating these house-flipping shows.

The “reality” style combined with movie magic, embellishment, and nearly-unmatchable real estate and investment prowess that these shows’ hosts possess have influenced thousands of Americans to follow their footsteps, many of whom can’t afford to rebuild themselves following a potential loss. Still, these well-intentioned people — many of whom are already seniors or close to it — seemingly never learn. There’s always a new couple or 10 who’ve come forward with similar stories on a daily basis.

Televised Calculations Are Sometimes Incomplete or Misleading

If you’ve ever watched a house-flipping show, you’re all too familiar with the prices that are totaled up throughout it. They account for things like the cost of the home itself, building materials, and labor. However, they routinely fail to report how much money hosts, investors, and networks actually end up taking home. Obviously, this may wrongly cause viewers to believe that they can make the same purchases, improvements, and sales as talent featured on these reality shows.

Just like people, organizations, and companies on social media, television shows don’t show everything they’ve captured while recording. They all tend to publish the content that makes them look most favorable to viewers.

The Home Flipping Report, an authoritative market research report published annually to help Arizona real estate home buyers and investors make informed decisions, contained statistics in 2018 that showed the use of cash among house flippers was at the lowest it’d been in eight years and that run-of-the-mill project profits had also dipped.

RealtyTrac, yet another trusted market research publication, indicated that more than one in five of all residence-flipping transactions in the United States in 2018 raked in gross profits no greater than 10%. Nearly one in 10 attempted home renovation flips — 8% — brought less income at market than it was purchased for in the first place, even before counting improvement costs.

These numbers, nor do practically any others in these publications, keep up with the newer investors to the flipping game who’ve faced stuck projects, run out of funding, or poured too much money into opportunities for major losses.

Taxes Are Probably Much Higher Than You Think

Uncle Sam will always take his cut of every dollar earned here in the United States; at the least, he’ll try his hardest to do just that through the all-powerful federal agency, none other than the Internal Revenue Service (IRS). Sterling White, a well-seasoned house flipper who writes for big-name personal finance and economic outlets such as BiggerPockets warns fellow Americans prepping to get into house flipping to expect taxes ranging from 20% to 40% of profits — given you do end up turning a buck for yourself.

Even if genuine mistakes, money management issues out of your control, or other things prevent you from paying your tax bill in full come tax season, the IRS will still be hot on your tail. If you can’t take the heat, Mr. White likes to say, stay out of the house-flipping kitchen.

Sterling Likes to Buy Homes and Hold Them Over the Long Run — But Why?

Sterling White now prefers to hold the homes he buys for at least a decade, though he typically aims to buy residences to hold for two or more. Benefits include familiarizing yourself with tenants, keeping good ones, kicking bad ones out, and minimizing risk all the way around. These earnings are taxed much lower than their flipping-financed counterparts.