Do we lose 50% of earnings in fees for flipping?

[Alan Crookham]

Is this math right? I have been in rentals for a few years now, just two properties, and am looking to move into house flipping later this year when things calm down more. I’m looking at these numbers though, and do clippers lose 50%+ in earnings?

Capital Gains tax takes 20% off the top

Pennsylvania takes 3%

Self employment tax 15%

Real estate agent fees 6%

If I have a partner/investor that could be another 10%

If the average flip makes $25k (which is what I keep seeing and reading), it actually means you only go home with $10k for what seems to be at least 3 months of work.

Am I missing something? Or do I need to be looking at a market with higher margins, because in my small town in Central PA I am not likely to make more than $25k on a flip.

[J Scott]

Flipping isn't capital gains.  You'll pay ordinary income taxes at your marginal rate.  Plus state and self-employment taxes.

In terms of other fees, there's a lot more than just real estate agent fees -- there's closing costs, taxes and insurance during holding, potentially transfer fees, loan costs, accounting costs, etc.  But, those should be factored into the deal.

As for what you pay your partner(s), that's going to be specific to you.

More info here:  www.biggerpockets.com/flipping...