Concept

Bubble Tax

What it is

The bubble tax is how I stay in the game when the market turns. It’s not a real tax. It’s the discipline of putting money aside during the good times because there will be bad times.

Here’s how it works. Let’s say you do five flips. On the first four it goes great. You make $30K on flip one, $25K on flip two, $40K on flip three, $25K on flip four. That’s $120,000 going into your account. A lot of people get pumped when they have that kind of money sitting there. So they go spend it on a bunch of crap.

But here’s the thing. I try not to look at each one of those projects separately. I look at it holistically. Because on the fifth project, maybe I’m right in the middle of a flip and tariffs start going crazy, the stock market gets pummeled, real estate stops selling. And on that last one, I take a $50,000 loss. If I was just looking at flip number five, I’d think that’s really bad. But if I’d been prudent about my funds, that $120,000 is just a tax I have to pay.

Because guys, one thing you know for sure is real estate markets crash. Economies crash. It’s been happening since the beginning of time and it will happen again. It’s not always going to be great times. So if you like Game of Thrones: winter is coming. It always comes.

Why it matters

The hardest part isn’t the math. A good market makes bad flippers look smart. Prices rise during the hold, appraisals come in high, buyers are hungry. You confuse market appreciation for skill and you start treating boom-time profits as baseline income. Lifestyle inflates to match. When the market wave reverses, you’ve got nothing set aside.

The bubble tax pulls the brake on that. It treats a share of every flip profit as not yours. Not for a down payment, not for reinvestment, not for the truck. For the losses that haven’t happened yet.

A true real estate investor is not so worried about market conditions. If I had listened to the doomsday people, I would have missed the biggest time periods of wealth accumulation in my life. But acting like the worst of times is coming tomorrow — that’s how you act all the time. Don’t get out over your skis in the best of times.

How it shows up

Escrow the money. You’re going to be playing with a lot of funds that go into your account and you need to be prudent about how you spend it. Even if things are looking like it might come in under budget — it’s not. It never is. So you put that money aside because for every good thing that happens, two bad things happen, and you need to prepare for it.

On the rental side, the bubble tax lives inside the 31 percent rule. The 7% vacancy, 8% maintenance, 8% capex — those percentages aren’t what happens in a given month. They’re what averages out across the cycle. The good months fund the bad months. If you pocket the good months, you have nothing when vacancy spikes.

The bubble tax also pairs with the all weather approach. Cash reserves, a mix of flips and rentals, multiple contractors. Bubble tax is the account side. Both serve the same purpose: staying in the game when everyone else has to sell.

all weather approach, 31 percent rule, forced savings account, market wave, escrow