Less than meets the eye in 11-year-old’s ‘house flipping’ story

Let’s give credit where it’s due in the story of Madison Bue, 11, of West Salem, Wis., who is saving for college by flipping houses. One house, actually.

What a kid, eh?

The La Crosse Tribune covered the story last week, which earned a mention on NPR’s Morning Edition today. Great story.

“She is the most determined child I have ever seen,” her grandfather, Cliff LeCleir, tells the Tribune. “When she sets her mind on something she gets it done.”

You can do a lot as an 11-year-old when your grandfather fronts you all the money. And who can blame him? He loves his granddaughter and he’s got the cash.

She watches house-flipping shows and came up with the idea of flipping the homes to save money for college.

Her grandfather provided the cash loan, she ripped out some carpeting and tile and worked on the landscaping, and she hired her mother to help.

Her mother, Amanda Bue, also contributed — as an employee of BueZoo. Before she got the job, LeCleir said, Madison asked her mom to interview for the position and even negotiated the wage.

“I thought she would be a good worker as well as a ride to the house,” Madison said. “She’s done a lot. I couldn’t have done it without her.”

Bue hired contractors for painting and other work. Madison said she hopes to have the renovations done in the next several weeks and to put the home on market soon after that.

She doesn’t know whether she’ll do another project next year. It was hard balancing work, extracurriculars such as dance lessons and a personal life with the project. But she was proud of what she accomplished and being able to share that with her friends at school.

“I am just really proud of myself,” she said. “Even though I am hot and sweaty and tired at the end of the day, I am really proud of all that I did that day. I’m excited to be able to tell my friends I accomplished this.”

She might, however, want to have a plan B for college, however, because house flipping is more than ripping out carpet and repainting, and planting new shrubbery. It’s hard work and can take months, not weeks, as any actual house-flipper will tell you.

In the meantime, you’re making mortgage payments that are almost 100 percent interest, not to mention the closing costs, a tough way to get ahead in a matter of weeks, particularly when you’re soaking money into hiring contractors. You’re not likely to get a dollar-for-dollar return on the investment.

It would be a swell story if an 11-year old could actually pay for college by flipping houses a few weeks after buying them.

Unfortunately, real life doesn’t work that way.

No doubt, Madison’s gumption will play a big part in her life’s success. So, too, will the randomness of the circumstances into which she was born.

  • jon

    Two houses on my street have been flipped since I moved in…

    Neither of them seemed to involve to much work.

    windows on one of them, and a piss poor painting job when they replaced some rotting boards on the garage… other got new cabinets and counters in the kitchen and a fenced in yard, both got some resurfacing/painting on the walls…

    On both cases I think the difficult part was probably the organization of having the labor ready to mobilize and get the house done in a matter of weeks, so it could be flipped before a mortgage payment had to be made…

  • John

    She may not be making any mortgage payments. If the house was purchased by Grandpa, then it may have been for cash, and thus no mortgage cost there. (Still – lots of other costs to cover – utilities, the aforementioned closing, taxes, etc.)

    That being said – the risk/reward/lesson that she may learn from this will be good for her in the future. Having a safety net in her grandfather (and his bank account) definitely helps (and makes this sort of thing possible). It would be great if more 11 year old girls had both the motivation and the means to pull off this kind of experiment.

    • But then it would be a gift and a relative can only gift $14,000 a year to someone without it being considered income. So he would have had to arrange an actual loan to her at proper rates (about 2 1/2%). Otherwise, she’s on the hook for taxes.

      • John

        True, but if she could get it done before there have been (or alleged to have been) $14K in interest/taxes, the interest could be a gift.

        Alternately, it could be his house (he’s likely the title holder), and he gives her any profits that he makes from the flip (assuming there are any). Then, anything up to the $14K is tax free, and beyond that, she would have to pay the IRS. (maybe there are some child labor laws that would come into play in this scenario. . . )

        • Kassie

          He would then have to pay the Capital Gains Tax, which are significant. Or the parents will have to. I can’t imagine the kid actually owns the house or paid the contractors or really did any of this. If I’m a contractor, I’m not entering into a contract with a 11 year old.

          • John

            I seem to recall that short term capital gains are relatively small taxes (compared to income) – I think it’s like 20% of the profits from the investment. this assumes his total income for the year was high enough that he has to pay them at all (household income has to be above $100K or something like that before capital gains kick in at all). Some good bookkeeping – tracking all the costs of the “renovation” and you’re looking at no more than $2800 of the $14K he could give her as profit/gift, tax free.

            A retired grandfather with enough money to buy a spare house for an 11 year old may be creative enough in his investments to have a net income of less than the threshold for capital gains to kick in by the end of the year.

            disclaimer: One could easily make the argument that I don’t know what I’m talking about – I just know that a few years ago, I sold some stocks, and ended up not having to pay capital gains because our household income was low enough. I don’t know what’s happened since that year in the tax code. I only remember it because it was a pleasant surprise to not have to pay taxes on my $247 in profit from the sale of a stock.

          • IIRC, if you hold onto an investment for 5+ years, it’s considered a “long-term” investment, and the capital gains tax is 15%. If you had been liable for taxes, it would’ve cost you the equivalent of a dinner for two at Olive Garden. 😉

          • RBHolb

            A contract with an 11-year old would be voidable at the 11-year old’s option. If they have any sense, the contractors got agreements from adults.

      • Kevin O’Brien

        The receiver of the gift is not on the hook for taxes. Also, the grandpa could give up to about five and a half million before having to pay gift taxes.

        • That’s the lifetime limit. The annual exemption is $14k

          • Kevin O’Brien

            The first 14,000 doesn’t count as a gift. Everything else after that is counted against the five and a half million lifetime exclusion. It is quite the generous exemption.

  • I wish we had an address for the house so we could watch it on Zillow and see how much she makes on the flip.

    • QuietBlue

      Probably findable if you want it — just do a property records search in the county database.

  • Rixware

    Great human interest story, but the headline should probably read, “‘Reality’ TV Claims Another Victim.” Slick production values can make gullible Americans believe just about anything, such as the fantasy that you can buy an undervalued house, put in a couple months of sweat equity, and pay for a year of college. People generally don’t recognize fantasy television when they see it anymore. I go back and forth on how big a problem that really is to modern society. On the one hand, it’s just show biz. On the other, Donald Trump.

    Of course, there is the possibility — perhaps even probability — that she will be approached to star in the new reality show, “Kid House Hunters,” in which case her devious plan will have actually worked! (Why didn’t I think of that? I’ve got a telegenic 12-year-old son! Oh wait, he lacks the wealthy grandfather. And doesn’t believe everything he sees on TV. Bother.)

    On the outside chance that she does not become a reality TV star, she will certainly learn some valuable lessons from this project. Things like, Papa is really rich and happy to pay for stuff so don’t worry too much about college after all, and, new bushes don’t increase the value of a house as much as they say on TV shows, and, LLCs are a great way to move money around among family members.

    Here’s hoping that the lessons she learns from this project will be valuable to her, but not so valuable that she decides to skip the college education.

  • Kevin O’Brien

    Why the animosity towards a highly motivated 11 year old? Is it just because she’s getting a loan from a family member? Would you prefer she just asks Grandpa for money like I’m sure many other tweens do?

    This is an incredible learning opportunity for her. In one experience she can learn about the complexities of business, hard physical labor, debt financing, and maybe most important of all, if you think outside the box and work hard to achieve entrepreneurial freedom, you will be faced with numerous naysayers who, from the safety of their laptop keyboard, will forever tell you you can’t succeed even while you are.

    • “Why the animosity towards a highly motivated 11 year old? Is it just
      because she’s getting a loan from a family member? Would you prefer she
      just asks Grandpa for money like I’m sure many other tweens do?”

      Maybe because the gullible among us will use this story in much the same way some people claim “I built this bridge”?

      For one thing, an 11-year old can’t legally sign financial documents; can’t even co-sign; had to have an adult sign for the mortgage. Beyond that, Madison contributed about as much physical labor in the house rehab as any random child does for random weekend chores. (Hey, I helped my father rip up the basement linoleum one weekend … and all I got was blisters.)

      Sorry, but this child is not bringing themselves up by their bootstraps. In fact, if she really wanted to pure her financial acumen, Madison might well consider investing those funds her grandfather provided into a “529” college investment plan. Each state offers plans, and performance varies. But, for example, $10,000 invested at age 11 in Utah’s ESP would grow to $38,000 in 17 years at the plan’s historical 8.2% annual return – without any additional contributions.