65% rule to change the house wholesale (the great myth)

This is my first article. I’m just now catching up with the world of the internet. I played professional golf most of my life, but have been an active real estate investor and wholesaler for about 22 years.

I have contracted more than 200 homes in that period of time. Most of those houses I have turned over to other investors/rehabbers and made a very quick and fairly easy profit. I also kept a lot of houses for rehab and retail and many of them I kept for rent, to build long-term wealth.

I have used several different exit strategies when buying houses. Owner financing, lease options and rental property. This is the beauty of being a professional real estate wholesaler. It gives me many options on properties that I have bought at great discounts. If I hold the rental property, then I have great real estate that has great equity and is certainly not affected by downturns in the housing market.

I rarely deal with foreclosure property. In most cases, there is very little capital to work with. I’m not looking for a pale amount of cash flow from a house. Rental management is too much work. Too many people and legal issues to deal with. Now, if I have a house with 25 to 50 percent equity, I certainly don’t mind the hassle as much and I’m not affected by the market. Also, I can trade a contract for a house and make more profit than 20 rental houses could possibly give me. I could flip five houses in a month. That’s a much better scenario than leaky faucets, broken water heaters, leaky roofs, etc.

I have spent over a year and a half working on my educational information that is available on the web.

I live in Dallas, Texas and do heavy advertising for motivated sellers in our Dallas/Ft.Worth metro area. I get calls every day from many people who have nothing to do with selling their home. The calls are from people who have taken expensive wholesale courses from great gurus in the business. People with some knowledge, but without tutoring. People who have spent a fortune to learn my business. Most of these people are still in the fog. They have no idea which way to go. They seem to know the basic structure of wholesale, but they just can’t put it all together. Without experience or training in the application of exit strategies They have been given plagiarized information about the wholesale business and without support. No tutoring. If they offer them any kind of tutoring, it will cost them a lot more money. It seems that they die fragmented.

Everyone seems to have this mindset that a wholesale real estate price is 65 percent of the retail value (after repair value), minus the repairs, and minus your given assignment fee. Then they are supposed to find an investor/rehabber who will buy their contract for 65 percent of retail value minus those repairs and their assignment fee.

Example: Value of the house $100,00.00 x .65% = $65,000.00 -repairs – $25,000.00 -assignment fee -$5000.00 What you offer to the seller = $35,000.00

Good luck!

I agree that you should try to buy a house as cheaply as you can, but many homeowners just aren’t going to sell their house that cheap. That’s where most callers end up. There is no contract on a house. Without transfer fee and without living. The example above is a great scenario to play if you can get the seller to agree. Many will not. This is where I see the lack of understanding and training that has been given to them. These guru-educated students have no idea what to do right now. No negotiating skills.

A lot of houses that I got under contract were houses that wholesalers made offers for and didn’t get, because they’re stuck with this 65 percent rule that they’re taught. A rule that just doesn’t work all the time.

I prefer to give the seller more for their house and give the investor a lower percentage of return. I have investors who don’t necessarily apply the 65 percent rule when it comes to rehabbing a home.

In the example I used earlier, why should an investor always make a 35 percent profit on a deal? I’m not here to enrich investors. I just want to give them a good profit margin for 60 to 90 days of rehab work. I found the house and the seller. Without them, the investor gains nothing. You would certainly think that if an investor made a 20 percent profit in a short period of time, it would be a great return on investment from him. Can any of you tell me where I can get a 20 percent return on my investment in that time frame? you can’t. Plus, if they know what they’re doing, they can get good tax benefits on the investment.

Find investors who are willing to be reasonable about their profit margins and you’ll hire more houses. I guarantee it.

The people who are really trying to learn our business are not being educated the right way. They’re stuck, like government trained; Follow the rules in the book, NO EXCEPTIONS. You will never achieve your goals with this mindset.

You have to negotiate. You have to negotiate with buyers and sellers. Our business is negotiations, not getting lost in the fog.

Leave a Reply

Your email address will not be published. Required fields are marked *