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

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This is my first article. I am only now catching up with the internet world. 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 many 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 ownership. This is the beauty of being a professional real estate wholesaler. It gives me a lot of options on properties that I have purchased at deep discounts. If I hold the rental property, then I have great real estate that has great equity and certainly isn’t affected by downturns in the real estate 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 care as much about the hassle and I don’t mind the market. Also, I can trade a contract for a house and make a bigger profit than 20 rental houses could possibly give me. He 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 strong advertising for motivated sellers in our greater Dallas/Ft.Worth area. I receive calls every day from many people who have nothing to do with the sale of their house. The calls are from people who have taken expensive wholesale courses from big gurus in the business. People with some knowledge, but no tutoring. People who have spent a fortune to learn my business. Most of these people are still in a 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. No experience or training in applying exit strategies. They have been given plagiarized information about the wholesale business and no support. No tutoring. If they are offered 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 real estate wholesale price is 65 percent of the retail value (after repair value), less any repairs, and less your determined assignment fee. Then they are supposed to find an investor/rehabber who will buy your contract for 65 percent of retail value less those repairs and your 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 the seller = $35,000.00

Good luck!

I agree that you should try to buy a house for as low a price 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 assignment fee and without living. The example above is a great scenario to follow if you can get the seller to agree. Many will not. This is where I see the lack of understanding and training that they have been given. These guru-educated students have no idea what to do right now. No negotiation skills.

A lot of houses that I got under contract were houses that the wholesalers made offers on and didn’t get, because they’re stuck on 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 his house and give the investor a lower percentage 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 above, why should an investor always make a 35 percent profit on a deal? I am not here to enrich investors. I just want to give them a nice profit margin for 60 to 90 days of rehab work. I found the house and the seller. Without them, the investor does not earn anything. You would certainly think that if an investor made a 20 percent profit in a short period of time, that would be a great return on his investment. Can any of you guys tell me where I can get a 20 percent return on my investment in that time frame? You can’t. Also, 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 in the right way. They are stuck, as if they were trained by the government; Follow the rules of 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.

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