Wholesale of the 65% rule for flipping houses (the big myth)

This is my first article. Now I am catching up to 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 traded to other investor / rehabbers and made a very quick and fairly easy profit. I have also kept many houses for rehab and retail and many of them saved for rental properties, to build long-term wealth.

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

I rarely deal with foreclosed properties. In most cases, there is very little equity to work with. I am not looking for a negligible amount of cash flow from a house. Rent management is too much work. Too many people and legal problems to deal with. Now if I have a house with a 25-50 percent equity, I certainly don’t mind the hassle as much and the market doesn’t affect me. Also, I can reverse a lease on one house and make a bigger profit than I possibly can on 20 rental houses. It could change five houses in a month. That’s a much better scenario than leaky faucets, broken water heaters, leaky ceilings, 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 salespeople in our greater Dallas / Ft.Worth 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 wholesaling courses from great business gurus. People with some knowledge, but without mentoring. 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 wholesaling, but they just can’t put it all together. No experience or training in the application of exit strategies. They have been given plagiarized data on the wholesale business and without support. No tutoring. If they are offered some kind of tutoring, it will cost them a lot more money. It seems that they die little by little.

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

Example: home value $ 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 home for a low price as you can get it, but many homeowners just aren’t going to sell their home that cheap. That’s where most callers end up. No contract in a house. No assignment fee and no life. 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 have purchased under contract were houses that wholesalers bid and didn’t get, because they are stuck with this 65 percent rule that they are taught. A rule that just doesn’t work all the time.

I prefer to give the seller more for their home 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 trade? I am not here to enrich investors. I just want to give you a good 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 makes a 20 percent profit in a short period of time, that is a great return on their investment. Can any of you tell me where I can get a 20 percent return on my investment in that time period? You can not. Also, if they know what they are doing, they can get good tax benefits on the investment.

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

The people who are really trying to learn about our business are not being educated in the right way. They are stagnant, as trained by the government; 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. Negotiations are our business, not getting lost in the fog.