Why 70% Of ARV Will NEVER Work For Wholesaling Real Estate

Why 70% Of ARV Will NEVER Work For Wholesaling Real Estate

3 min read
Marcus Maloney

Marcus Maloney is a value investor and portfolio holder of residential and commercial units. Marcus has been named the “Equity King” for his impressive ability to find real estate opportunities with massive amounts of equity.

Experience
Marcus, a high school dropout, went from G.E.D. to M.B.A. Although his education has a major impact on his investment philosophy, the real impact came from his upbringing.

Marcus thrives on completing successful transactions. As a young kid, his parents and grandparents faced many challenges; as a result, it made him think of ways he could help. His mother and grandmother were avid investors—not in the market but in people. Marcus was a recipient of those investments. And his early years were hard work growing up on a farm.

Marcus was a strategist at an early age. To relieve the burden of his family buying him clothes when it was time to return to school, he decided to make a small investment that paid big dividends. Marcus decided to purchase a small piglet at the beginning of summer, feed it until it became fat, and then sell it to a local farmers’ auction before the school year started. This was one of his first transactions and the beginning of his adventure of finding equity in every opportunity.

Marcus’ hard work continues today: He has completed over $3.3 million in wholesale transactions. Currently, Marcus is a licensed agent who wholesales virtually in multiple states while building his investment portfolio. Although wholesaling provides great money, he saw the opportunity to buy some of the deals he found and convert them into cash flowing rentals.

Marcus currently holds seven rentals, two of which are commercial units. He’s also done the unimaginable and purchased a school, which was converted to a daycare center. Again, he turns what is a marginal profit into a significant equity position. He leverages the equity by using the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy to increase his portfolio without any money out of pocket.

Marcus has been featured on numerous podcasts, such as the Louisville Gal Podcast, the Best Real Estate Investing Advice Ever podcast, FlippingJunkie, and many others. He’s currently a featured blogger for BiggerPockets, the largest community of real estate investors in the world.

Along with completing transactions and working to build his portfolio, he provides mentorship to aspiring investors. This is done through one-on-one interactions and through his successful YouTube channel and blog.

Marcus does utilize his M.B.A. for more than real estate. As a consultant for a successful non-profit institution south of Chicago, he uses his expertise in the development of human capital. His philanthropic efforts help existing stakeholders develop in their capacity to serve those in need of assistance.

Education
Marcus completed his M.B.A. in 2011 from Olivet Nazarene University.

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The reason investors use real estate as an investment vehicle is to become financially secure. I believe this statement encompasses 100% of the investors purpose for investing. That’s simple enough to understand now lets go a little deeper.

Emotions!

What if I can outline the psychology of how to use your seller’s emotions to put more money in your pocket would you use it?…Of course you would.

I have learned when buying or selling high ticket items emotions play a big part in making the final decision… Hint… for example the strategy of letting your seller do all the talking when you have them on the phone.

Related: Check Your Emotions At The Door, Newbies!

You are listening for motivation which is an emotion. Psychology says special organs within the limbic system recognize the patterns of events in ones life and respond.

Their signals trigger emotions, which instantly decide  attitudes and modify behavior(psychology today). By learning how to tap into the power of sellers emotions is a wonderful way to add… you guessed it more $$$ to your bottom line.

Psychological Detachment

One technique that is great (i’ll give you just one because this is my tool for leverage) is using the Psychological Detachment Technique (not a scientific term) or as those in my circle of influence call it PDT. By learning how to use this tool effortlessly during negotiations you will blindside the seller every time.

Using PDT will help you make more money on each deal. When introducing PDT, the emotional compass of the seller is turning in all different directions and during this time you must capitalize on every opportunity.

This technique turned a dead deal into an $11,000 gross profit in 1 phone call.

Right now you maybe asking yourself…

  • How is this possible?
  • How does a seller take an $11,000 hit?
  • This is impossible right?
  • What is PDT, and how is it used?

To answer these questions is simple leverage the seller’s deadlines.

As investors we are aware of all the moving parts there are in a single transaction. We are aware of the ins and outs of the transaction but many sellers are not. By being informed you are in a position of authority and you must exercise this authority. By leveraging deadlines it places a sense of panic on the seller and makes him/her less likely to challenge you during negotiations.

Going Deeper

Alright lets go even deeper, if you don’t know there are 2 major times of negotiating when dealing with a seller. The first opportunity to negotiate is when you are putting in your initial offer.

Related: BP Podcast 077: Negotiating Your Way to 1000 Wholetail Real Estate Deals with Michael Quarles

Wholesalers love to get the property under contract at the magical number 70% of ARV minus fees, repairs, and holding cost. Which I agree that is the magic number however, this number should not be your initial offer. WHY? because you are less likely to get the property under contract if your not a great negotiator. Try offering something closer to 80%, this will show the seller that you are putting a good foot forward and you guys are not just hung-up on numbers.

WOW!!! is right 80% of ARV will never work for a wholesale deal, and you are absolutely right, this is when you start to leverage your deadlines.

Ok, normally you will immediately want to market the property because you are on a deadline with the inspection period, but you have to remember usually you are not working with someone that is savvy about real estate so you can have a lengthy IP.

Use the first 2 or 3 days to bring  ANY traffic through the house your plumber, roofer, your business partner ANYONE (and it would be good if the seller is home). When walking through with your contractor you can point out flaws in the roof line, or some other possible damage.

This strategically places doubt in the mind of the seller, and you are starting to initiate PDT. A day later you can call the seller and make them aware of some of the concerns and inform them that you will have other contractors coming through the property to look at the areas you are concerned with.

For those who may think this is not showing integrity, you are honestly showing the seller things that you have concerns with and you are evaluating the cost.

Once you have firmly set those concerns in the sellers mind then you can  begin to re- negotiate and drive the price down. The PDT begins to set in and you are able to lock the property up below your 70% ARV and get rid of it to one of your cash buyers.

Do you have some interesting strategies to get more out of every deal.

I shared a tool in my tool box can you share one of yours? We would love to hear examples of how you were able to turn a dud deal into a diamond winner.

Be sure to leave your comments below!