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How much should an investor offer to pay for a property? As little as possible. But what is the MOST an investor should pay for a property? This question is either ignored by the seat of the pants investor or fretted over endlessly over by the investor unsure of their abilities and their numbers. Ron LeGrand has an easy answer. MAO. MAO stands for Maximum Allowable Offer. And the equation is easy to follow: Take the After Repair Value (ARV) and multiply that by 70%. Now subtract the estimated repairs needed to get the property into "tip-top" condition. MAO = 70%*ARV - Repairs Buying, Remodeling and Selling at MAO can net an investor between 15%-22% of ARV depending on their Remodeling skills and efficacy of their Sales operation. But MAO is not a guarantee a profit. What investors with experience know is that the formal definition of MAO is the following: The price at which an investor can reasonably expect to earn a decent profit and have only a minimal chance of losing money. Anything greater than MAO, will significantly increase the investor's chances of losing money, and make the payoff too low commensurate with the risk associated with a investment." If you are a Wholesaler, we recommend buying at no more than 65% of ARV, less repairs. If you have questions and would like more dedicated and one-on-one/small group education, we can set up live in-person or on-the-job learning sessions - upon request or at a regularly scheduled time. Related Articles -BASIC EDUCATION OVERVIEW - Basic Investing ARV - After Repair Value Birddogging Contract for Deed Dealing with Contractors Estimating Profits Evictions - A Primer Executory Contract Foreclosure Overview Foreclosure Types Overview Hard Money Loans - a/k/a Asset Based Lending* Lease Options Leverage MAO - Maximum Allowable Offer Multi-Family Investing Basics as Presented by David Lindahl on March 4, 2006 No-Money Down Real Estate Investing Options Part-Time v Full-time Passive Investing For Beginners Pre-Foreclosure Profit Calculation Remodeling for Beginners Rent vs Buy Is Really Rent vs Sell Seller Financing as Investor Buying Tool Skiptracing Subject To Wholesaling Return to Listing Return to Investor Education |
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