One of the trickier aspects of getting into wholesale real estate is, well…math.
You have to calculate the ARV and using that, you calculate the MAO for the BSE which nets you MCF, and a bunch of other acronyms that I may or may not have made up.
In reality though, figuring out the after renovation value (ARV) and the maximum allowable offer (MAO) is hard and can sometimes get people into trouble when figuring out the final costs.
The easiest way to come to the MAO is to realize that we here in the US have a variety of markets, which means not all markets require the same MAO.
I talk more about it in this video:
But for context, let’s talk about how you can easily figure out your MAO regardless of what market you’re in.
How to Calculate Your Real Estate MAO for Any Market
So before we start talking about how to calculate MAO, let’s first describe what an MAO is. What is the MAO?
The Max Allowable Offer is the highest purchase amount that can offer on a property, while still hitting your desired profit.
Now, the desired profit you want is really dependent on you and what you want to make on a deal and it even depends on the deal itself.
As you’ll note in the video, I’ll calculate my MAO depending on the market. Hot markets, areas that are growing in both population and job opportunities, will probably get higher ARVs than somewhere that’s not.
I hear you asking – Jamil, why do you keep saying ARV? This is about MAO!
Yes, however knowing the ARV is directly related to your MAO. There’s a very long and involved formula for calculating your MAO, but they’re just that.
Long and involved and doesn’t take into account the different aspects of the market, the situation a homeowner might be in, or the different areas of the country.
For instance, here in Phoenix, our flat percent is 70% of ARV, but that’s here. Somewhere that has lower demand, you’re ARV might be at 55%.
And when you know that percentage point, you can easily discover what your MAO would be.
But this is where new wholesalers get into the weeds – they’re so worried about trying to figure out the wholesale fee will be that they get stuck in the idea that they can’t change it.
That’s why I tell my Astro students not to get caught up in the complications of formulas or fees; you can definitely get a high fee, but our goal as wholesalers is to help people.
In fact, those big wholesale fees come from solving the pain points that a seller has when it comes to selling their house.
If you’re interested in learning more about where the hot markets are in your area or you’re ready to start doing some deals, come check out the Astro community!
My students and I are helping wholesalers just like you learn to find deals more effectively and efficiently, while also getting support when needed. Come do some deals with us!