We probably answer this question for someone a couple of times weekly. The problem is that they don’t really have a good formulation for identifying the most they pay and still make money – so they’re scared to make any offer. The (MAO) Maximum Allowable Offer is calculated by first determining what the home will be worth after restoration – the ARV (After Repaired Value); less the rehabilitation dollars required; less the Buy/Sell/Hold (B/S/H) costs; less profit margins.
So, let’s break that down a little further. To look for the ARV, study comparable sales data. Yr Comparable sales are those properties that sold in the last 6 months to 1, and within ½ to 1 1 mile from the subject house. But other factors must be considered as well. The more characteristics between your properties that are similar, the more valid the info.
Make sure that the home itself is similar in square footage, baths and bedrooms, age, style, and structures. Don’t get worried about condition except as it will affect the quantity of rehabilitation dollars required. Next, look at the neighborhood and the individual road. Do they look the same? Or is the equivalent property on a lovely street, while the subject property is on a street riddled with vacant littered plenty and boarded up houses?
The point is to view the investment as your end home owner occupant will. 150,000 – which would they choose? The other house of course. This means your home is not well worth the same – it must sell for less to draw in a buyer. Rehab dollars change from renovator to renovator depending whether they do the task themselves, or use cheap subs, or use a pricey general service provider.
- Incremental risk of single exposure is small
- Personal Personal
- ► Sep 20 (1)
- Coins – (but there are exceptions for several cash),
- Business and product impact analysis
- Deduction from travel expenditures
- Define and provide a good example of visualization
- The business owes lenders for loans made and other obligations to pay for goods or services
The range of the work ought to be the same – it is whatever is required to make the investment appear to be the comparable houses (unless the plan is to market well under market value). We do not attempt to obtain every one of the various service provider bids whenever we are making offers. All the real offers would be sold before we’d ever come with an offer jointly!
Instead we’ve developed ranges of rehab dollars based on the entire condition of the house. Is it a precise science? No, but neither are the bids – there will be something skipped. So why not utilize a guide that is probably 90% accurate and allows for quick offers?
Buy/Sell/Hold costs include expenses such as appraisals, attorney fees, title search & name insurance, loan origination fees, debt service, resources, insurance, taxes, real property commissions, and closing fees paid on behalf of the end buyer. Again, these costs vary depending on each investor’s individual situation. In the Atlanta area, 15% of the ARV seems to be a good average allocation for B/S/H costs.
If you are the renovator, calculate your specific B/S/H costs, utilize that percentage for future offers then. Profit margins are the fun area of the equation. How much would you like to make? If you’re wholesaling the house, additionally you want to consider how much you should leave in the deal for the trader buyer to make the deal attractive. That’s it. That’s how you calculate the most you’ll pay for a house. But that isn’t what you ought to pay.
It is the maximum you’ll pay. It’s the deal-breaker. You shall not pay one penny over the MAO. Your discussions should lead you as below the MAO as you possibly can far. The difference in amounts is additional profit in your pocket. What you SHOULD pay is the minimum amount price below the MAO that the seller will accept.