MAO is the Maximum Allowable Cash Offer a Property Wholesaler or Rehabber Should Make
In Real Estate we make our profit when we buy, and collect that profit when we sell. Real Estate Investing can be fun and extremely profitable when you know how to do it right. But if you don't know what you're doing you could be in for a world of hurt.
If the property is a fixer upper, you need some way to calculate what the right price should be for your real estate investment. That's where the term Maximum Allowable Offer comes into play--your offer needs to be below this figure if you expect to be able to make a profit on the deal.
The MAO formula is a must, if your exit strategy is simply to buy fix and sell the property, flip the property, or flip the contract. So, in particular, this will apply especially for wholesalers and property rehabbers. Just remember, buying on price alone is not the only or even the best way to buy real estate.
On the other hand, if your interest is in commercial property I suggest you take a look here. You should probably take a look either way. Knowledge is power.
(image courtesy Roarofthefour's)
Great Books For Real Estate Investors
These books are worthy of your investment
Benefit from my experience. These books which I cover in this lens below are definitely worth your time and effort to read.
They are a small investment for your education that I think you will find pay many times over.
Before Seeking Private Money Read This!
Don't Get Crosswise With The SEC Or You Could Go To Jail
Money is the catalyst that makes cash offers possible. Even if you think you have plenty, sooner or later you're bound to run out. A pro makes contingency plans now.
Don't go to the bank, find out what private lending can do for you! Alan Cowgill is an acknowledged expert in the field.
Alan has some of the most extensive and complete information available. His website is not the most exciting to look at, but his material is top notch! Be sure to read through his offerings.
I've heard Alan speak twice and have some of his course material myself. For sure you'll want to know what he has to say about staying in good graces with the SEC.
Click the banner above to go to his website. Then come back and read on!
“I'll Bet You Thought MAO Was For Sandwiches! :p”
MAO is A Formula--Not a Condiment
I go into more detail about MAO and real estate investing for property cash flows on my blog for real estate investors.
In a nutshell the MAO formula is 70% of ARV minus repairs. Don't forget to add a little fudge factor. The ARV is After Repaired Value. More information on After Repaired Value on my blog as well :)
More on why MAO is so critical to your investment purchase can be found on EZineArticles.
“Figuring Out Your MAO Is A Three-Step Process. Step 1: Establish The ARV or After Repaired Value.”
ARV is the After Repaired Value of a Property--Not a Pirate Greeting!
The ARV or After Repaired Value is based on comparable sales. In other words, what price has recently been paid by the market for similar homes in the area, generally not in distress situations.
The comparable sales you are looking at need to be recent sales because real estate prices are fluid and established every day by the market.The less recent the sales you are looking at, the less reliable the price is an indicator of the current market.
Also bear in mind that all real estate is local--prices can vary greatly from one neighborhood to the next even though the houses might be similar! Therefore closer comps are more reliable comps.
The very best comps are from the same neighborhood as your subject property.
Your comps need to compare apples to apples. If the property you are looking at is a 4/3 with a two car garage then your comps also need to be 4/3s with a two car garage.
Establishing reliable comps is a skill that takes time to learn. I'm just giving you a bare overview here. Ask a realtor friend, they can give you a Broker's Price Opinion or hire an appraiser when you are first getting started.
“Step 2: Figure Out Your Estimated Repair Costs.”
You Need To Estimate The Cost of Repairs
Don't forget to add in a fudge factor here!
“Step 3: Plug The ARV and Estimated Repair Costs Into The Formula To Calculate Your MAO.”
Books I HIGHLY recommend
What You Need Is A Good System...
Real estate is a numbers game. It's critical that you have a proven system in place. Don't waste your time trying to reinvent the wheel.
The folks at Austin Davis claim to have just such a system, ready for you to get started.
I am providing a link here so you can take a look and see for yourself. I know they have a 60 day money back guarantee and plenty of information about their unique approach on their website.
To have a look, Click Here!
Join Your Local REIA
REIA stands for Real Estate Investors Association. It's a good idea to join your local REIA whether you are simply exploring the idea of investing in real estate or even if you are an old pro.
The reason is simple. REIAs are where other real estate investors hang out. There's no better place to learn about investing from the ground up. Plus, it's highly likely you'll make your first deal with someone you meet at your REIA.
In the US there is a National REIA which you can reference to find your local chapter. They also have other resources available online. Outside of the US you can probably find one via Google.
Most REIAs only cost a couple hundred dollars a year to join and will be some of the best money you ever spend.
One word of warning though. Think of a REIA as a pond. There are sharks that swim in that pond. Beware of people that want to "mentor" you for an exorbitantly high fee. While some of these people are worth it, most are not. So be careful. Join and get to know people first!
“Real Estate Investing Depends On Raising Money, But You Have To Be Extra Careful!”
How To Raise Money For Real Estate Investments
If You Want The Money This Is Important--Take Note
Banks are a dangerous place to get money for real estate deals. Private loans are much better, but you have to be careful and learn how to do it right.
Don't end up wearing an orange jumpsuit! There are rules and regulations that have to do with raising money. I'm serious! You do not want to risk a call from the SEC.
The best thing I can suggest to you is to get educated. You should at least get on a mailing list that's going to give you some basic information. It's easy to stay within the law once you learn how. (And It's just as easy to run afoul of the law when you don't know any better.)
There's one educator I can recommend here simply because I've been to his workshops and know first hand that he runs a quality program. His name is Alan Cowgill.
Click Here and take a look at what Alan has to say about raising money. I think he has a free series of articles you can subscribe to. Alan is the real deal.
A Little About Me
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Do You Know How To Make An Offer on Investment Property Now?
If so, go out there and build your empire! But first, please share your thoughts on this lens!
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sellhousefastusa
Mar 12, 2012 @ 5:10 pm | delete
- Important info for beginner investors !
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DeannaDiaz
Jan 20, 2012 @ 12:37 pm | delete
- Great information!
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tnsurge
Dec 29, 2011 @ 11:31 pm | delete
- Thanks...especially for the SEC information
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Chris-H
Dec 30, 2011 @ 3:18 pm | delete
- You are welcome. :)
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bloomingrose
Nov 19, 2011 @ 9:47 pm | delete
- I'm game! And at this point it will have to be some one elses money to invest :)
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Chris-H
Dad, Entrepreneur, Poet, Philosopher, Author, Real Estate Investor, Blackbelt, Student and Teacher.
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