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Determine the After Repair Value (ARV)
First, estimate the value of the property after renovation. This can be done by researching comparable properties in the area or getting an appraisal. For example, let's say the ARV is $200,000.
Calculate 70% of the ARV
Next, calculate 70% of the ARV. This can be done by multiplying the ARV by 0.7. Using the example from step 1, 70% of $200,000 is $140,000.
Determine the Rehab Cost
Estimate the cost of renovating the property. This can include costs such as labor, materials, and permits. For example, let's say the rehab cost is $30,000.
Calculate the Maximum Allowable Offer (MAO)
Finally, calculate the MAO by subtracting the rehab cost from 70% of the ARV. Using the examples from steps 2 and 3, the MAO would be $140,000 - $30,000 = $110,000.
Consider Desired Profit
If you want to include your desired profit in the calculation, you can subtract your desired profit from the MAO. For example, if you want to make a $10,000 profit, your offer would be $110,000 - $10,000 = $100,000.
Using the Calculator for Convenience
While it's essential to understand the manual calculation, using a wholesale calculator can save you time and reduce errors. Simply enter the ARV, rehab cost, and desired profit, and the calculator will give you the MAO.
Introduction to Wholesale Real Estate Calculations
The Maximum Allowable Offer (MAO) is a crucial calculation in wholesale real estate that helps investors determine the highest price they can offer for a property. The 70% rule is a widely used formula to calculate the MAO. In this guide, we will walk you through the steps to calculate the MAO manually and understand the underlying formula.
Understanding the 70% Rule Formula
The 70% rule formula is: MAO = (ARV x 0.7) - Rehab Cost Where:
- MAO = Maximum Allowable Offer
- ARV = After Repair Value (the estimated value of the property after renovation)
- Rehab Cost = the cost of renovating the property
Step-by-Step Guide to Calculating MAO
To calculate the MAO, follow these steps: