Maximium Allowable Offer
How much should an investor offer to pay for a property? This is a question we get all the time and the obvious answer is 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.
We have 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 “Market Ready” 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.
