What is your Maximum Allowable Offer (MAO)?

I always get asked from my coaching students what they should offer for a property.  The answer is, “it depends”: sounds like an attorney doesn’t it?

Well the truth is, what you offer for a property can vary depending on your exit strategy.  Exit strategy is what you plan to do with the property.  For example, suppose a property has an After Repair Value (ARV) of $100,000 and needs $15,000 in repairs.  What is the Maximum Allowable Offer (MAO) for the following exit strategies: Wholesaling, Rehab and Flip, Buy and Hold.

Wholesale:

If you are going to wholesale the property determine at what percentage of ARV the investors who might be interested in the property want to buy it at.  Usually this is 65-75% of ARV.  In this example we will use 65% or $65,000.  Then we need to subtract the repairs of $15,000 so now we are at $50,000.  Finally we need to subtract the wholesaling fee you want to earn, say $5,000.

This would give you a Maximum Allowable Offer of $45,000.  I would not start there. I would start at least 10% lower unless competition for this property was pretty stiff.  If you get it lower, that’s great, you can increase your wholesaling fee.  If you can’t get it that low then you have some room to come up.

Rehab and Flip:

If you are going to rehab the property then you don’t need to subtract the wholesaling fee so you can offer a little more, perhaps $50,000 as an MAO.

Buy and Hold:

If you are going to buy the property, fix it up, and then hold it for rental or personal use you wouldn’t need to figure in the selling costs so you should be able to offer an additional 8 – 10% so $55,000 would be your MAO.

In summary, knowing where you are going is important when competing for a home and understanding what your MAO is is critical to not letting emotion get you into a property too deep.

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One Response to “What is your Maximum Allowable Offer (MAO)?”

  1. Very helpful information. My husband and I are thinking of buying and selling, the more we learn the wiser we become.