Posted by bobnone | Posted in Home Buying & Real Estate | Posted on 20-08-2010
Tags: best real estate investment books, business, finance, investing, real estate investment books, realestate, real_estate, top 10 real estate investment books, top real estate investment books
Real Estate Investment Books ~~ Home & Real Estate Matters ~~
MAO is the “maximum allowable offer” that an investor should make on a property. The calculation is either 65% or 70% of the after repair value (ARV) less repairs and other costs. The MAO formula calculates an offer price that should allow an investor to make a profit while reducing the chance of losing money on the deal. This formula is mainly used for an all cash offer on a property that the investor intends to flip.
MAO = 70% * ARV – repairs – other costs
The range used in the calculation accounts for the investor’s skill in successfully completing a rehab project. Beginning investors should use 65% while more established investors can use 70% in their MAO calculation.
In order to be successful in flipping properties, there are two crucial costs an investor must be able to calculate: the ARV and the rehab cost. The ARV should be based on comparable sales in the neighborhood and/or the use of an appraisal. Comparable sales should be within the prior six months. Investors who do not have access to comparable sales should enlist the service of a real estate agent who can provide this data. This agent should be the same agent the investor will use when they are ready to list the property for sale.
The second critical cost is the estimate for the rehab. New investors can solicit three bids from contractors. The average of these bids will provide a reasonable expectation of the cost that can be used in the MAO calculation. Experienced investors are usually able to estimate rehab costs without getting bids from contractors. Regardless of the percentage used in the calculation, the investor should always pad their rehab estimate by 10% to allow for unforeseen repairs and potential cost overruns. The ARV should include the potential commission paid to the real estate agent. Most investors will list a property at 3-5% below market price to attract a quick sale.
Let’s look at an example of calculating MAO.
Investor finds a house that is in need of repairs. Recent sales in the area range from $96,000 to $102,000. The rehab estimate is $12,000. Real estate commission is 6% of the selling price.
ARV $100,000 70% of ARV $70,000 Less Rehab cost ($12,000) MAO $58,000
In the above example the investor can expect to sell the property at a 5% discount of the ARV for a quick sale or $95,000. From this selling price the investor can expect to pay 6% in real estate agent commissions. The net cash to the investor would be $89,300. When you subtract $70,000 (purchase price plus the rehab cost), the investor can expect to make a profit of approximately $20,000.
While using the MAO formula is not a guarantee of making a profit, investors who utilize the formula can reasonably expect to realize a profit between 15% and 25% of the ARV.
There are many ways to make a fortune investing in real estate. For more information about real estate investing visit my website at InvestInRealEstate101.
For access to three of the greatest books every written on personal development visit Your Free Gifts.
Real Estate Investing Books – Free Ebook- Find Private Lenders
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Houses On Parade Paperback Book Michael Young Real Estate Architecture Home Deco $29.95 |
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Be a Real Estate Millionaire: Secret Strategies for Lifetime Wealth Today by… $5.00 |
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1.1 CARAT PRINCESS SHAPE REAL DIAMOND ANNIVERSARY ESTATE RING 18K WHITE GOLD SI $3,078.00 |
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Old 1959 Honolulu Advertiser – HAWAII STATEHOOD 300+ Pages – REAL ESTATE FASHION $124.99 |
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New York Real Estate for Brokers by Marcia Darvin Spada (2008, Paperback) $40.00 |
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(SIGNED) GRAHAM WHITE Relax and Sell More Real Estate 1986 SC Collectible Bo $16.23 |
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! FAST 2DAY UPS ! INVESTING IN REAL ESTATE GARY W ELDRED $12.98 |
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ALAN J FALKSON Investing in Real Estate on a Budget 1992 SC Biography Book $10.79 |
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GRAHAM WHITE Relax and Sell More Real Estate 1986 SC Book $16.23 |
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Real Estate Math: Explanations, Problems and Solutions $65.49 |
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Rise of the Community Builders: The American Real Estate Industry and Urban Land $12.94 |
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Modern Real Estate Practice by Fillmore W. Galaty, Robert C. Kyle, Wellington… $25.00 |
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TONY HOFFMAN How to Negotiate Successfully in Real Estate 1984 HCDJ Book $16.23 |
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2011 REAL ESTATE HOME INSPECTION TEST CD INSPECTOR EXAM $2.99 |
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Find It, Fix It, Flip It!: Make Millions in Real Estate–One House at a Time, Mi $53.96 |
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Real Estate Finance & Investments (Real Estate Finance $108.98 |
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How to Buy Your First Home or Investment Property with No Down Payment (DVD only) $5.00 The No Down Payment program materials are designed to teach you step-by-step how to implement the investment techniques developed by Carleton Sheets…. |
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How to Skyrocket Your Profits with Distressed and Foreclosure Properties $0.85 Learn over 30 simple techniques to make any property more valuable — and produce even greater profits. You’ll learn how to: ? Make repairs that create value |
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Quicken Rental Property Manager 2011 – [Old Version] $59.96 Quicken Rental Property Manager 2011 includes all of the features found in Quicken Home & Business, plus smart tools for managing your rental properties. Always know how your home-based business is doing. Helps maximize deductions and simplify your taxes. Manage Your Personal, Business, and Rental Property Finances in One Place Organizes Your Finances All in One Plac… |
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