please help me find my MAO

[Rebecca Contreras]

ASKING price 154,000

repairs 35,000

ARV 240,000

WHOLESALE FEE 5,000

HELP DOES THIS EVEN MAKE SENSE HOW DO I FIND THE MAO

[Blake Dailey]

A general rule of thumb is the 70% rule. This rule says that you should take the ARV x 70% and then subtract out any repairs, and if you are wholesaling subtract that fee as well. A lot of flippers and rehabbers use the 70% rule as quick head math to see if the property is worth going forward with. If a house is going to be worth $100k fixed up, they will want to pay $70k minus the cost of repairs (generally). The actual analysis is more in depth, but it's a good way to see in the above scenario that if the house needs $20k of work and the sellers won't sell for anything less than $65k it's probably not a deal.

So let's look at the math in your scenario.

$240k x .7 = $168k (ARV x 70% rule)

$168k - $35k = $133k (70% of ARV - repairs)

$133k - $5k = $128k ($133k price - wholesale fee)

In this scenario $128k should be your maximum allowable offer, all things equal. With that being said, if you are just starting out, and especially in the current market, I would shoot for lower to have that downside protection and to be able to present a really good deal to the end buyer. Buyers are weary right now so you will want to present a solid deal.